Update Country Report Curaçao 25 Oct 2017

Event

In mid-October, the ministers of both Curaçao and Sint Maarten approved a recommendation from the supervisory board of the Centrale Bank van Curaçao en Sint Maarten (CBCS, the two territories' joint central bank) to dismiss the president of the CBCS, Emsley Tromp. With three new directors due to be nominated to the CBCS board by the end of October, a new president is expected to be selected by early 2018.

Analysis

The CBCS is headed by the central bank president, and the supervisory board is comprised of six members. Mr Tromp is currently suspended following the formal announcement in May that he is being prosecuted for tax evasion. Mr Tromp has denied these charges and stated that he will defend himself at trial. Alberto Romero, the financial-economic director of the bank, is currently acting as president of the bank but is expected to retire in November. There has been some delay in appointing the new directors, as the previous board did not go through a screening process following their nominations. However, given the reputational risk posed by the tax charges against Mr Tromp, the authorities in Curaçao and Sint Maarten have agreed that screening should be carried out to ensure that there is renewed public trust in the institution. According to local press, two of the nominees are Leila Matroos-Lasten and José Jardim.

The upheavals at the CBCS coincide with a visit in early October by the Netherlands' College Financieel Toezicht (CFT, the public-sector financial supervision council) to Curaçao assess the central bank's progress in meeting the economic goals of the 2017 budget (the CFT did not visit Sint Maarten owing to the reconstruction efforts from hurricanes Irma and Maria under way in that country). Following the visit, the CFT warned that greater expenditure than anticipated is likely to push the Curaçao budget into deficit by the end of 2017, and also cautioned that GDP may contract in 2017 (contrary to our estimate for 0.2% GDP growth for the year). We expect the new CBCS leadership to be in place by early 2018, restoring some stability to monetary policy. In particular, we expect reforms to take place to improve monetary policy transmission mechanisms, which have traditionally been weak.

Impact on the forecast

The change in leadership and the associated changes in the functioning of the CBCS are consistent with our forecast that the CBCS will undergo modernisation in 2018-19, in line with suggestions from the CFT.