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Date Submitted: 12/27/2012 09:12 AM
Kingdom of the Netherlands—Curacao and Sint Maarten 2011 Article IV Consultation Discussions: Preliminary Conclusions
September 19, 2011
The two newly-autonomous countries face substantial challenges, requiring sustained efforts over the near and medium term. Economic growth has been low, unemployment remains high, and population aging pressures are becoming significant. The current account deficit has widened to worrisome levels, primarily reflecting low competitiveness, rapid credit growth, and inadequate pass-through of increases in international food and oil prices to consumer prices. Strong measures will be needed to facilitate external adjustment. Credit growth should be reduced to help cool domestic demand pressures. Strong fiscal efforts are required to address pressures related to aging and institutional build-up, and to support external adjustment. Deep structural reforms are also needed to increase wage and price flexibility and competitiveness, and to improve the business environment.
Background
1. Following the dissolution of the Netherlands Antilles on October 10, 2010 Curacao and Sint Maarten became autonomous countries within the Kingdom of the Netherlands, with a currency union. Alongside, the Dutch government gave substantial debt relief to both countries, although the finalization of the discussions on the payment of arrears for Sint Maarten remains to be completed. Agreement was reached on new fiscal frameworks as well. Average living standards are relatively high in comparison with the region. The banking sector also appears sound, and weathered the global crisis relatively well.
2. The two countries share some similarities, but there are distinct differences as well. Both are small highly-open island economies, but Curacao’s economy is more than three times larger than that of Sint Maarten, and more diversified. Tourism exports are much more important for Sint Maarten than for Curacao, accounting for around 82 percent of GDP and 13...