The social economic council of Aruba.

The social economic council of Aruba. Paper prepared for the UNDESA Expert Group Meeting of Social Economic Councils to held in Vienna, 25 th and 26 th of July, 2008. Author: Drs. S.R. Marapin, Secretary General of the Social Economic Council of Aruba. Aruba, July 17 th 2008. 0

Introduction.... 2 1 Aruba and its economy.... 3 1.1 Country background and history... 3 1.2 The Aruban economy.... 4 2 The social economic council of Aruba... 5 2.1 The establishing of the council... 5 2.2 The primary function and tasks of the council... 5 2.3 The composition and terms of the council... 5 2.4 The independency of the council.... 6 2.5 The meeting agenda of the council... 6 2.6 The agenda and work procedures of the council... 6 2.7 The secretariat... 7 3 The development process of the social economic council as an advisory body... 8 3.1 Phase one. The start up.... 8 3.2 Phase two. The take off... 8 3.3 Phase three. The maturity state.... 9 4 The SEC of Aruba, the Dutch Antilles and the Netherlands; a brief comparison.... 11 4.1 The Aruban SEC compared to the Dutch Antillean SEC.... 11 4.2 The Aruban SEC compared to the Dutch SEC... 12 5 The future of social economic counseling in Aruba... 13 Literature.... 14 1

Introduction. Aruba forms an autonomous part of the Kingdom of the Neherlands. In 1987 the legal framework for a social economic council (SEC) was introduced. It was with the appointing of the members in April 1988 that the council became active. In this paper the Aruban social economic council is being studied. In the first chapter there is a brief description of Aruba and its economy. The second chapter takes a look at the circumstances that led to the establishing of the social economic council of Aruba and explains its main features. The third part focuses on the functioning of the council in its 20 years of existence. The main theme in this part is the development the Aruban SEC underwent in these 20 years. In the fourth chapter a brief comparison is made with the SEC of the Dutch Antilles and also with the SEC of the Netherlands In the fifth chapter there is a brief look at the future for social economic counseling in Aruba. 2

1 Aruba and its economy. 1.1 Country background and history. Aruba forms a part of the kingdom of the Netherlands and is a small Caribbean island with a total area of about 180 km². Aruba has experienced for more that two decades good economic growth and is now considered after Bermuda, the second most prosperous countries in the Caribbean. It has a population of about 105.000. About a third of the population was not born in Aruba. The majority of the migrants came after 1990 from neighboring countries, the Netherlands and as far as the Philippines to meet the growing demand for labor. On December 15 th, 1954 the Dutch Antilles, of which Aruba was the second biggest island, formally became together with Surinam equal partners with Holland in the Dutch kingdom. This meant that they were no longer Dutch colonies but got their autonomy in internal matters. Aruba, however felt that the island of which the Dutch Antilles consisted were dominated by Curacao. So the struggle for an autonomous role within the kingdom of the Netherlands continued and resulted in the Status Aparte on January 1 st, 1986, which meant that Aruba had become also a partner in the Dutch Kingdom. Although Aruba enjoys quite some autonomy, there some crucial areas in the hands of the Dutch Kingdom, which in reality mean Holland. The topics that are the responsibility of the kingdom are stated in article three of the charter of the Kingdom, also known as Het Statuut. One article of the charter deals specifically with the responsibilities of each partner regarding the rule of law and good governance. Failing to comply can lead to intervention by the Government of the Kingdom ( Rijksministerraad) which consists of the Dutch council of ministers and a delegated minister from each partner. Without a doubt being part of the kingdom has benefited Aruba tremendously. It has been crucial for Aruba in having political, legal and social stability. These conditions together with favorable economic circumstances, has been the foundation for an impressive economic growth from the onset of the Status aparte in 1986 until today. 3

