This Selected Issues paper describes the revenue instability and its consequences for Suriname. It explores some options for policy rules that could be considered in the case of Suriname. The paper analyzes inflation in Suriname from its historical and international perspectives, reviews the monetary policy instruments and the institutional framework, and describes the exchange rate regime and its main developments. The paper also analyzes the type of macroeconomic shocks and the domestic transmission mechanism for Suriname.

Abstract

This Selected Issues paper describes the revenue instability and its consequences for Suriname. It explores some options for policy rules that could be considered in the case of Suriname. The paper analyzes inflation in Suriname from its historical and international perspectives, reviews the monetary policy instruments and the institutional framework, and describes the exchange rate regime and its main developments. The paper also analyzes the type of macroeconomic shocks and the domestic transmission mechanism for Suriname.

V. The Rice and Banana Sectors1

A. Introduction

1. Agriculture accounts for 9 percent of Suriname’s GDP, and cultivated land covers about 58,000 hectares across the northern plains. Rice is the most important crop, accounting for about 90 percent of agricultural land use, followed by bananas. The share of agriculture in GDP has declined over the past years, reflecting serious problems in the rice sector over the past decade and a collapse of the banana sector in 2002–03.

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Suriname: Area Under Cultivation

(In thousands of hectares)

Citation: IMF Staff Country Reports 2005, 142; 10.5089/9781451835267.002.A005

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Suriname: Agricultural Output

(In percent of GDP at market prices)

Citation: IMF Staff Country Reports 2005, 142; 10.5089/9781451835267.002.A005

B. Rice Sector

Background

2. Rice farming dominates agricultural activity in Suriname. Of the roughly 80–85 percent of agricultural land used for rice cultivation, about one-quarter is farmed by smallholders and three-quarters by a dozen large farmers, including one government enterprise. Rice is sold both domestically and exported to the Caribbean and the European Union (EU), where it enjoys preferential access.

3. Macroeconomic policies in the late 1990s adversely affected the rice industry. In particular, high nominal interest rates increased operating costs, and exchange regulations further increased costs since the industry paid for imported inputs at the parallel-market exchange rate, while export receipts were surrendered at a substantially appreciated official exchange rate. These costs, coupled with a 50 percent drop in export prices during 1995–99, drove a number of operators out of business, and rice production and export volumes slumped. As a result, export proceeds fell from about US$35 million in the mid-1990s to less than US$10 million in 2003.

4. Rice companies face infrastructure and organizational problems. The remaining rice companies operate with very poor facilities and a weak capital base. The industry also suffers from limited vertical organization and integration, while infrastructure is poor (roads, irrigation facilities, and shipping and transportation systems), affecting efficiency and product quality. The more stable macroeconomic environment has supported recovery efforts in recent years, but export prices remain low, reflecting pressure from large low-cost rice producers. In addition, exchange rate appreciation pressures stemming from the buoyant mining industry have continued to undermine the industry’s external competitiveness.

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Suriname: Rice Exports

Citation: IMF Staff Country Reports 2005, 142; 10.5089/9781451835267.002.A005

5. Suriname exports rice to the EU under preferential access. The access was granted to African, Caribbean, and Pacific (ACP) countries in the Cotonou Partnership Agreement signed in June 2000. Under this arrangement, two ACP counties (Guyana and Suriname) were able to export 125,000 tons of husked rice and 20,000 tons of broken rice to the EU at about one-third the customs duties applicable to non-ACP countries, in addition to 35,000 tons of rice that were allowed to enter the EU duty free via Overseas Countries and Territories (OCTs) of EU countries (subject to minimum value-added requirements in the OCTs). Suriname made extensive use of the OCT provision in the mid-1990s through exports to the Netherlands Antilles and Aruba (both of which are OCTs of the Netherlands).

6. Suriname’s preferential access to the EU market is being substantially eroded:

  • With the introduction of more stringent safeguard measures by the EU to curtail rice imports via OCTs, Suriname’s rice exports through the Netherlands Antilles and Aruba dropped significantly in recent years.

  • The EU reduced its general external tariff for rice from €260 per ton to €65 per ton in 2000, and while ACP countries still benefit from a 65 percent discount on that tariff, this reduction implied a relative decline in preferential access vis-à-vis non-ACP rice exporters.

  • The Everything But Arms (EBA) initiative, which was adopted by the EU in March 2001, is further undermining Suriname’s relative preferential access to the European market. This initiative grants quota-free and duty-free access to some 50 least developed countries (as defined by the United Nations) for all goods except weapons and armaments for an unlimited period. Neither Suriname nor Guyana qualify for the EBA initiative. Special transitional arrangements were maintained for sugar, bananas, and rice, but these are scheduled to expire in 2006 (for bananas) and 2009 (for sugar and rice). In the latter case, custom duties under the EBA for non-ACP countries will be reduced by 20 percent in September 2006, and a further 30 percent each in September 2007 and September 2008, and eliminated completely by September 2009.

