Comerciantenan Uni Aruba Business Networking Event Partt II
Comments on the speech of Mr. Prakash Mungra
Trade organization Comerciantenan Uni Aruba organized a Business Networking Event, held on March 22nd, 2023, at the Hyatt Place Aruba Airport, where the Executive Director Supervision and Enforcement of the Centrale Bank van Aruba (CBA), Mr. Prakash Mungra, delivered the opening speech. As an attendee of the events, I share some of his messages with you. In a previous blogpost I had commented on the address of the Minister of Economic Affairs, Communication, and Sustainable Development, Mr. Geoffrey B. Wever.
He was asked by CUA to discuss the chances of a new global banking and economic crisis, especially on the possible ramifications for Aruba’s economy, as well as its financial sector, if such a situation occurs. His comments were insightful. His choice of words was deliberate and calculated, fitting for the question raised to him.
His remarks focused on the state of the global financial system and the potential impact of a new global banking and economic crisis on the Aruban economy and its financial sector. In response to the question of whether we are on the eve of a new global banking crisis, Mr. Mungra noted that recent events in the banking sector in the USA and Switzerland, such as the failure of Silicon Valley Bank and Signature Bank and the troubles at Credit Suisse, had not destabilized the global financial system or global economy.
He further noted that the global financial system is much stronger than the situation at the start of the financial and economic crisis in 2008 due to the significant strengthening of minimum capital and liquidity standards worldwide. He said this has significantly increased the robustness and resiliency of the global financial sector and has contributed to maintaining global financial stability, as witnessed during the global economic crisis induced by the COVID-19 pandemic.
However, Mr. Mungra highlighted the challenges monetary authorities face in balancing fighting inflation and preserving financial stability. He noted that the sharp rise in interest rates was necessary to fight double-digit inflation in the main economies worldwide. Still, on the other hand, it has led to imbalances in the banking sector. He emphasized that mid-size banks in the USA and Europe are particularly vulnerable to bank runs and have the potential to turn into a systemic banking crisis.
Regarding the impact of a new global banking crisis on the Aruban economy and financial sector, Mr. Mungra emphasized that although Aruba has weathered the economic storm induced by the COVID-19 pandemic quite well and has recovered to pre-pandemic levels, a severe new economic shock would bring new and significant challenges. He advised the government of Aruba to consider establishing a resilience fund that can be used in times of crisis and to fund substantial investments that will have to take place to cope with the potentially very damaging effects of climate change. He also noted that the financial sector in Aruba is solid and highly resilient to external shocks, with sufficient capital and liquidity buffers to absorb severe external shocks. However, he advised that there is room for further strengthening of these buffers, given the one-sidedness of the Aruban economy and the associated risks.
In summary, Mr. Mungra’s opening remarks provided valuable insights into the potential impact of a new global banking and economic crisis on the Aruban economy and its financial sector. He emphasized the need for Aruba to strengthen its economic resiliency to withstand future severe economic shocks and for the financial sector to strengthen its capital and liquidity buffers further.
My takeaway from his speech is that government and monetary authorities face a challenge in striking the right balance between fighting inflation and preserving financial stability. This highlights the importance of sound economic policies. Establishing a resilience fund in times of crisis and investing in climate change mitigation seems crucial for strengthening the economic resiliency of small economies like Aruba.
I hope our policymakers are paying close attention to Mungra’s remarks and taking action.