The truncated toolkit: disaster risk finance and the limits of autonomy in the Dutch Caribbean

This working paper examines how Aruba, Curaçao and Sint Maarten finance disaster recovery and why they make limited use of modern disaster risk financing instruments despite their high exposure to natural hazards. Drawing on comparative analysis across Caribbean jurisdictions, the paper explores the implications of relying primarily on foreign reserves to finance disaster recovery and assesses the economic and governance trade-offs of this approach.

This paper argues that for the Dutch Caribbean the metric measures the wrong thing. Because the Kingdom's financial-supervision architecture closes off sovereign market access, Aruba, Curaçao and Sint Maarten can assemble only the bottom of the standard disaster risk finance stack, holding expensive reserves as their de facto disaster fund while cheaper pre-arranged instruments go unused. The result is the most expensive way to carry risk, and a fiscal-autonomy question hiding inside a technical one.

Reserves act as "instrument zero," an implicit buffer that is carried but rarely spent as a disaster fund; when large shocks landed (Irma, COVID) the real backstop was Dutch grant and liquidity support, not a reserve drawdown. Using an illustrative opportunity-cost calculation for Aruba against GFDRR average-annual-loss and probable-maximum-loss estimates, it shows the cost of self-insuring through idle reserves and sketches a fuller, layered financing strategy. It closes by inviting the named monetary and fiscal institutions to respond.