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International Monetary Fund. Western Hemisphere Dept.

Pre-Pandemic Conditions 1. Before the pandemic, the monetary union of Curaçao and Sint Maarten (Union) faced significant challenges . In both countries, the real GDP in 2019 was lower than in 2010 ( Figure 1 ). 1 The Union’s external current account deficit averaged nearly 16 percent of GDP in 2017–19 exerting pressure on the international reserves. Both countries faced small-island constraints, structural impediments to growth, and rising government debt, although it was lower than their peers due to a 2010 debt operation followed by a system of fiscal

International Monetary Fund. Western Hemisphere Dept.

DOLLARIZATION A. Context B. Economic Structure of the Monetary Union of Curaçao and Sint Maarten C. Benefits and Costs of Official Dollarization: Literature Review D. Institutional Arrangements in Dollarized Economies E. Curaçao and Sint Maarten: Considerations on Dollarization TABLES 1. Officially Dollarized Economies 2. Financial System Oversight in Officially Dollarized Economies References

International Monetary Fund. Western Hemisphere Dept.

financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has significantly worsened the outlook and greatly amplified uncertainty and downside risks around it. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in Curaçao and Sint Maarten and globally. Context . The monetary union of Curaçao and Sint Maarten (Union) has been grappling with negative shocks. Curaçao experienced four years of recession mainly due to

International Monetary Fund. Western Hemisphere Dept.

calculations. Note: The shaded area represents 10th-90th percentile range in a sample of 15 Caribbean economies. 4. This paper lays out issues that the authorities could consider in their discussion whether to pursue official dollarization or maintain the current arrangement . It is important to note that the choice of the exchange rate arrangement is the prerogative of the authorities and the purpose of this paper is to inform their discussion on this issue rather than provide policy advice. 3 Section B reviews the economic structure of the monetary union of Curaçao

International Monetary Fund. Western Hemisphere Dept.
This 2019 Article IV Consultation focuses on Curaçao and Sint Maarten’s near and medium-term challenges and policy priorities and was prepared before coronavirus disease 2019 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. The fiscal position in Curaçao improved in the past two years, in part due to implemented fiscal measures. Both Curaçao and Sint Maarten would benefit from introducing a Fiscal Responsibility Framework. It could incorporate a central government debt ratio as a long-term anchor and operational rules calibrated to meet it. The report suggests that risks in the financial sector need to be addressed as a matter of priority. The authorities should develop a strategy for addressing financial sector vulnerabilities with the objective of preserving financial stability while minimizing fiscal costs. Significant strengthening of supervision and a complete overhaul of the bank resolution framework are also urgently needed. An across-the board improvement in the governance framework should be a key priority in both countries. Vulnerabilities in the financial system point to the need to strengthen governance in the financial sector.
International Monetary Fund. Western Hemisphere Dept.

structural impediments. 1 The reforms needed to address structural impediments to growth have been slow, in part due to political instability—since 2010, both countries have faced frequent changes in government, with the most recent elections in Sint Maarten in January 2020. Implementation of past Fund advice has been uneven ( Annex I ). 2. Despite these challenges, the monetary union of Curaçao and Sint Maarten has continued to deliver a stable exchange rate and low inflation rates ( Box 1 ). Since the formation of the Union in 2010, there have been no major exchange

International Monetary Fund. Western Hemisphere Dept.
The COVID-19 pandemic inflicted another major shock on the economies of Curaçao and Sint Maarten, which followed category 5 hurricanes in Sint Maarten in 2017 and the spillovers of the Venezuelan crisis on Curaçao. Despite the substantial response measures financed by The Netherlands, the economic contraction in 2020 was severe.