7. The EU is assisting Suriname to increase competitiveness to cope with the reduction in preferential market access. A €9.5 million grant facility over five years is being channeled through the rice farmers’ association to support primarily small farmers. It provides for (i) technical assistance to introduce high-quality rice varieties, raise yields, and improve processing and packaging; (ii) investment in infrastructure, including irrigation, roads, and transportation systems; and (iii) mechanisms to facilitate and finance credit facilities for small farmers.

8. Suriname is seeking to diversify its rice exports markets. In late 2003, Suriname signed an agreement with Brazil to export rice under a reduced tariff of 4 percent (compared with 11 percent) for a limited period. The rice industry is also looking increasingly to the Caribbean market, in particular Jamaica, to which it can export duty and quota free under Caribbean Community (CARICOM) rules.

C. Banana Sector

9. A state-owned company has been at the center of banana export production since the 1970s. The Surinaamse Landbouwberdijven N.V. (SURLAND) was formed in 1970 to incorporate a number of smaller government plantations into a single entity. As a result, SURLAND controlled 95 percent of all the land used for banana cultivation, the balance being farmed by smallholders for the local market. Since then, SURLAND has been the country’s sole exporter of banana from its plantations in the Nickerie and Jarikaba districts, exporting its produce exclusively to the EU through the Fyffes Group in Ireland, while benefiting from preferential access arrangements under the Cotonou Partnership Agreement (Box 1).

The Banana Regime under the ACP-EU Partnership Agreement

Suriname has exported bananas to Europe under the Lomé and Cotonou Agreements. The Cotonou Partnership Agreement provided for some 850,000 tons of banana from ACP countries to enter the European market duty free on a first-come first-serve basis under the so-called “C” quota (limited exclusively to ACP countries), including 38,000 tons from Suriname. ACP countries could also supply bananas to the European market under the “A” and “B” quotas of 2,200,000 tons and 453,000 tons, respectively, which they, however, would share with non-ACP countries—also on a first-come first-serve basis. While bananas from ACP countries under the “A” and “B” quotas enter the EU duty free, those from non-ACP countries are subject to customs duty of €75 per ton. Beyond these quotas, bananas from non-ACP counties are currently subject to a prohibitive customs duty of €680 per ton, while bananas from ACP countries enter the EU at a reduced customs duty of €300 per ton. An interesting peculiarity of the EU banana regime is that the quotas are held by firms (so- called traditional operators) for imports into the EU from any of the ACP countries. There is an active “license” market whereby operators from the Caribbean, who own the rights to export larger quantities than they can produce, sell these rights to African operators who have high export capacity but own fewer quota rights.

The preferential access that ACP countries enjoyed is being eroded. Following a successful challenge of the EU banana regime by the United States and Ecuador before the WTO’s Dispute Settlement Body, the EU agreed to amend this regime in two steps, culminating in a replacement of the quota-based system with one relying exclusively on tariffs by January 1, 2006. In January 2005, the European Commission notified the WTO of its intension to introduce the tariff-only system for banana imports at the customs duty level of €230 per ton for non-ACP countries without quota limitations. ACP countries would continue to benefit from duty-free access to the European market up to 2008, and—for those who qualify thereafter—under the EBA. In order to assist the ACP countries to adjust to the changes in the banana regime, the EU established a Special Framework of Assistance (SFA) with commitments of €366.8 million for the period 1999–2009.

10. Suriname’s banana industry collapsed in 2002. Annual banana exports had averaged about 31,000 tons or US$24.5 million during the 1990s, despite SURLAND’s serious financial problems, which reflected poor management, outdated technology, weak pest and disease control, and labor strife. However, owing to the downward pressure on banana prices in the European market, the Fyffes Group reduced its purchasing price for bananas from Suriname by about 25 percent in late 2000. As a result, SURLAND declared bankruptcy and closed down its operations in April 2002.

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Suriname: Banana Exports

Citation: IMF Staff Country Reports 2005, 142; 10.5089/9781451835267.002.A005

11. The authorities have put into action a rehabilitation program for the banana sector in 2002. Under the plan, a new company—the Foundation to Save the Suriname Banana Sector (SBBS)—has assumed SURLAND’s assets and restarted operations, while the government is to assume the financial liabilities of SURLAND. The EU is supporting this effort with €21 million in grants from the Special Framework of Assistance (SFA) Fund, including technical assistance aimed at doubling the industry’s productivity and yields to about 40 tons per hectare and enable it to compete internationally once the preferential access of ACP countries lapses. The Inter-American Development Bank is providing a US$7.3 million loan to recapitalize the industry, with a view to preparing it for privatization. The SBBS is overseen by a steering committee that includes representatives from the donor community and other stakeholders. A new management team was hired to operate SBBS, and revised employment regulations and a new pay structure are being developed, while some of the former SURLAND employees have been retained on a temporary basis, pending the company’s privatization.

