Emsley D Tromp: Recent international economic developments and
related challenges for the Netherlands Antilles
Speech by Dr Emsley D Tromp, President of the Bank of the Netherlands Antilles (Bank van
de Nederlandse Antillen), on the occasion of the Caribbean Financial Action Taskforce
("CFATF") Plenary lunch meeting, Willemstad, 28 October 2009.
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Ladies and gentlemen,
Allow me to welcome the member countries of the Caribbean Financial Action Task Force,
the Cooperating and Supporting Nations, and the representatives of other international
organizations. It is indeed with a great deal of pleasure that I am addressing you this
afternoon on the occasion of the plenary meeting of the Caribbean Financial Action Task
Force (CFATF). It has been almost 20 years since the G-7, on the occasion of its annual
meeting, issued 40 recommendations to prevent the misuse of the financial systems for
criminal activities. The issuing of these recommendations can be considered as the
beginning of concerted actions by the world community to address in a consistent and
effective way the issue of laundering the proceeds of criminal activities. These areas have
subsequently been extended to include terrorism financing in the aftermath of the 9/11
attacks.
The Caribbean countries followed rapidly with the creation of the CFATF to deal more
effectively with this misuse of the financial system since the international financial services
sector represents an important pillar of our economies. Since then, important progress has
been achieved on this front. Needless to say, that we have to continue to adjust our
legislations to the constantly changing international environment.
I believe that this CFATF meeting is a significant event, as professionals from different parts
of the world come together to discuss, develop, and promote the enforcement of policies to
combat money laundering and terrorist financing.
Having these policies in place would certainly put our countries in a better position in the
world, making us more attractive to foreign investors. Naturally, this enhanced attractiveness
would have a favorable impact on our economic growth and employment.
Since the establishment of the CFATF in 1990, the Netherlands Antilles has been an active
member of this organization, supporting efforts to fight money laundering and terrorist
financing. The Netherlands Antilles fully supports the efforts of both the CFATF and the
FATF. The Central Bank of the Netherlands Antilles is doing its utmost to implement and
comply with the recommendations of both organizations through the supervision of our
financial institutions. Therefore, it is a privilege for the Netherlands Antilles to host this
conference.
Ladies and gentlemen, since July 2007 the global economy has experienced a severe
financial crisis originating in the US housing and credit sectors. Due to increased integration
of goods, services, and financial markets, the crisis spread from the housing and credit
markets in the United States to other markets and countries around the world. This crisis has
resulted in a deep worldwide recession with severe economic and social impacts. Few, if any
economies have not been affected. Output has contracted in the major industrial countries,
including the United States and the Euro area, and slowed in emerging economies.
Fortunately, global economic growth has recently started to rebound, and financial conditions
have improved markedly.
World economic recovery has been driven largely by wide-ranging and coordinated public
intervention, particularly in industrial countries, by supporting demand and reducing
uncertainty and systemic risk in financial markets.
However, the pace of recovery is expected to be slow as uncertainties remain in the financial
markets, and public intervention will gradually have to be withdrawn. Against this
background, it is projected that the world economy will contract by 1% in 2009 and recover
by 3% in 2010.
Ladies and gentlemen, the global downturn has had severe repercussions for the Caribbean
region. Our region consists of nations some of which are relatively small, very open, and
prone to external shocks. Geographically, we are located in the path of one of nature's most
destructive phenomena, namely, annually recurring hurricanes. At the same time, we also
have been endowed with beautiful weather and beaches, which make our shores very
attractive to foreign visitors. As a consequence, tourism has become an important pillar of
our economies. In fact, the Caribbean is one of the most tourism-intensive regions in the
world. In addition, many Caribbean economies depend heavily on inflows from remittances
and foreign direct investments. Needless to say, we have become increasingly susceptible to
the health of the world economy.
Due to the global economic downturn, foreign exchange revenues from tourism have been
dropping, reflecting the weakening US, Canadian, and European markets.
Furthermore, foreign exchange receipts from international financial services have dropped,
reflecting the crisis in the international financial markets. Inflows from remittances and foreign
direct investments also have been declining. As a consequence, real Gross Domestic
Product is expected to contract in most countries in 2009.
It should be noted, however, that in contrast to other regions, the Latin American and
Caribbean financial systems have not experienced widespread episodes of distress. The
economies in this region have been able to withstand some of the financial turmoil because
of several key structural improvements including stronger policy frameworks that promote
resilience and allow for the implementation of timely policy responses to support economic
activity. Also, in many cases, fiscal discipline brought down public debt levels significantly.
Finally, banks in the region relied on domestic deposits to fund domestic credit and had put
prudent lending practices in place. As a result, the Latin American and Caribbean region is
showing signs of stabilization and recovery.
Nevertheless, the pace of recovery is projected to be slow in those countries that are highly
dependent on tourism and remittances. Despite signs of recovery in the United States and
the Euro area, tourism revenues will pick up slowly because of a projected increase in private
savings in these tourism markets. Remittances, which depend on employment conditions in
the advanced economies, notably the United States, also are expected to recover gradually.
