The financial situation of Aruba and the role of financial supervision
prof. dr. Age Bakker
University of Aruba, February 27, 2015
It is a great pleasure to be here and it is a great honor to present a guest lecture at the University of
Aruba. This is not my first time here. As far back as 1992, 23 years ago, I also gave a lecture at this
University, about economic and monetary integration in Europe. Today my lecture will be to give an
outsider perspective on the financial situation of Aruba and the role supervision can play.
I am sure these subjects, coming from me, won’t come as a total surprise. These are subjects that, as
you all know, have received considerable attention, in the media, in the political debate, but also on
the streets and at work in Aruba. This lecture reflects the dual role the Cft plays in the Kingdom. As a
supervisor, but also as an advisor. An advisor that can give an independent and outside perspective.
Just recently the IMF also gave an outsider perspective on Aruban policies. I have read the report
with great interest since the IMF is also an independent advisor; an advisor I value strongly.
The government of Aruba, together with the social partners in a social dialogue, has developed an
appealing perspective for the future of the economy. Yet, at the same time it faces some difficult
challenges concerning the budget. In the face of a mounting debt burden, confidence in the
economy needs to be restored. The main challenge the government faces right now is finding the
right balance between economic reforms and stable government finance.
Among those economic reforms, which inside and outside observers have suggested, are improving
the flexibility of the labor market, reducing the costs of doing business, passing entitlement reforms
and reducing the number of public servants. This is quite an agenda, certainly when one considers
that plans to boost the renewable energy sector are awaiting execution as well. This is also the
advice the IMF gave just two weeks ago. It implies an enormous job for the government, but I
believe it can be done as it is also on the agenda of many other countries.
As to the challenge to stabilize government finance, Aruba is neither alone. Actually, all countries
within the Kingdom are facing the challenge to get their budget balanced. Budgetary challenges are
a global phenomenon, but there seem to be two schools of thought how to address them. One
school of thought calls for the reduction of budgetary deficits as soon as possible, even at the
expense of temporary lower economic growth. The other school proposes the opposite, i.e. to
increase fiscal deficits. The expectation is that this will stimulate economic growth which in turn will
bring the budget back into balance. Although these are extremes and actual policies are more
middle of the road, it is fair to say that Aruba by and large has chosen the latter path.
Over the past four years the fiscal deficit of Aruba has increased substantially; the average deficit
over the period 2011-2014 was 8.4% of GDP. Average real economic growth over the same period
was 2.2% annually. Even with this relatively satisfactory level of economic growth it could not be
avoided that government debt surged to 80% of GDP.
How should one judge these developments? I believe it would be good to look at the economic
situation of Aruba and the government’s financial position from the perspective of the structural
