New Central Bank has reputation risk

July 27, 2010 1:47 PM

During the presentation of the annual report on 2009 by Central Bank of the Netherlands Antilles, President-Director Emsley Tromp emphasised that the new Central Bank, which the future countries Curaçao and St. Maarten will have jointly, must be provided with all essentials to function optimally.

With an incomplete armamentarium, this important entity will encounter a "reputation risk" -the risk that a good reputation on which creditability and authority is based changes into a bad reputation- because the supervisor is blamed for undesired developments and results, even if its functioning was restricted due to lacking legislation. Tromp pointed to the necessity of adequate legal instruments to act quickly and effectively when supervising if such is necessary.

Choosing his words carefully, he stated that for example one should avoid that the legislation in one of the two countries lags behind that in the other country. Otherwise, there will be disparity that could lead to the new Central Bank being able to take action in the one country, while such is not possible in the other.

In this, one could think of for example budgetary discipline: "The lesson we learn from Greece is that careful coordination over budgets is necessary in order to prevent chaos," said Tromp.

He reminded his audience that the European Union (EU) and the International Monetary Fund (IMF) had to take powerful and concrete action to convince relevant actors that they could hold fast to their belief in the European markets. According to Tromp, well-considered and continuous coordination between Curaçao and St. Maarten is crucial, as is the legal anchoring of such to also have healthy finances when the Council Financial Supervision CFT no longer keeps an eye on things.

He said it is also important the new Central Bank can operate sufficiently autonomous and independent, without influence or interference from politics. The bank provided the committee preparing the legislation on the establishment and functioning of the new Central Bank with advice on these and other matters, "but it is their prerogative whether or not they adopt our advice."

(Source: National newspaper Amigoe)

24 July 2010