Update Country Report Curaçao 20 Jun 2019

Event

On June 13th the Supervisory Board of the Central Bank of Curaçao and Sint Maarten (CBCS) announced the appointment of its new president, a former IMF official, Bob Traa. After 18 months without a permanent president for the bank, Mr Traa will replace the acting president, Leila Matroos-Lasten.

Analysis

Mr Traa's appointment remains subject to the approval of Curaçao and Sint Maarten, but his appointment brings an end to a period of uncertainty around the leadership of the bank. The ambiguity surrounding the length of Ms Matroos-Lasten's tenure, which began at the onset of the hurricane-induced fiscal crisis in Sint Maarten and economic contraction in Curaçao, meant that few major policy decisions were made. Furthermore, Ms Matroos-Lasten had replaced a former central bank president, Emsley Tromp, who was dismissed in October 2017 amid allegations of tax evasion. Even though Mr Tromp was subsequently acquitted in two trials and is currently appealing his case in the Netherlands, his departure tarnished the reputation of the CBCS.

The internal challenges of the CBCS compounded the economic problems facing both countries. In particular, the CBCS has cited concerns about Curaçao's current-account deficit, estimated at over 20% of GDP, and excess liquidity in the banking system. At the same time, the CBCS has noted that risks to Sint Maarten's recovery from the 2017 Hurricane Irma are tilted to the downside. Amid such pressures, the central bank has requested technical assistance from the IMF in improving fiscal management and supporting economic development.

These concerns may have driven the appointment of Mr Traa, who worked at the IMF for 34 years and is highly familiar with its policies and methodology, as well as in maintaining good contacts with the Fund. He will be the key liaison point between the CBCS and the Fund, helping to translate technical advice from the IMF into implementation in the islands. The CBCS appointment announcement specifically referenced Mr Traa's expertise in correspondent banking, indicating that maintaining and growing correspondent banking arrangements will be a key policy focus. Several correspondent banks have withdrawn from the Caribbean in recent years as part of global de-risking initiatives, reducing financing opportunities for those islands affected.

Impact on the forecast

We expect that the appointment of Mr Traa will improve the reputation of the CBCS and augur prudent monetary policy amid downside risks to the recoveries of Curaçao and Sint Maarten.