Hamilton Bank N.A.
Economic Unit
Money Supply and Interest Rates
External position and Foreign Exchange Availability
| Overall Country Risk Rating | B |
|
Political Stability |
B |
| Economic Conditions | B |
| External Position and Foreign Exchange Availability | B |
Rafael Amiel
May, 1997
General Outlook
The five-party, democratically elected, coalition government of the president, Jules Wijdenbosch,
in power since September 1996, has moved cautiously in adopting unpopular economic policies.
There is still some controversy regarding the intentions of the military as it regards the newly
elected democratic government. But the sentiment may be unfounded taking the fact that its
leadership incorporated and participated as a political party since 1987.
However, the government has defied some of the skepticism about its economic management by
consolidating the macroeconomic achievements of the previous government. The maintenance of
exchange liberalization and the backing of money supply with gold reserves is, politically, an easy
choice, given the fall in inflation that has resulted. But the government's decision to introduce an
unpopular, but necessary, sales tax is both courageous and encouraging, since it holds out the hope
of fiscal stabilization. This sales tax -due to become effective in July 1997- coupled with the
elimination of subsidies on utilities will compensate for the proposed 50% increase of state
employees salaries.
With continued macroeconomic stability, private sector confidence is improving and so is the
outlook for investment in mining and forestry. The prospect is of economic growth holding up in
1997 and improving in 1998. This year exports should benefit from the upward trend in aluminum
prices and increased efficiency in Suriname's alumina industry as a result of the investment by two
major firms. In 1998, gold exploration activities should give a boost to output from this sector.
Crude oil production is promising. The state oil company, Staatsolie, reported that output is
increased by 6.7% in 1996, and is expected to increase almost 18% in 1997.
| Economic Summary | ||||
| 1993 | 1994 | 1995 | 1996 | |
| Real GDP growth % | -4.5 | -0.8 | 4.0 | 3.0 |
| Consumer Price Inflationa | 243.5 | 369.0 | 235.9 | -0.8 |
| Exports (fob $m) | 298.3 | 293.6 | 416.2 | 433.0 |
| Imports (fob$m) | 213.9 | 194.3 | 293.1 | 400.0 |
| Trade Balanceb | 84 | 99 | 123 | 33 |
| Current Account $m | 44 | 58 | 73 | -24 |
| Int'l Reserves $m | 17.7 | 39.7 | 132.9 | 96.3 |
| Exchange rate year-enc | 1.78 | 409.5 | 407 | 401 |
| Import Cover (months)d | 0.9 | 2.4 | 5.4 | 3.2 |
a = year average variations; b = merchandise; c = Surinamese Guilders: 1US$; d = number of months imports covered by international reserves.
Sources: IMF, ECLAC, IADB, EIU
The Economy
Suriname's macroeconomic situation continued to be broadly favorable in 1996, although a
downturn in international aluminum prices caused some indicators to worsen. In particular, the
macroeconomic stability that occurred after May 1995, has been sustained in 1996 by a stable
nominal exchange rate and a continued fall in the inflation rate. Given that the economy is
dominated by the bauxite industry, which accounts for upwards of 15% of GDP and more than
65% of export earnings, the decline in international aluminum and alumina prices had a negative
impact on several economic indicators, for instance: the fiscal surplus has declined, economic
growth has slowed, and the current account on the balance of payments has shifted from a large
surplus into a deficit.
Economic growth has probably slowed from the 4.0% rate recorded in 1995. The slowdown has
been most marked in the sectors, such as distribution and the construction, that benefitted from a
consumption boom last year. While these sectors have continued to grow in 1996, it is likely that
their growth has slowed. In addition, manufacturing output from the domestic market has probably
declined also, due to a loss of market share to imports from CARICOM countries.
Exchange Rate and Inflation
the Central bank has maintained the Surinamese guilder at around SG400 per US dollar for the
whole year 1996. Since Suriname's economy is small and very open, the use of the exchange rate
to control inflation has been particularly effective. Annual average inflation has declined from
236% in 1995 to around -0.8% in 1996. Measured on a December to December basis, inflation
fell from 37% to under 0.5% in 1996.
Money Supply and Interest Rates
The increased stability has fostered a re-monetization of the economy and the narrow money
supply, M1, has increased from 14% of GDP in 1995 to 20% in 1996. Money demand has
increased in line with the increased money supply partly because of the renewed confidence in the
Surinamese guilder and partly because of a sharp increase in real interest rates. Real interest rates
have risen because inflation has declined much faster than nominal interest rates, which have
declined only slightly from 40% in 1995 to around 37% in 1996.
