Emsley D Tromp: The importance of integrity for the development of a
country
Speech by Dr Emsley D Tromp, President of the Bank of the Netherlands Antilles, at the
conference "Integrity - the foundation of good government", Willemstad, 31 October 2010.
* * *
Ladies and gentlemen, good afternoon.
It was with pleasure that I accepted the invitation to address you during the Sixth Biennial
Conference of the Caribbean Ombudsman Association (CAROA). I am pleased to participate
in this forum, not only because of the importance of transparency and good governance, but
also because it gives me the opportunity to express my appreciation for the work you are
doing in the Caribbean. By helping to enhance public sector accountability and transparency
and developing greater public awareness of the requirements for and the importance of good
governance, your organization is performing a vital service to individual countries and to the
Caribbean economy in general.
That Curaçao was chosen to host this conference provides us with a platform for discussing
the importance of integrity for this newly formed country. As the theme of the conference
correctly indicates, integrity should be the foundation of good governance. As President of
the Central bank, my address will focus first on the issue of integrity in the context of the
work we have been doing in this field and second on the importance of good governance as
a foundation for macroeconomic stability.
The Bank's role in governance issues has been evolving over the years, and good
governance has taken on increasing importance in our primary function of promoting the
stability of the guilder and our supervisory tasks. The Bank, as well as the institutions under
its supervision, have awakened to this concern, although with varying degrees of
enthusiasm. Indeed, as recently as a few years ago, there was little support for the Central
Bank becoming more actively involved in governance issues. Some people feared that in
taking on such issues, the institution would become politicized and lose its effectiveness.
Others attached higher priority to other issues. Today, however, governance issues have
moved to the forefront of our policy agenda. This shift in focus is the result of the growing
perception of what constitutes sound economic policy.
More and more evidence has emerged concerning the adverse consequences of bad
governance on economic performance - among them, losses in government revenue, lower
quality public investment and public services, reduced private investment, and the loss of
public confidence in government. With such evidence has come a broader consensus on the
central importance of transparency and good governance in achieving economic success.
Numerous studies have shown that where governance is poor, domestic investment and
growth suffer. In a world in which private capital has become more mobile, mounting
evidence suggests that corruption undermines the confidence of investors and adversely
affects private capital inflows, an important source of economic growth.
Going back to the theme of this conference, I want to reiterate that accountable and
transparent government is an important milestone on the path to creating the most
prosperous and productive economies - economies that allow individuals, businesses, and
governments to create the highest possible standard of living for the largest possible number
of people.
Ladies and gentlemen, there is now universal consensus that promoting good governance is
essential to creating an environment in which countries can achieve lasting prosperity. As I
will discuss below, important aspects of good governance include insuring the rule of law,
improving the efficiency and accountability of the public sector, and tackling corruption.
Please allow me to share with you five conditions essential to good governance.
1. The first condition necessary for economic efficiency and the eradication of
corruption is strong management of public resources and establishment of a stable and
transparent regulatory environment for private sector activity. The lack of transparency about
underlying economic and financial conditions can feed market uncertainty and trigger large
capital outflows that can, in turn, threaten macroeconomic stability.
2. The second condition is transparent government financial operations. Maximizing
this transparency can be achieved by creating systems that limit the opportunities for making
decisions on an ad hoc basis and for giving preferential treatment to individuals and
organizations. For example, we have to simplify our tax systems, labor laws, and business
legislation and strengthen tax and customs administration by eliminating special exemptions
that apply to a privileged few; this is the best way to ensure that adequate revenues are
received to finance essential public services and that such services are accessible to the
general population.
3. The third condition for good government is transparent budgetary procedures. We
have to strengthen and increase the transparency of budgetary procedures to ensure that
government revenues are fully accounted for and used as agreed in the budget. We also
have to improve the quality of government expenditures by reducing outlays for unproductive
purposes. The savings that result will make room for spending on primary health care, basic
education, vocational training, and essential infrastructure. In this regard, the recently
achieved fiscal consolidation in the context of the debt forgiveness program should not mask
the vulnerabilities of our fiscal situation.
4. The fourth condition needed is more effective and accountable economic and
financial institutions. To this end, the adoption of the "Harmonisatie wetgeving", which has
been submitted to parliament, is essential to improving the quality of financial sector
regulation and supervision and enhancing the transparency of financial sector operations.
5. The final requirement is to have better data available to the public on domestic
economic and financial policies and performance. I cannot overemphasize the importance of
high quality statistical data; such data are an important factor in improving economic policy
and an essential aid to potential investors in evaluating countries' economic policies and
performance.