12. SBBS has begun operations to rehabilitate the industry. About 2,370 hectares of land were cleared of old banana plants during 2002–03, and replanting was started in the second half of 2003, using higher-quality varieties. However, production in 2004 remained somewhat behind target. There has also been limited progress in identifying a strategic investor to whom the government would sell its stake in SBBS. Nevertheless, the government remains optimistic that once banana production and quality have been enhanced, sufficient foreign interest will be generated to move ahead with what would be the first privatization of a major state-owned enterprise in Suriname.

Suriname: Strategic Plan for the Banana Sector

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Source: Ministry of Planning and Development.

References

  • Suriname Ministry of Planning and Development Cooperation, 2003, “Restructuring of the Banana Sector in Suriname,” Document 18, (Paramaribo).

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  • Economist Intelligence Unit, 2004, “Suriname: Country Profile 2004,” (London).

  • World Trade Organization, 2004, “Suriname: Trade Policy Review,” (Geneva).

  • De Surinaamsche Bank (DSB), 2004, “Annual Report 2003,” (Paramaribo).

  • European Union, 2005, various fact sheets on external trade, http://europa.eu.int/comm/trade, (Brussels).

Table 1.

Suriname: Gross Domestic Product by Sectors of Origin at Constant Prices

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Sources: Suriname authorities; and IMF staff estimates.
Table 2.

Suriname: Gross Domestic Product by Sectors of Origin at Current Prices

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Sources: Suriname authorities; and IMF staff estimates.
Table 3.

Suriname: Gross Domestic Product by Expenditure at Constant Prices

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Sources: Suriname authorities; and IMF staff estimates.
Table 4.

Suriname: Gross Domestic Product by Expenditure at Current Prices

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Sources: Suriname authorities; and IMF staff estimates.
Table 5.

Suriname: Agriculture, Livestock, and Fisheries—Production Data

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Sources: General Bureau of Statistics.

Cabbage, tomatoes, and green vegetables.

In thousands of units.

In millions of units.

Table 6.

Suriname: Bauxite Sector—Production Data

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Sources: Central Bank of Suriname; Bauxite Institute of Suriname; and World Metal Statistics Yearbook 2004.
Table 7.

Suriname: World Production, Consumption and Changes in Stocks of Primary Aluminum

(In thousands of metric tons, unless otherwise indicated)

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Sources: World Metal Statistics Yearbook 2004; EDSS; Commodity Price System.

U.S. dollars per metric ton.

Table 8.

Suriname: Purchases of Gold from Small-Scale Mining

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Source: Central Bank of Suriname.

Preliminary data.

Table 9.

Suriname: Electricity Generation

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Source: Suriname authorities (Energie Bedrijven Suriname).

The maximum electric load in specified time period.

Preliminary data.

Table 10.

Suriname: Consumer Price Index—Paramaribo and Suburbs

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Source: General Bureau of Statistics.

Figures until 2000 were re-estimated by staff, using the pre-2001 CPI and weights.

Figures until 1999 were re-estimated by staff, using the pre-2001 CPI and weights.

2003 is an IMF staff estimate. CPI data are not available between July 2003 and March 2004, owing to a fire that destroyed the General Bureau of Statistics’ (ABS) building, at which time ABS staff ceased to collect price information until March 2004.

Table 11.

Suriname: Employment by Sector

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Sources: General Bureau of Statistics; and IMF staff estimates.
Table 12.

Suriname: Population Data

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Source: General Bureau of Statistics.
Table 13.

Suriname: Central Government Operations

(In millions of Suriname dollars)

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Sources: Ministry of Finance; Central Bank of Suriname; and IMF staff estimates.
Table 14.

Suriname: Central Government Operations

(In percent of GDP)

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Sources: Ministry of Finance; Central Bank of Suriname; and IMF staff estimates.
Table 15.

Suriname: Central Government Revenue and Grants

(In millions of Suriname dollars)

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Sources: Ministry of Finance; Central Bank of Suriname; and IMF staff estimates.

Also includes payments of unclassified tax arrears.

Table 16.

Suriname: Central Government Revenue and Grants

(In percent of GDP)

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Sources: Ministry of Finance; Central Bank of Suriname; and IMF staff estimates.

Also includes payments of unclassified tax arrears.

Table 17.

Suriname: Central Government Expenditure

(In millions of Suriname dollars)

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Sources: Ministry of Finance; Central Bank of Suriname; and IMF staff estimates.

1999 includes suppliers’ credits to finance bridge construction.

Expenditure of the Ministry of Defense, including wages and salaries, goods and services, utilities, etc.