External position and Foreign Exchange Availability
Despite continuation of the outward signs of stability, however, the major factor underpinning
economic stability weakened in 1996. In 1995, international aluminum and alumina prices had
increased by 37% and 26% respectively, providing Suriname with a large positive terms of trade
shock. The export price rises increased export revenues, thereby strengthening the balance of
payments, and increased bauxite company profits, thereby boosting government revenues.
However, these favorable trends were reversed in early 1996. The ending of a two-year price
stabilization agreement between major producers and buyers in December 1996 sent prices
tumbling from US$ 1800/ton in November 1995 to around US$ 1300/ton in October 1996. The
outlook for 1997 is very favorable. By the end of April 1997 the price had recovered to US$
1600/ton and the trend is upwards.
The effect of the alumina and aluminum export price declines on the balance of payments has
been compounded by falls in the export volume of these commodities. Partly reflecting the less
attractive international prices, the volume of alumina exports declined approximately by 10% in
1996 and that of aluminum by 8%. Therefore, overall bauxite sector exports declined from US$
356 million in 1995 to around US$ 301 million in 1996. By contrast, imports of goods increased
from US$ 293 in 1995 to around US$ 400 million in 1996, reflecting a continuation of the
consumption-driven import boom in the second half of 1995. The combination of declining
exports and higher imports levels reduced the trade surplus from US$ 123 million in 1995 to
around US$ 23 million in 1996 and converted the current account surplus of US$ 73 million in
1995 to a deficit of US$ 24 million in 1996.
The capital and financial account deficit increase marginally from US$ 11 million in 1995 to US$
12 million in 1996. The only significant development in the capital and financial account has been
an acceleration of the government's repayment of external debts arrears, with the result that the
stock of external debt has declined slightly and Suriname's international credit rating has improved.
Largely as a result of the deterioration in the current account, international reserves diminished by
around US$ 36 million in 1996 compared with an increase of US$ 93 million in 1995.
Public Finances
the decline in alumina prices also contributed to a reduction in the fiscal surplus from 5.7% of
GDP in 1995 to 2.2 % in 1996. Total revenues have declined from 36.5% of GDP in 1995 to
35.2% in 1996, partly because of a reduction in corporation tax revenues due to a fall in bauxite
company profits and partly because of a reduction in personal income tax revenues, following cuts
in income tax rates in the 1996 Budget. The fall in direct tax revenues has been partly offset by an
increase in indirect tax revenues. Revenues from custom duties have risen, despite tariff cuts on
imports from CARICOM countries, because of the higher volume of imports. Total expenditures
have increased slightly also, from 31.2% of GDP in 1995 to 33% in 1996, as a result of higher
outlays on all expenditure categories apart from goods and services.
Major Macroeconomic Issues
The major macroeconomic issue facing Suriname in the short to medium term is the durability of
the economic stabilization. The downturn in alumina prices weakened the country's external
position but prices have recovered and should stabilize. The centerpiece of the stabilization has
been a stable nominal exchange rate and falling inflation. However, the official exchange rate has
appreciated in real terms for three years in a row and may now be overvalued. The most obvious
manifestation of over evaluation has been the switch from a large current account surplus ans an
accumulation of reserves in 1995 to a current account deficit and a loss of reserves in 1996. As a
result, import cover has fallen from five months at the end of 1995 to 3 months of import at the
end of last year.
These trends seem to indicate that at some point the authorities will have to adjust the exchange
rate level. However, given the favorable outlook of the external sector based on increasing
aluminum prices we do not foresee that to happen in the near future. Adjusting the exchange rate
would disrupt the exchange rate's role as an anchor for prices. At a minimum, most domestic
prices would increase in proportion to the exchange rate devaluation and could trigger a renewed
loss of confidence in the currency with a concomitant decrease in money demand and flight into
foreign currency and goods. Again, this scenario is very unlikely, at least in the short term.
Medium term Perspectives
In the short term the current macroeconomic stability is likely to continue, marked by continued
exchange rate stability and low inflation. However, as outlined above, in the medium term
macroeconomic stability depends heavily on changes of alumina prices. Under such a scenario, the
economic outlook would depend on how the incoming government responds to that challenge,
particularly with respect to its fiscal and exchange rate policy.
For the medium and long term, if the government sustains the progress already made on the
macroeconomic front and initiates microeconomic and institutional reforms that liberate the
country's productive potential, Suriname will have a golden opportunity to start to recoup the
ground lost in the last two decades. If, on the other hand, the new government attempts to turn the
clock back and abandons the policy pillars on which the current stability is based -a balanced
budget, a unified exchange rate at a realistic level, a sizable stock of international reserves- then the
consequences could be favorable.
