Update Country Report Curaçao 16 Jul 2021

Event

The administration of the new prime minister, Gilmar Pisas, has begun discussions with the Netherlands about revising the terms of a financing deal agreed under the previous government. Prolonged negotiations would delay the receipt of financing from the Netherlands, raising fiscal pressures.

Analysis

Mr Pisas has long criticised the deal with the Netherlands that was struck under the former government, led by Eugene Rhuggenaath (2017-21), viewing it as an infringement of Curaçao's sovereignty. In particular, Mr Pisas has objected to the establishment of the Caribisch Orgaan voor Hervorming en Ontwikkeling (COHO, a Caribbean reform and development body) to oversee and monitor the use of Dutch funds.

Although Mr Pisas initially declared that his government would abandon COHO entirely and instead seek a monitoring arrangement with the IMF, his rhetoric has shifted since winning the March general election. His government is now seeking to modify the COHO set-up, proposing that an international member be appointed to the board, in addition to representatives from Curaçao and the Netherlands. The finance minister, Javier Silvania, suggested that this international representative could be from the IMF, although it is unclear whether the Fund has been formally approached.

It is likely that this policy shift has been driven by the prime minister's recognition of the importance of Dutch financing in supporting the health of Curaçao's public finances. In late June Mr Silvania warned that the country did not have enough revenue to meet its July spending commitments, including remuneration of civil servants and social spending.

There is therefore considerable pressure on Mr Pisas to reach a new deal on COHO, especially as the Netherlands has delayed the disbursement of a sixth tranche of liquidity support worth Naf168m (US$94m). On July 15th the Dutch undersecretary of kingdom relations, Raymond Knops, announced that Curaçao had met the conditions to receive the first portion of the tranche (Naf75.5m), but that the remainder would be disbursed once a modified deal regarding COHO had been struck. We believe that a revised deal is likely to include only cosmetic changes, but we expect Mr Pisas to agree to it in order to maintain crucial financing support.

Impact on the forecast

A delay in disbursements of Dutch financial support will impede Curaçao's ability to undertake countercyclical fiscal measures in order to revive the economy. We had already priced this into our baseline assumption, and our economic forecasts therefore remain unchanged.