WILLEMSTAD — President-director Emsley Tromp of the Bank of the Netherlands Antilles (BNA) warns against making incorrect comparisons in the discussion on the choice of dollarization for the new country Curaçao
An accurate consideration of facts and developments is of the utmost importance in making a wise, durable choice.
"The impression is wrongly conveyed that we need to make a choice to keep the Antillean guilder, or switch to the dollar", said Tromp. "The choice for a self-governing Curaçao in the Kingdom actually already implies a farewell of the Antillean guilder. The monetary unit, which the new countries Curaçao and St. Maarten will be sharing, will have a smaller economical basis than the current guilder. It is exactly this more vulnerable unit, which should be compared with the American dollar. In that comparison, we should also consider that our small, open economy has not developed in such a manner that it could intercept international fluctuations or crises. Tromp further emphasizes that we must not forget the deficit on our balance of payments". He has pointed out several times that if an international financial crisis such as the current one is repeated, there is no way out for País Kòrsou with its vulnerable economy and without the Netherlands, contributing many millions as they have now done with amongst others the debt reconstruction.
Temporary price control
Tromp is of the opinion that the risk of ‘price hikes’ is no reason not to choose for dollarization. According to him, the problem should be faced up to, and be dealt with by an adequate policy. "There is always a risk that the commerce takes advantage of certain situations. That appeared from last year’s developments on the local real estate market. That danger will also subside if one switches to the dollar. However, instead of turning your back on that ‘dollarization-lion’ and letting it sleep, one should take measures to prevent the price hikes." Tromp refers to the statement made by party-leader Charles Cooper of the MAN in the Island Council, that ‘the lion is best left sleeping so that it will not bite with price hikes or other forms of inflation or spending power’. "Tromp indicates that ‘he is a supporter of the free market process", but the market could fail at times. For example, various consumer prices increased when the price of petroleum increased on the world market. It was a remarkable that the fuel and utility products prices decreased when the petroleum price declined. What was happening with all the other products that were not becoming cheaper? That was market failure. In such a case, the government must take corrective measures. That’s why regulatory boards exist, amongst others. I think that during a certain period, we should consider deploying price controls whilst switching to dollars. Generally, I am against the aforementioned, but in such a situation, this could offer a temporary protection against market failures. A healthy market leads to competition and fair prices", said the BNA-executive. He is convinced that Curaçao has sufficient means, instruments, and human strength for such a temporary corrective measure.
Tromp considers the suggestion that Aruba would be an example of small, open economy, which survives with its own monetary unit on a small economical basis, and that Curaçao should therefore keep its monetary unit, as complacent – a resigned, non-proactive interference. In this, he sides with the old army boss of the United States Colin Powell, who – when defending American international armed interventions – once mentioned that the expression ‘if it ain’t broke, why try to fix it’, was the motto of "those that are resigned, arrogant or afraid; it is an excuse for inactivity."
According to Tromp, the correct question in the current dollarization matter ‘what if…?’ is "Are we be prepared if a new crisis occurs? It is not the central bank’s task to be popular. We should think ahead. If the matter goes wrong, everyone will cry out "Why didn’t the BNA warn us?" We must not rest on our laurels because the foreign currency reserve is currently high and the Antillean government’s budget is reasonably under control. It is exactly such an attitude that led everyone to be surprised about the international financial crisis. Being prepared is absolutely essential – one doesn’t state ‘I’m not going to build any dams because there is no flooding yet’?"