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CC | Policy actions needed to reduce vulnerability to external shocks in Curaçao and Sint Maarten

HomeLandenCuraçaoCC | Policy actions needed to reduce vulnerability to external shocks in...

Given their small size and high degree of openness

Persbureau Curacao

WILLEMSTAD, PHILIPSBURG – “As small and open economies, Curaçao and Sint Maarten are vulnerable to external shocks. The effects of external shocks on the monetary union are reflected in, among other things, fluctuations in our balance of payments”, stated president of the Centrale Bank van Curaçao en Sint Maarten (CBCS), Richard Doornbosch, in the CBCS’s September 2023 Economic Bulletin.

This edition of the Economic Bulletin highlights the monetary union’s vulnerability to shocks with a textbox on the effect of NAf.- Euro exchange rate fluctuations on trade flows. In addition, the Economic Bulletin includes a feature article with a brief comparative analysis of key social and macroeconomic indicators of Dutch Sint Maarten and French Saint Martin.

“Over the past years, several shocks have negatively impacted the current account of the balance of payments, of which the COVID-19 pandemic and the surge in international commodity prices, particularly oil prices, were the most severe. These shocks further widened the already large and persistent current account deficit. In addition, as presented in the textbox, a strong appreciation of the dollar vis-à-vis the euro may also adversely impact the current account given the relatively strong trade relation, particularly of Curaçao, with the Netherlands,” Doornbosch explained. He cautioned that “a persistent high deficit on the current account is, however, not sustainable.”

The policy agenda to bring the current account deficit to a more sustainable level should focus primarily on structural measures as monetary policy actions are rather limited due to the peg to the U.S. dollar. “Through an outward-looking orientation that is primarily focused on exports, our countries and, hence, the monetary union will be better equipped to deal with external shocks. Among other things, both countries should diversify their exports”, Doornbosch recommended.

“Even within the tourism sector, that is currently the main economic pillar for both countries, Curaçao and Sint Maarten could diversify. The current efforts of Curaçao to attract more visitors from North and South America are in this regard a step in the right direction”, he continued. He also argued that “to reduce the exposure to commodity price shocks, particularly oil shocks, the countries should invest more in the use of renewable sources of energy of which both Curaçao and Sint Maarten are amply endowed with, i.e., wind, sun, and sea”. “Through creating a more attractive investment climate, including targeted incentives, more foreign and local businesses could be stimulated to invest in renewable energy solutions”, he stated.

The implications of a high degree of openness are even more apparent in Sint Maarten because of its open border with French Saint Martin. As shown in this Economic Bulletin’s feature article, a first glimpse at the available data suggests that while economic growth moves in tandem in both parts of the island, Sint Maarten seems to be the economic driver. However, the open and highly fluid border poses the challenge of accurately measuring economic and social indicators, given small island constraints.

“To address this challenge, the CBCS has started to collaborate with the d’Émission des Départements d’Outre-Mer (IEDOM), a branch of the French central bank, by sharing data, statistics, and analyses to obtain a better understanding of the economic relationship and interdependence between the two sides”, Doornbosch explained. “This will help reduce the chance that policy measures introduced at either side of the island turn out to be counterproductive and even create possibilities for concerted policy coordination to increase implementation effectiveness”, he concluded.

Bron: Daily Herald

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