F INANCIAL S UPERVISION IN C URACAO AND THE E URO A REA : W HAT CAN WE L EARN FROM E ACH O THER ?...
19
FINANCIAL SUPERVISION IN CURACAO AND THE EURO AREA: WHAT CAN WE LEARN FROM EACH OTHER? Age Bakker, Vrije Universiteit, Cft University of the Netherlands Antilles, January 28, 2013 C o l l e g e f i n a n c i e e l t o e z i c h t 1
-
Upload
lily-powers -
Category
Documents
-
view
213 -
download
1
Transcript of F INANCIAL S UPERVISION IN C URACAO AND THE E URO A REA : W HAT CAN WE L EARN FROM E ACH O THER ?...
FINANCIAL SUPERVISION IN CURACAO AND THE EURO AREA:WHAT CAN WE LEARN FROM EACH OTHER?
Age Bakker, Vrije Universiteit, Cft
University of the Netherlands Antilles, January 28, 2013
Co
lleg
e fin
an
ciee
l toe
zicht
1
INTRODUCTION
Curacao faces huge budgetary challenges
In this Curacao is not alone fiscal cliff in the US sovereign debt crisis in Europe Greek drama severe budgetary cuts in the Netherlands
2
Co
lleg
e fin
an
ciee
l toe
zicht
THE VIEW OF THE CREDIT RATING AGENCIES
AAA Finland, Germany, Netherlands AA Austria, Belgium, France, USA,
Bermuda A Trinidad and Tobago A- Aruba, Brazil, Curaçao, Mexico
BBB Ireland, Italy, Spain BB Portugal, Suriname, Barbados B Greece
3
Co
lleg
e fin
an
ciee
l toe
zicht
INTRODUCTION
Similar reasons for budgetary challenges
The worldwide economic crisis hits everybody
Life expectancy is increasing, population is greying
Health costs are soaring due to technological progress
In a global economy investors demand a prudent and predictable budgetary policy 4
Co
lleg
e fin
an
ciee
l toe
zicht
CURACAO FOLLOWS THE TREND
Since 10-10-10 large fiscal deficits increasing from 5% of GDP in 2011 for the
collective sector to 9% of GDP in 2015 if nothing is done
reserve position is depleted; threat of payment arrears
Same trends Low economic growth Greying of population Soaring health costs
5
Co
lleg
e fin
an
ciee
l toe
zicht
ECONOMIC GROWTH (GDP)
6
Co
lleg
e fin
an
ciee
l toe
zicht
2001 2005 2010 2015
-6
-4
-2
0
2
4
6
8
Reele groei CuracaoMondiale groeiHoogontwikkelde EconomienLatijns Amerika/Car. Gebied
Source: IMF, Central Bank for Curacao and Sint Maarten, budget 2013 Curacao
POPULATION IS GETTING OLDER
7
Co
lleg
e fin
an
ciee
l toe
zicht
1960 1972 1981 1992 2001 2011 20220
20
40
60
80
100
120
65+15-650-14
Source: CBS Curacao, census 2011.
HEALTH CARE COSTS IN PERSPECTIVE
8
Co
lleg
e fin
an
ciee
l toe
zicht
USA
Curacao
Nederland
Duitsland
Colombia
0 2 4 6 8 10 12 14 16 18 20
Source: Volksgezondheidsinstituut Curacao, Zorgrekeningen 2008-2011, december 2012
COMPARE THE SITUATION IN EUROPE
The single currency needed comparable economic fundamentals in EU-countries
The Treaty of Maastricht set criteria for countries who wanted to join the Euro … criteria for government debt, deficits and
inflation
… because once the exchange rate is gone, there would is no other mechanism to correct for external shocks
9
Co
lleg
e fin
an
ciee
l toe
zicht
MAJOR FLAWS IN MAASTRICHT TREATY
The weakness of the ‘E’ of EMU no binding economic policy coordination no supranational fiscal authority limited power of Commission and European
Parliament
The weakness of financial supervision Obligations formulated ‘as a rule’ Ministers of Finance themselves decide on
compliance with obligations and on sanctions
10
Co
lleg
e fin
an
ciee
l toe
zicht
MAIN IMPROVEMENTS
More automaticity in sanctions Including fines for incomplete or incorrect data
Rejection of Commission proposals only possible with very large majority No longer veto for combination of large countries Commissioner Rehn is ‘super’ euro minister
Medium term budgetary objectives (MTO) Surpluses in good times
11
Co
lleg
e fin
an
ciee
l toe
zicht
LEGAL FRAMEWORK
Kingdom law
Staatsregeling and Landsverordening
Treaty
Stability and Growth Pact
Balanced budget rule in national law?
Curacao Euro Area
Co
lleg
e fin
an
ciee
l toe
zicht
12
SUPERVISORY AUTHORITY
Rijksministerraad (RMR)
Cft Advisory power
Council of Ministers
European Commission Advisory power Sanctions power
Curacao Euro Area
Co
lleg
e fin
an
ciee
l toe
zicht
13
NORMS AND DATA VERIFICATION
Golden rule Current budget 0% Borrow for capital
expenditures
CBS
Two norms Total budget ≤ 3% Government debt ≤
60%
CBS-type institutions
Eurostat for verification
Curacao Euro Area
Co
lleg
e fin
an
ciee
l toe
zicht
14
PREVENTIVE ARM
Positive advice Cft on balanced budget
Budget needs to be multiannually balanced
Uitvoeringsrapportages
Positive advice Commission on budget
Multiannual sustainability check
Early warnings
Curacao Euro area
Co
lleg
e fin
an
ciee
l toe
zicht
15
CORRECTIVE ARM
Advice by Cft on supplementary budget
Compensation of deficits in 3 years
Instruction by RMR
Advice by Commission on supplementary budget
Sanctions and cuts on European funds
Curacao Euro area
Co
lleg
e fin
an
ciee
l toe
zicht
16
WHAT HAVE WE LEARNED?
1. Supervision needs to be independent
2. Quality and completeness of information is key
3. Supervision has to be on a broad collective sector basis, including social funds
4. Use independent forecast of economic growth
5. There needs to be a credible threat of sanctions
17
Co
lleg
e fin
an
ciee
l toe
zicht
RESTORING A BALANCED BUDGET
Budget 2013 foresees balanced budget through: Introduction health insurance (basisverzekering) Increase of retirement age Tax measures and expenditure savings
Implementation is key
18
Co
lleg
e fin
an
ciee
l toe
zicht
A NEW START
Once fiscal order is restored, Curacao is well placed to resume growth Healthy, well-capitalized and liquid financial
sector Debt levels relatively low at 35% of GDP
Once budget is balanced, government can borrow for capital expenditures for infrastructure Low interest rate due to triple A status
Netherlands
Trust in government is key Independent financial supervision is a strength
19
Co
lleg
e fin
an
ciee
l toe
zicht
