FROM WARNING TO ACTION: Stop Managing by Crisis: Government Must See Trouble Before It Arrives. part 2

𝘍𝘳𝘰𝘮 𝘞𝘢𝘳𝘯𝘪𝘯𝘨 𝘛𝘰 𝘈𝘤𝘵𝘪𝘰𝘯: 𝘚𝘵𝘳𝘦𝘯𝘨𝘵𝘩𝘦𝘯𝘪𝘯𝘨 𝘚𝘪𝘯𝘵 𝘔𝘢𝘢𝘳𝘵𝘦𝘯’𝘴 𝘗𝘶𝘣𝘭𝘪𝘤 𝘐𝘯𝘴𝘵𝘪𝘵𝘶𝘵𝘪𝘰𝘯𝘴 𝘉𝘦𝘧𝘰𝘳𝘦 𝘗𝘳𝘰𝘣𝘭𝘦𝘮𝘴 𝘉𝘦𝘤𝘰𝘮𝘦 𝘊𝘳𝘪𝘴𝘦𝘴

- 𝘈 𝘛𝘩𝘳𝘦𝘦-𝘗𝘢𝘳𝘵 𝘚𝘦𝘳𝘪𝘦𝘴 𝘰𝘯 𝘍𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘏𝘦𝘢𝘭𝘵𝘩, 𝘎𝘰𝘰𝘥 𝘎𝘰𝘷𝘦𝘳𝘯𝘢𝘯𝘤𝘦 𝘢𝘯𝘥 𝘙𝘦𝘴𝘱𝘰𝘯𝘴𝘪𝘣𝘭𝘦 𝘚𝘦𝘭𝘧-𝘎𝘰𝘷𝘦𝘳𝘯𝘮𝘦𝘯𝘵 -

St. Maarten does not need one governance model for every public institution. It needs the right governance model for each type of institution, and one Government capable of seeing the total financial picture.

That distinction is important.

A government-owned company requires professional shareholder oversight.

A subsidized foundation requires appropriate funding, performance and accountability arrangements.

SZV and the social-security funds require strong statutory governance, actuarial and financial oversight, and timely policy decisions to ensure long-term sustainability.

Different institutions require different tools. But none should be allowed to become a financial blind spot.

Government-Owned Companies Need an Ownership Policy

For government-owned companies, the starting point should be a comprehensive Government Ownership and Shareholder Policy.

The policy should clearly establish why Government owns each company, what it expects from that company and how it intends to exercise its shareholder responsibilities.

What financial standards should the company maintain?

What level of debt is acceptable?

What information must Government receive?

What investments are necessary?

When should profits remain in the company?

When can dividends responsibly be paid?

What happens when financial warning signs appear?

These questions should not first be answered during a crisis.

The rules should already exist.

Government Must Be a Shareholder, not the Manager

A stronger ownership policy does not mean greater political interference. Government, as shareholder, establishes ownership objectives and exercises its shareholder rights.

The Supervisory Board supervises.

The Management Board manages.

These responsibilities should not be blurred.

Management must manage. Supervisory Boards must supervise. Government must govern as shareholder.

A professional Government shareholder is not one that interferes more.

It is one that knows what it expects, receives the right information, monitors performance and acts when its shareholder responsibilities require action.

Dividends Need Rules Too

A clear Dividend Policy should form part of the ownership framework.

Government-owned companies should not be approached for dividends simply because Government needs revenue.

First determine what the company requires to remain healthy: liquidity, reserves, debt servicing, maintenance and investment.

Only then determine what can responsibly be distributed.

Dividends should be the result of financial strength, not the cause of financial weakness.

Subsidized Entities Need a Different Framework

Organizations such as SMHDF require a different approach.

Government does not exercise the same shareholder powers over a foundation that it exercises over a company it owns.

Instead, St. Maarten should establish a clear governance, funding, performance and accountability framework for substantially publicly funded entities, consistent with Government’s legal authority.

Where substantial public money is provided, Government should have appropriate requirements concerning audited financial statements, multi-year financial planning, performance objectives, risk reporting and accountability for the use of those funds.

The principle should be:

No substantial public funding without appropriate public accountability.

SZV Requires Long-Term Financial Sustainability

SZV presents a different governance challenge again.

Here the issue is not dividends or subsidies.

The central issue is whether the social-security and healthcare arrangements administered through SZV remain financially sustainable.

The Cft says the healthcare funds incur annual losses of approximately XCG 35 million and that accumulated deficits are approximately XCG 500 million. It warned in May that continued depletion of other fund reserves places the affordability of healthcare and pensions under pressure. That calls for more than short-term budget adjustments.

Government, SZV and other responsible stakeholders need a multi-year sustainability framework that clearly shows expected income, expenditure, reserves and future obligations under realistic assumptions.

Government and Parliament should be able to answer:

How long will current reserves last?

What is driving healthcare expenditure?

Are premium revenues sufficient?

What demographic changes will affect AOV?

What measures are necessary, and by when?

What happens if those measures are delayed?

And what financial exposure would ultimately fall on Government?

These questions should be answered before the reserves approach exhaustion, not afterwards.

Government Needs One Public-Risk Dashboard

St. Maarten should therefore establish a consolidated public financial risk dashboard.

It would not erase the legal differences between TelEm, SMHDF and SZV.

Instead, it would allow Government and Parliament to see, in one place, the major financial risks that could eventually affect the national budget.

Those risks could include government-owned companies, material subsidy relationships, social-security funds, Government guarantees and other significant contingent liabilities.

The Council of Ministers should periodically know:

What is healthy? What requires attention? What is distressed? What could ultimately cost the Country money?

This is the essence of an early-warning system.

From Financial Reporting to Risk Management

Government should also look beyond annual financial statements.

By the time a serious problem appears in an annual account, valuable time may already have been lost.

Important entities should have appropriate systems for identifying major financial, operational, legal, technological, infrastructure and continuity risks.

For SZV, this should include long-term healthcare and pension sustainability.

For government-owned companies, it should include liquidity, debt, investment requirements and business continuity.

For subsidized entities, it should include financial dependence on Government and the ability to continue delivering the public service for which funding is provided.

Government needs to move from crisis management to risk management.

Parliament and the Public Need the Full Picture

Government should consider publishing an annual consolidated report on major public entities and financial risks.

It should allow Parliament and the public to understand, at an appropriate level, the financial condition of government-owned companies, significant public funding commitments, social-security fund sustainability and major risks to the national budget.

Transparency is not intended to embarrass institutions.

Transparency creates accountability, and accountability encourages earlier action.

But systems and reports are not enough.

Good governance ultimately depends on capable people.

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