1.2 The Aruban economy. With the establishment of a refinery n 1926, Aruba s economy started its take off. The refinery led after World War II to economic prosperity and quite some workers had to be imported, mostly from the English speaking islands. After the closure of the Exxon refinery in 1985, which was then the predominantly economic pillar, Aruba focused successfully on the development of its tourism. Within two years the economy had grown so fast that the high unemployment had disappeared completely and Aruba needed to import foreign labor to meet its demand. In 1994 the refinery was restarted. Its economic contribution however is now significantly less. Today the economy is mainly based on tourism and to a lesser degree on oil refining. It continues to grow and the import of foreign labor is still needed today. In the next table the economic development of Aruba can be seen. Table. GDP and GDP p.c. of Aruba 1986 2007. 1986 1990 1995 2000 2005 2006 2007 GDP (mln. US$) 432.0 916.3 1328.1 1883.7 2336.5 2434.8 2638.2 Population 59,931 62,753 79,805 90,600 100,644 102,819 103,977 GDP per capita $7,209 $14,601 $16,642 $20,791 $23,216 $23,681 $25,373 Source: Central Bureau of Statistics, the Central Bank of Aruba and IMF. In the latest IMF report on Aruba, the near and long term economic perspectives are painted positive, provided Aruba can meet some not so difficult conditions. 4

2 The social economic council of Aruba. 2.1 The establishing of the council. The acquiring of the autonomous status (status aparte) in the kingdom required also the introduction of a constitution and all the laws needed to make the community and economy work. The overwhelming majority of these laws were simply copied from the Dutch Antilles, of which Aruba was a part of until January 1 st, 1986. Due to time constraints, only the absolute necessary departments and organizations were at the start of the status aparte operational, for example the central bank and the state council, but no social economic council. With the rapid economic recovery that started right after the acquiring of the status aparte in 1986, the need to address also social issues, especially when the elections came near, became eminent. One of the issues was to eliminate the lowest category minimum wage and thus in fact raising it for the workers in that category. However in order to achieve this, article* of the minimum wage ordinance required that the social economic council had to be heard before any changes regarding the minimum wage could be made. The desire of the government to eliminate the lowest category of the minimum wage most probably speeded the introduction of the social economic council in Aruba, which was eventually established in September 1987. 2.2 The primary function and tasks of the council. The council is an autonomous advisory council of the government regarding social economic matters. The council was established according to the explanatory notes to inform the government of what the opinion of the majority in Aruba was in social economic matters. To do so the council has to advice the government in relevant social economic matters, either requested by the government or on its own initiative. 2.3 The composition and terms of the council. Both matters are stipulated in the ordinance of the social economic council. The council consists of three members appointed after nomination by the employers organizations, three members appointed after being 5

nominated by trade union organizations and a maximum of three members are appointed independently by the government. The members are appointed for a period of two years. There is no limit to the terms a person can be a member of the council. The appointment and terms of the members are stipulated in article of the ordinance of the council and thus leaves no room to deviate from it. The members representing the social partners so far have always been employers and employees, with usually no formal (academic) training in economics and related fields. 2.4 The independency of the council. Being an advisory council as perceived in article IV.9 of the Aruban constitution, its establising had to be by means of a state ordinance. This kind of law requires approval by parliament. This ordinance not only guarantees the independency of the council, but also gives the council authority to collect all the necessary formation from the government and government agencies. Also at least two third of the council are appointed by the private sector. The chairman of the council is to be elected by majority of the members. 2.5 The meeting agenda of the council. The council has been meeting in the last years periodically with the council of ministers and the parliament. The council is also been consulted by the governor after elections, to formulate the social economic priorities of the incoming government. The council through its secretariat has been a consulting institution for organizations like the IMF. In general whenever an organization is doing a study in Aruba with a social economic character, the council through its secretariat is usually consulted. 2.6 The agenda and work procedures of the council. There two grounds for the council to produce advisory reports. One is request of a minister and the other is its own initiative. At the beginning of each year the council decides on the topics that will be analyzed and an advisory report be made. There is no knowledge regarding the requests from the ministers, although some can be anticipated because it is required by law. An example is the adjustment of the minimum wages. The council must be heard before it can be changed. 6