Preliminary indications of the new government's economic policies point to a continued emphasis
on sound fiscal and monetary policy, which should ensure that a stable macroeconomic
environment is maintained. Since a stable macroeconomic environment is a prerequisite for
development progress, this augurs well. There is still some government intervention in the
economy in the form of subsidies. According to the policy makers these subsidies are incentive
compatible and will be removed progressively.
The first Europeans settled in Suriname in 1650. Most of them did not make it long. Indians and
diseases decreased their numbers. The first English settlers were sent by Lord Willoughby, the
governor of Barbados. The Zealander Abraham Crijnsen invade Willoughby's settlement and after
the peace treaty of Breda (1667) the Dutch gained Suriname but lost their colony in North
America (New York).
It was not cheap to protect the plantations in Suriname from attacks from Indians and hostile
Europeans. Therefore the Zealanders sold the colony to the Dutch trade company West Indische
Campanie and the family van Sommelsdijck in 1683. The head of family, Cornelis van Aerssen
heer van Sommelsdijck, became governor of Suriname. Sommelsdijck improved the security of
the plantations. He was killed in a mutiny in 1688.
After a troublesome period at the end of seventeenth and the beginning of eighteenth century,
agriculture flourished in Suriname in the first half of the eighteenth century. Most of the work on
the plantations was done by African slaves. The salves outnumbered the Europeans at the
plantations. They were not treated very well: In the Caribbean region Suriname had a bad name
with respect to slave treatment. Many slaves fled into the jungle. These refugees were named
Maroons. Often the returned to attack the plantations.
The Governors Mauritius and Crommelin succeeded in making peace treaties with some maroon
tribes. Still there were tribes that attacked the European settlements. On of the best known maroon
tribe leaders of the second half of the eighteenth century was Boni. The French Revolutions of
1789 led to abolition of slavery in Suriname's eastern neighbor French Guiana which shocked the
Surinamese Plantation owners.
Suriname was occupied by English in 1799 after the Dutch became part of France (Bataafse
Republiek). Apart from the period between 1802 and 1804 Suriname remained English territory
until 1816. The English abolished slave trade in 1808 and improved the positions of the
Surinamese slaves. After the defeat of napoleon The Netherlands got back their colony in South
America.
On July 1, 1863 the Dutch were the last Europeans to abolish slavery. Ten years before that date,
the owners of the plantations had started importing laborers from other continents. The first were
Chinese people from Indonesia. Some years before them some Dutch farmers from Groningen
were taken to the country to start small farms. These attempts to save the agricultural importance
of Suriname were no success: Half of the Dutch farmers died within a year and the Chines
immediately left the plantations after a 5-year obligatory period.
The Surinamese slaves were not completely free from 1863. They had to work another ten years at
the plantations. The only difference was that they received some kind of payment during the years
1863-1873. The former African slaves left the plantations in 1873. They were replaced by
Hindustani laborers from India (most from around Calcutta). Like the Chinese, these people were
required to work on the plantations for some years after which they could return to India or
prolong their contract. About 37,000 Hindustanis were imported to Suriname before a movement
in India led by Mahatma Ghandi stopped this immigrations in 1916.
The Indian laborers were replaced by people from another Dutch colony: Indonesia. About 33,000
Indonesians came to Suriname between 1890 en 1940. Like the Hindustanis most of them left the
plantations after fulfilling their contract and started a small farm. The plantations lost their
importance for the economy of the country. For example, the number of sugar plantations
decreased from 80 in 1863 to 4 in 1940.
In the first half of the twentieth century the exploration of other natural resources of Suriname
started. Natural rubber, gold and bauxite became important for the economy of Suriname. The
American Bauxite Company ALCOA obtained a claim on a large part of the interior of Suriname
for a period of forty years. The bauxite produced by SURALCO, ALCOA's subsidiary, was
probably Suriname's most important contribution to allied forces during World War II. Aluminum,
made from bauxite, was very important for constructing airplanes.
Suriname was on its own during the German occupation of the Netherlands (1940-1945). At the
time the Netherlands got occupied, the Germans had a large ship, the Goslar, in Paramaribo. The
captain of the ship managed to sink the ship before it could be taken over by the Surinamese
authorities. The remains of the ship still lie in the harbor of Paramaribo. After the war the political
status of the Dutch colonies was changed.
The Dutch had succeeded in keeping the different ethnic groups of Paramaribo apart. The results
of this can be seen in the political parties which emerged in Suriname in 1950. The most important
parties were NPS (later NPK: mostly Creoles from African origin) and the VHP (mostly
Hindustanis).
