Front Matter

© 2009 International Monetary Fund

Production: IMF Multimedia Services Division

Typesetting: Alicia Etchebarne-Bourdin

Cataloging-in-Publication Data

Suriname: toward stability and growth/Western Hemisphere Dept.; Bernhard Fritz-Krockow … [et al.]—Washington, D.C.: International Monetary Fund, 2009.

• p. cm.

Includes bibliographical references.

ISBN 978-1-58906-808-7

• 1. Suriname—Economic conditions. 2. Suriname—Economic conditions—Statistics. 3. Inflation (Finance)—Suriname—4. Monetary policy—Suriname. 5. Dollarization—Suriname. 6. Fiscal policy—Suriname—7. Finance, Public—Suriname. I. Fritz-Krockow, Bernhard. II. International Monetary Fund. Western Hemisphere Dept. HC212 .S875 2009

Disclaimer: This publication should not be reported as representing the views or policies of the International Monetary Fund. The views expressed in this work are those of the authors and do not necessarily represent those of the IMF, its Executive Board, or its management.

Please send orders to:

International Monetary Fund, Publication Services

700 19th Street, NW, Washington, DC 20431, U.S.A.

Telephone: (202) 623-7430  Fax: (202) 623-7201

Internet: www.imfbookstore.org

Contents

• Preface

• 1 Introduction

• 2 Volatility and Policy Responses

  • The Near-Hyperinflation Episodes of the 1990s

  • Economic Performance in an International Context

  • Real Effective Exchange Rate

  • Real Interest Rates

• 3 Coping with Fiscal Revenue Volatility

  • The Public Sector

  • Fiscal Revenue Instability

  • Toward a Stability- and Growth-Oriented Fiscal Policy

• 4 Monetary and Exchange Rate Policy

  • The Financial and Monetary System

  • Exchange Rate Regime

  • The Monetary Policy Transmission Mechanism

  • Toward a Stability-Oriented Monetary and Exchange Rate Policy

• 5 Dollarization in Suriname

  • Overview of Dollarization in Suriname

  • Consequences of Dollarization

  • Dollarization and the Financial System

  • Lessons from Suriname’s Dollarization

• 6 Epilogue

• Appendix. Suriname’s Economic Structure

• Bibliography

• Boxes

  • 2.1. The Exchange Rate System in the Early 1990s

  • 4.1. The Domestic Treasury Bill Market

  • 4.2. Benefits and Challenges of Greater Exchange Rate Flexibility in Suriname

  • 5.1. The Exchange Rate Pass-Through to the Price Level

  • 5.2. Seigniorage

  • A1. Bauxite, Alumina, and Aluminum: A Brief Primer

  • A2. Geology and Oil Exploration in Suriname

  • A3. Staatsolie During the 1990s

  • A4. The Banana Regime under the ACP-EU Partnership Agreement

• Figures

  • 2.1. Money Balances

  • 2.2. Frequency of High Inflation of Latin American and Caribbean Countries

  • 2.3. Terms of Trade Volatility and Frequency of High Inflation, 1991–2005

  • 2.4. Openness and Frequency of High Inflation, 1991–2005

  • 2.5. Governance Indicators

  • 2.6. Real Effective Exchange Rate Volatility and Growth, 1981–90

  • 2.7. Real Effective Exchange Rate Volatility and Growth, 1991–2000

  • 2.8. Ex-Post Real Lending Rates, 1990–2004

  • 4.1. Evolution of Exchange Rates, 1980–92

  • 4.2. Evolution of Exchange Rates, 1994–2002

  • 4.3. Evolution of Exchange Rates, 2002–06

  • 4.4. Inflation, Depreciation, and Money Growth

  • 4.5. Broad Money, Reserve Money, and Money Multiplier

  • 4.6. Growth in Net Credit to the Government and Reserve Money

  • 4.7. Growth in Net Foreign Assets and Reserve Money

  • 5.1. Financial Dollarization, 1996–2005

  • 5.2. Financial Dollarization and Inflation, 1990–2005

  • 5.3. Financial Dollarization and Exchange Rate, 1996–2005

  • 5.4. Foreign and Domestic Currency Deposits in Real Terms, 1996–2005

  • 5.5. Foreign Currency Deposits and Loans, 1996–2005

  • 5.6. Consumer Price Index and Exchange Rate, 1996–2005

  • 5.7. Seigniorage and Dollarization, 1996–2005

  • 5.8. Monetary Aggregates, 1996–2005

  • 5.9. Credit to the Private Sector, 1996–2005

  • A1. Bauxite Production

  • A2. Petroleum Production

  • A3. Recorded Purchases from Small-Scale Mining Operations

  • A4. Area Under Cultivation

  • A5. Agricultural Output

  • A6. Rice Exports

  • A7. Banana Exports

• Tables

  • 2.1. Suriname: Selected Economic Indicators, 1991–95

  • 2.2. Suriname: Selected Economic Indicators, 1996–2001

  • 2.3. Latin America and Caribbean: Selected Economic Indicators, 1991–2005

  • 2.4. Macroeconomic Performance by Region, 1995–2004

  • 3.1. Selected Fiscal Indicators in Latin America and Caribbean Countries

  • 3.2. Suriname: Central Government Expenditure

  • 4.1. Reserve Requirements on Domestic and Foreign Currency Deposits

  • 4.2. Financial System Assets

  • 4.3. Market Share of Commercial Banks

  • 5.1. Dollarization by Region

  • 5.2. Foreign Currency Deposits for Selected Latin American Countries, 2005

  • 5.3. Commercial Banks’ Net Foreign Currency Position, 1996–2005

  • 5.4. International Reserve Coverage of Foreign Currency Deposits, 1996–2005

  • 5.5. Sector Decomposition of Commercial Banks’ Foreign Currency Loans

  • A1. Crude Oil Price Comparison

  • A2. Annual Crude Oil Production

  • A3. Key Oil Indicators

  • A4. Western Hemisphere: Gold Production, 2006

  • A5. Suriname: Gold Concessions

  • A6. Government Revenue from Mining Sector

  • A7. Exports of the Mining Sector

  • A8. Suriname: Banana Prices

Preface

The authors of this paper are International Monetary Fund (IMF) country team members who visited Suriname during 2004–07. Most of the material was prepared specifically for this publication, although some of the material was used previously as background for the Suriname Article IV consultation discussions at the IMF Executive Board. The authors are grateful to the Surinamese authorities for their assistance in providing data and documents and for the extensive discussions and comments that helped clarify and provide focus to the discussions in this publication. The authors are also grateful to the Suriname team of the Inter-American Development Bank.

This paper has benefited extensively from discussions and comments by staff in the Western Hemisphere Department, as well as the staff of the Secretary’s Department at the IMF. We also greatly appreciate the outstanding research assistance provided by Genevieve Mendiola Lindow and Usman Khosa and the excellent production assistance provided by Andrea Aquino. Marina Primorac coordinated the production of the publication.

The opinions expressed here are those of the authors and do not necessarily reflect the views of the IMF, its staff or Executive Board, or the authorities of Suriname.

The analysis in this paper reflects the work of the team until mid-2008 and does not cover the sharp fall in commodity prices since then. The paper does not discuss the macroeconomic challenges of these exogenous shocks or their impact on the balance of payments and the fiscal accounts or the possible need for corrective monetary and exchange rate policies.

The authors

February 2009