To become more resilient to external shocks, many countries in the region have attempted to
diversify their economies. International financial services have been relatively appealing to
countries seeking to diversify due to its perceived high value-added component. In addition,
the ability to establish an international financial center quickly and without substantial
physical investments, as required in other industries, has made the sector attractive to many
islands in the region. However, activities in this industry also have been affected by the world
economic crisis. As a consequence, foreign exchange revenues from international financial
services have dropped recently.
It should be noted, however, that this sector is not only affected by developments in the rest
of the world, but also depends on how the sector is perceived by the rest of the world.
Ladies and gentlemen, the current world economic crisis had its origin in the US housing
crisis, which spilled over to the financial and other sectors and to other countries around the
globe. Nonetheless, when the G-20 countries met in Washington, London, and Pittsburgh,
their main focus was on those jurisdictions offering financial services. The impression was
thereby created that we are in part to blame for the current world economic ills. As a
consequence, despite many efforts to comply with the OECD recommendations, many
Caribbean jurisdictions are now on the "gray" list of this organization. Needless to say, this
negatively affects the development of the international financial services industry and, hence,
economic development in our countries. I do endorse, however, the point that the fight
against money laundering and terrorist financing should be a priority on the international
agenda.
Ladies and gentlemen, as you all know, money laundering and terrorist financing activities
can undermine the integrity and stability of financial institutions and systems and negatively
affect foreign investment and other capital flows. In today's world, the problems presented by
money laundering and terrorist financing activities are global. Money launderers constantly
seek out for loopholes in anti-money laundering laws and schemes among countries. Those
jurisdictions that have weak or ineffective controls become special targets of money
launderers. As a consequence, problems in one country may spread to other countries in the
region and other parts of the world.
It is imperative, therefore, that we take all the necessary actions to continue to enhance our
respective jurisdictions to meet the world's best practices. Not only will this lead to a more
transparent and resilient sector, but it also will enhance our reputation and prevent our
jurisdictions from being misused for criminal activities.
In addition to a framework to fight money laundering and terrorist financing, there are certain
requirements for both attaining the status of an international financial center and successfully
maintaining it. Allow me to outline some broad areas that I believe are the most important.
Ladies and gentlemen, the first requirement is macroeconomic and political stability. Sound
and sustainable macroeconomic policies support the stability of the financial system. In
addition, political stability is a precondition for building business confidence in all sectors of
the economy, including the international financial services sector.
Therefore, to succeed as an international financial center, the financial community must be
able to rely on the stability of the economy and the government.
Another important requirement is a strong fiscal and legal infrastructure. A strong legal
system includes property rights, contract enforcement, a functional and credible court
system, and bankruptcy procedures. The fiscal and legal infrastructure of the financial
industry should be able to continuously reform itself to adapt to the constantly changing
international business community. Relevant legislation must be introduced and adapted in a
timely manner.
The success of an international financial center also depends to a great extent on the
competence of its professionals operating in the sector. For that reason, access to a pool of
skilled labor, including well-trained legal, taxation, accounting, auditing, and company
management professionals is crucial.
In addition, good communication and support services are an important requirement for a
successful international financial center. This requirement is particularly important for the
quick and efficient transmission of market information to participants.
Finally, but not the least important, is a sound regulatory framework, promoting strong and
credible banks and institutional investors. The regulatory framework should support
economic development and growth, financial stability, and protect investors and depositors.
In addition, it must be responsive to the changing financial environment.
The international financial crisis has demonstrated quite clearly through the case of Icesave
that small countries are severely limited in pursuing autonomous rescue operations when the
size of the financial institutions is big compared to their GDP. Furthermore, determining one's
own supervisory policies has proven illusory. International coordination and cooperation have
become the rule, led by international institutions such as the Bank for International
Settlements and the International Monetary Fund. These institutions set the standards for
their members. However, if countries do not follow these rules, they run the risk of being
blacklisted, thereby undermining confidence in their financial sector and investment climate.
Ladies and gentlemen, as the world is struggling to get out of the deepest recession since
the Great Depression, the G-20 and OECD countries will continue to keep us at the forefront
of their attention to see how and to what extent we are compliant with the best practices.
Given the relatively high degree of global financial integration, it is crucial for the supervisory
authorities in the Caribbean and the Latin American jurisdictions to collaborate closely to
address cross-border financial issues and to comply with the internationally supported
recommendations.
Ladies and gentlemen, I wish to conclude my address by restating the importance of
developing and promoting policies that contribute to the establishment of a solid economic
and institutional infrastructure that fosters sound and sustainable economic development in
the Caribbean and Latin American countries.
This infrastructure includes a sound and internationally approved financial system with
effective anti-money laundering policies and regulation aimed at preventing the financing of
terrorism. I wish you fruitful discussions in the remaining meetings and a pleasant stay on our
island.
Thank you for your attention.