After has been decided what topic will be analyzed and advised about, the secretariat is responsible for presenting the council with sufficient information and an analysis. This is discussed in he council and a position is formulated. The secretariat is then responsible to draft position paper which after being approved by the council is sent to the minister that requested the advise of the council or in case it is an own initiative of the council to the prime minister. On average, the council meets 10 times a year. The meetings normally last between one and one and a half hour. 2.7 The secretariat. Although the secretariat has been functioning for almost 20 years it is still not formally institutionalized. The secretariat consists of civil servants of which majority the majority has an academic degree in different fields. Its main goal is a well informed council regarding social economic matters. The secretariat has also the task for making the reports public and if necessary to explain and clarify advisory reports of the council to the minister(s) concerned and or to the public in general. The secretariat has officially no role to play in the advisory function by the council. It only provides the council with information and analysis. However, the fact that the members of the council in the most cases are not trained in economics and related academic fields, make that they must rely heavily on the analytical work done by the secretariat. This fact together with the task of informing and explaining to the public about advisory reports of the council means in reality that the role of the secretariat is much more than simply technocratic. The power to influence the outcome of advisory reports of the council however, must be handled with extreme caution. It is in fact a power delegated by the council itself. This power has not been formally delegated, but has been earned gradually over the years. By giving constantly sufficient weight each time to the different partial interests of the social partners even if this meant occasionally to prepare an advisory report that the secretariat would disagree with and always maintain neutrality as much possible, the secretariat has earned this power. 7

3 The development process of the social economic council as an advisory body. The now twenty years of existence of the council, can be divided into three phases, reflecting the slow but steady process of finding the proper place for the council in the policy making process. The key factor is this process has been first the political influencing of the council and secondly the shaping of the role of the members representing the social partners (employers and employees) in the council. The latter means that the members become aware that they are not in the council to look after particular interests. 3.1 Phase one. The start up. On April 15 th, 1988 the first council was nominated. Its first and only order of business turned out to be its advising the government regarding the rising the minimum wage for workers in the trade sector. Shortly after there were elections held and subsequently a change in government. During their first years in office, the new government did not request any advice from the council. This was possible because no changes were introduced during his period in matters that by law required the council to be heard by the government. 3.2 Phase two. The take off. In 1990 a change in the severance pay law was considered. Although this change did not require the council to be heard, the government at that time did request the advice of the council. However, they also substituted their appointees and replaced the chamber of commerce by the Aruba Hotel Association (AHATA) as a member representing the employers. The reason for this change was that the Chamber of Commerce of Aruba, contrary to the AHATA is a semi government body and as such cannot be seen as an organization representing employers, The new council also started with little political independency, especially the members appointed by the government. Fortunately this council had to advise in some matters that were not politically controversial. The most important one was the introduction of the legal framework for the general health insurance, which was to become a cornerstone of the Aruba s social security. It was the first time that the secretariat of the council made an analysis and drafted an advisory report which after approval by the council was sent to the government. 8

Shortly after that report the government started to approach the council more frequently for advise. 3.3 Phase three. The maturity state. In 1993 a lowering of the age from 62 years to 60 years for mandatory pension was proposed, presumably with the elections in mind. The council foresaw that this would cause a tremendous financial burden for the pay as you go financed pension fund. So it advised against this. Instead it suggested raising the pension benefits which were not adjusted in accordance with the economic growth, As a counterpunch to the lowering of the pension age, the main opposition party came up with their campaign plan to double the mandatory pension benefits. Being at that time the only report with a long term analysis of the mandatory pension fund, it received ample exposure and the secretariat as an organization for analysis began to take form. From then on the government approached the council more frequently for advice and the council started to use its prerogative to produce advisory reports on its own initiative. More analytical was being done by the secretariat and were made public through the council. These analytical reports have not only served to contribute to public awareness and opinion, but made the secretariat of the council become a bureau for social economic analysis. The council through its secretariat is today always consulted by local and international institutions and agencies that are involved in socio economic analytical work in Aruba. The council is also involved again through its secretariat in various committees and commissions either as a full member or as an autonomous advisor. Worth mentioning is the participation in the National Commission on Public finance (NCPF). Its February 2007 report Sound Public Finance and Public Accountability in Aruba was the first report to be presented to and unanimously approved by the government, parliament and all other major socio economic stake holders. The number of reports issued by the council varies between three and five a year. The council meets periodically with cabinet of ministers and parliament. These meetings basically informative in nature. The secretariat participates on average in two commissions and is consulted by institutions regarding social economic matters in Aruba. An example is the meeting with the IMF for their article IV consultation with 9

Aruba. It is also often approached by the press for analysis and/or commentary in social economic developments. 10

