The former Dutch colony of Curaçao has been given until September by the government in The Hague to draw up a plan to get its finances in order.
Ministers discussed the difficult financial situation on the Caribbean island at Friday afternoon's cabinet meeting. It is the last time ministers will meet until after the summer break.
The decision to place a formal compliance order on Curaçao was 'not taken lightly', prime minister Mark Rutte told reporters after the meeting. The government's financial supervisory committee had recommended taking the step.
Curaçao's 2012 budget has a shortfall of 153m Antillean guilders, of which nearly 100 million guilders is needed to cover debts from previous years, home affairs minister Liesbeth Spies said.
The government wrote off the island's debt in 2010 when it and Sint Maarten became independent countries within the Kingdom of the Netherlands.
This means the two countries have more independence in terms of law making and government but that the Netherlands will keep an eye on their finances and remain responsible for defence and foreign policy.
According to news agency ANP, Curaçao's prime minister Gerrit Schotte is planning to appeal against the decision to the Council of State.