The nasty falling out among the members of the Boards of financial supervision (CFT) regarding Curaçao’s request for financial assistance boils down to one question. Will we regret not sticking to our previous commitments which according to the chairman of the CFT are carved in stone, or will we regret the death of many people and companies? It’s pretty obvious what the worst-case scenario is. We’re dealing with pandemic economics not ordinary economics.
People need money, or they will die. Companies need cash, or they’ll go bankrupt. If we don’t invest in health security policies, including mental health, we’ll soon realize that many social issues we’re dealing with will linger long after this pandemic is over. The new rules of pandemic economics are meant to keep us afloat during a few months, not years. Having established that, let’s turn to the merits of the plans that have recently been presented by the Government of Curaçao (GoC).
What will make or break any stimulus (aid) package is how well we target those who are the most vulnerable. If not, funds can be misallocated, or lost through corruption and all kind of technical bureaucracy. The GoC’s emergency fund needs a clearly defined role otherwise thousands of people who most urgently need it, risk being excluded. We need relevant data (which at best are mediocre), we need transparency, efficient execution, and quantifiable benchmarks. This may be a hard task -far harder than writing a cheque, but it’s the surest way to target the needy. Additionally, it’s very important that Parliament creates a temporary committee (assisted by external experts) with the authority to oversee the execution of the stimulus package.
I strongly advise against government(entities) and civil servants that don’t have relevant experience, administering loans to small enterprises. Instead, I propose the following. These businesses should be able to go to their own banks, take out a much bigger loan than under normal circumstances or refinance existing loans at a very low interest which the GoC then ensures hundred percent.
Banks (which we know are highly liquid) could immediately extend the loan with a government guarantee. The loan would be for a long time and it would enable businesses to lower operating costs, to pay employees and bills and make investment possible. Businesses won’t be starved for cash after two or three months. If we allow small businesses to fail en masse, the damage will spread quickly throughout the economy. They won’t be able to pay their debts which will cause banks to suffer catastrophic losses. In that scenario nobody would want to lend anybody money.
The GoC has put the economy into an artificial coma to save lives. Now it must keep the patient alive. The question is whether we can sustain the recovery after the stimulus measures come to an end. According to ordinary economics, weak economic structures will make it less likely that any stimulus package will enable smooth riding once the economic lights are switched on again. Let’s be honest, even before covid 19 Curaçao’s economy was struggling. Mainly because we’ve failed over the past three decades to implement a structural package of policies to modernize our economic fundaments and make them more flexible in order to maximize the huge potentials of global trade. We need to address these issues pronto and for real this time.
For the time being we need to realize that there’s no such thing as an ordinary economy until covid 19 is contained via physical distancing and simple hygiene. But if we can’t contain the virus, we might not have anything normal to return to. The stimulus is an important emergency measure, but without real changes, our economic performance won’t be improved.
Alex David Rosaria (50) is from Curaçao and has a MBA from the University of Iowa. He is a former Member of Parliament, Minister of Economic Affairs, State Secretary of Finance and UN Implementation Officer in Africa and Central America.