4 The SEC of Aruba, the Dutch Antilles and the Netherlands; a brief comparison. The functioning of social economic councils are strongly influenced by the kind of social economic order that exists. Aruba and the Dutch Antilles as colonies of the Netherlands until 1954 and afterwards as partners in the Dutch kingdom, both have a social economic order that was and still is inspired by that of the Netherlands. That makes it interesting to compare the briefly these three SEC s. 4.1 The Aruban SEC compared to the Dutch Antillean SEC. The legal framework of the Aruban council shows quite some similarity with that of the Dutch Antilles. This is no coincidence. As a former part of the Dutch Antilles Aruba was represented in all three categories of members (employers, employees and government appointees) in the SEC of the Dutch Antilles. Therefore Aruba opted for a legal framework similar to the Dutch Antillean. In the explanatory of the ordinance of the Aruban SEC, this is explicitly acknowledged. Both councils have as a primary task to advise the government in social economic matters. There are though two main differences between the councils. The first regards the form of the legal framework. The Dutch Antillean SEC is established by state decree. This means that the government can change the legal framework or even eliminate the SEC on its own. The Aruban SEC on the other hand is established by state ordinance. Any change in the legal framework must be approved by parliament. This difference shields the Aruban SEC effectively more against political interference than the Dutch Antillean. The second difference regards the task of making the advisory reports of the SEC public. In the dutch antilean case it is the government. Although there is a law that requires documents to be made public, the advisory reports hardly made it to the media. In the aruban case it is the SEC that has to make the reports public. The reports have received ample coverage in the media, which undoubtedly contributed to recognition of the SEC as an established advisory institution and its secretariat as an institution for social economic analysis. 11

4.2 The Aruban SEC compared to the Dutch SEC. Compared to the Dutch SEC the level of independency is probably the most crucial difference. The Dutch SEC generates its own revenues making it virtually totally autonomous from political interference. The Aruban SEC generates no revenues and it is completely dependant on the government to finance its costs, which consists mainly of the expenditures for the secretariat. This means that the government can practically strip the council of its analytical abilities, which would certainly reduce its role s an advisory council considerably. Both SEC s have an advisory task. In the aruban case in a few cases the council has to be heard. This is not the case anymore in the Netherlands The Dutch SEC has also managerial and supervisory tasks. The Aruban SEC does not have these. The role of the secretariat is different between the Dutch SEC and that of Aruba. The Aruban secretariat acts practically as an autonomous organization with the council assuming a role more or less like a supervisory board. Contact between the secretariat and the council takes place almost only during meetings, which on average less than ten a year and lasts between one and one and a half hour. One more difference worth mentioning is the role of the chairman of the council. The Aruban chairman is a usually council member from the private sector and never a politician. Although he receives monthly a financial compensation, it is not even a part time job if judged on the hours of work involved. The chairman of the Dutch SEC is usually a politician. It regards a full time job and his office is in the SEC building. 12

5 The future of social economic counseling in Aruba. Although Aruba experienced impressive economic growth, its social development has lagged behind, as a recent report of the council has demonstrated. Aruba has never incorporated negative external effects of its economic development in the decision process. One main reason for this is simply the lack of studies, which in turn is caused by the absolute shortage of academic graduates. The SEC of Aruba focuses now more on analysis of social and economic problems facing Aruba and less on its advisory function which seemed to have reached its maturity. This means that the role and function of the secretariat will have to be formalized. In a recent core task analysis by a consultancy firm it was concluded that the secretariat played a key role as liaison officer and that its independency was essential. However to optimize its role as liaison officer, it should stay part of the government. An alternative approach has been presented by the secretariat. This approach is based on the discussions with various advisory bodies in the Netherlands. It suggests turning the secretariat into an autonomous research body that would facilitate the SEC with secretarial and technical support and provide the government with socio economic analysis. The basic condition for sound social economic counseling is having sufficient reliable and readily available analysis and data. This is not yet the case in Aruba. Only after Aruba improves and expands its capabilities in these matters, can social economic counseling be taken the next more in depth level. 13

Literature. The charter of the kingdom of the Netherlands. De staatsregeling van Aruba. De Landsverordening SER van Aruba. De Landsverordening minimumlonen. De Landsbesluiten benoeming Raden. De IMF rapporten article IV consultation. De SER adviezen. Het Landsbesluit instelling SER Antillen. Het Instellingsbesluit van de SER van Nederland. National Commission on Public finance (NCPF). Sound Public Finance and Public Accountability in Aruba, February 2007. 14