Ladies and gentlemen, good governance is essential for countries at all stages of
development - from the recently autonomous Curaçao and Sint Maarten, which are still in
the process of building up domestic institutions and undertaking the basic reforms needed to
accelerate economic growth, to advanced countries such as the Netherlands.
In the past few months, the world has been shocked to see how quickly countries renowned
for outstanding economic performance have been engulfed in crisis.
Although the causes of the crisis are varied and complex, many of the problems that lie at
the heart of the difficulties are lack of transparency about government, corporate and
financial sector operations. Therefore, the issue of good governance is not limited to the
public sector. Just as activities in the public sector must be more open and transparent, so
too must those in the private sector.
Private sector governance should include measures to improve the transparency of
corporate balance sheets through independent external audits, disclosure, and publication of
consolidated statements for businesses so that markets can monitor corporate performance.
At the same time, a more level playing field is needed for private sector activity.
CAROA's initiative in organizing this conference could not have been more timely. Integrity is
essential to a country's success and development. Integrity is the foundation of good
governance, protecting a country from debilitating behavior such as corruption, while at the
same time helping the country achieve its goals. The topics that will be discussed here, will
provide valuable lessons especially for the new countries of Curaçao and St. Maarten in
building strong and prosperous societies.
Ladies and gentlemen, turning to the institution for which I am responsible, the Central Bank
has long recognized integrity and compliance as fundamental to the soundness of the
financial institutions subject to its supervision. Indeed, integrity is the core value in our vision.
We strive to instill integrity in our staff and ensure that it becomes the guiding principle in all
our operations and actions.
To make integrity the norm rather than the exception, the Bank has introduced and
implemented various measures. We have been very active in promoting good corporate
governance in the financial sector of the Netherlands Antilles since 1994. In August 1996, the
Bank issued Guidance Notes for the Board of Directors of Supervised Financial Institutions
on Corporate Governance and a Summary of Best Practice Guidelines on Corporate
Governance, which were revised in October 2001 and November 2006, respectively. The
guidance notes describe, among other things, the general responsibilities of the Board, the
legal obligations of directors, and the role of auditors.
To encourage the practical implementation of the guidelines, the Bank requires the Board of
Directors of all supervised financial institutions to provide to the Bank annually a "Statement
of Compliance" with the Bank's Summary of Best Practice Guidelines. These statements are
reviewed by an external auditor.
The Bank also has institutionalized periodic integrity tests of policymakers and qualified
holders of institutions subject to its supervision.
These guidelines have significantly increased awareness of the importance of sound
governance and integrity by the supervised financial institutions, some of which are
government-owned.
Concerning the Bank itself, the appointment procedures of the board of directors are clearly
specified in the Bank's charter. Needless to say, appointees should meet certain
requirements, including professional and personal qualifications. Furthermore, the members
of the board of directors should abstain from activities that would create conflicts of interest
with their role as central bankers. Additionally, an independent and expert supervisory board
is part of the governance structure of the central bank. The supervisory board plays a crucial
role in ensuring the effective administration of the Bank. The supervisory board is
responsible for approving the institution's operational budget, reviewing and approving the
annual accounts, and overseeing the audit process. In addition, the supervisory board
promotes the use of structured planning and management frameworks.
Last, but not least in importance, the Bank has institutionalized a recruitment program that
enables it to hire highly qualified and professional staff. The program also provides for
periodic integrity testing of personnel.
Ladies and gentlemen, the goal of my remarks today was to focus our attention on some of
the key issues that relate to integrity and good governance - both in the public and the
private sectors. While much progress has been achieved in the area of integrity and good
governance, we should not forget that integrity is a fluid concept. What may seem harmless
today may not be acceptable tomorrow.
Given the high and lasting cost that lack of good governance can inflict on a nation, we have
to be unrelenting in our efforts to make further advances in this area. Therefore, let me close
with a renewed call to continue to establish clear guidelines for strengthening integrity and to
strictly adhere to these guidelines. While we may sometimes be constrained by our limited
resources, we should intensify cooperative efforts both in the kingdom and in the region to
continue to meet and promote the best internationally accepted practices. Given our track
record in this area as the Netherlands Antilles, I am convinced that Curacao will continue to
meet those challenges as an autonomous country.
Let me once again express my support for and admiration to our Ombudsman for the
organization of this seminar, and thank you all for your attention. I wish you a very fruitful
conference.