After the 1973 elections the NPK-government suddenly started to negotiate with the Netherlands
about the independence of Suriname. The negotiations succeeded. Suriname became independent
at November, 25 1975 and the Netherlands agreed to support the young country for ten years with
a total amount of four billion guilders. Dr. Johan Ferrier became the first president of the
independent Suriname and the first prime minister was Henk Arron. Many Surinamese did not
trust an independent Suriname and fled to The Netherlands.
After a short period of political instability at the end of the seventies a group of sixteen young
militaries overtook the government in 1980. This revolution was welcomed by the population that
expected that the new government installed by the army would end corruption and improve the life
standard in Suriname. The Dutch initially accepted the new government. However the cooperation
between Suriname and The Netherlands collapsed when 15 political opponents were killed by the
army in December 8, 1982.
Without the Dutch development money a lack of foreign currency occurred in Suriname and the
inflation rate started to rise. Democracy was reinstalled in 1991. There were general elections after
which Dr. Ronald Venetiaan was chosen as president of Suriname. During his 5-year period in
government democracy was consolidated. In May 1996, general elections took place and four
months later the People's Assembly elected Jules Wijdenbosch of the National Democratic Party
as the president of Suriname.
Geography
Location: Northern South America, bordering the North Atlantic Ocean, between French Guiana
and Guyana.
Geographic coordinates: 400 N, 5600 W
Area:
total area: 163,270 sq km
land area: 161,470 sq km
Land Boundaries:
total: 1,707 km
Border countries: Brazil 597 km, French Guiana 510 km. Guyana 600 km.
Coastline: 386 km
Maritime claims:
exclusive economic zone: 200 nm
International disputes: claims area in French Guiana between Litani Rivier and Riviere Marouini (both headwaters of the Lawa Rivier); claims area in Guyana between New (Upper Courantyne) and Courantyne/Koetari Rivers (all headwaters of the Courantyne)
Climate: tropical; moderated by trade winds
Terrain: mostly rolling hills; narrow coastal plain with swamps
lowest point: unnamed locations in the coastal plain -2m
highest point: Wilhelmina Gebergte 1,286 m
Natural resources: timber, hydro power potential. Fish, shrimp, bauxite, iron ore, and small amounts of nickel, copper platinum and gold.
Land use:
arable land: NEGL %
permanent crops: 0%
meadows and pastures: 0%
forest and woodland: 97%
other: 3%
Irrigated land: 590 sq km (1989 est.)
Environment:
current issues: deforestation as foreign producers obtain timber concessions
natural hazards: NA
international agreements: party to - Endangered Species, marine Dumping, Nuclear Test ban, Ship Pollution, Wetlands, Whaling: signed, but not ratified -Biodiversity, Climate Change, Law of the Sea
Geographic note: mostly tropical rain forest; great diversity of flora and fauna which for the most
part is not threatened because of the lack of development; relatively small population most of
which lives along the coast.
People
Population 436,418 (July 1996 est.)
Age structure
0-14 years: 34% (male 74,959; female 71,500)
15-64 years: 62% (male 136,287; female 132,407)
65 years and over: 4% (male 9,930; female 11,335)(July 1996 est)
Population growth rate 1.6% (1996 est)
Birth rate 24.15 births/1,000 population (1996 est.)
Death rate 5.84 deaths/1,000 population (1996 est.)
Net migration rate -2.36 migrants/1,000 population (1996 est.)
Life expectancy at birth
total population 70.04 years
male 67.51 years
female 72.7 years (1996 est.)
Total fertility rate 2.68 children born/woman (1996 est.)
Ethnic division: Hindustani (also known locally as East Indians; their ancestors emigrated from
northern India in the latter part of the 19th century) 37%, Creole (mixed European and African
ancestry) 31%, Javanese 15.3%, "Bush Black" (also known as "Bush Creole" whose ancestors
were brought tot the country in the 17th and 18th century as slaves) 10.3%, Amerindians 2.6%.
Chines 1.7%, Europeans 1%, other 1.1%.
Religions: Hindu 27.4%, Muslim 19.6%, Roman Catholic 22.8%, Protestant 25.2%
(predominantly Moravian), indigenous beliefs 5%.
Languages: Dutch (official), English (widely spoken), Sranang Tongo (Surinamese, sometimes
called Taki-Taki, is native language of Creoles and much of the younger population and is lingua
franca among others), Hindustani (a dialect of Hindi), Javanese.
Literacy: age 15 and over can read and write (1995 est)
total population 93%
male 95.1%
female 91%