March 21, 2007

1. On behalf of the Surinamese authorities and of our chair, we would like to thank the new mission chief and his team for a very engaging and useful dialogue during the last Article IV Consultation. We welcome the focus of the streamlined consultations, as well as staff’s candid assessment and accurate reproduction of the authorities’ points of view. We also take this opportunity to thank Management for the assistance being provided to strengthen public financial management, tax legislation, and tax administration in Suriname. The Fund’s technical support, whether through formal TA or on the occasion of Article IV missions, is highly valued by the Surinamese authorities.

2. The past year has been good for the Surinamese economy and the outlook is also favorable for the near and medium terms. Growth reached 5.8 percent in 2006 and is expected to remain above 5 percent in 2007. Inflation, after last year’s hike caused by the liberalization of domestic fuel prices, fell by more than two thirds to 4.7 percent, and the CBvS projects that it will stay within the 4 to 6 percent range in the medium term. The external position was reinforced with gross international reserves now covering two months of imports and the external current account ending 2006 with a significant surplus of 5 percent of GDP. The external position is also expected to stay strong in 2007.

3. The successful outcomes are imputable not only to a favorable external environment, in the form of high prices of export commodities, but also to prudent macroeconomic management. Fiscal discipline and cautious monetary and exchange rate policies allowed the fiscal balance to be brought to a surplus and public debt to be reduced by 6.6 percent of GDP – of which almost half corresponds to reduction of external debt – while the exchange rate remained stable. Furthermore, Suriname has normalized its relationship with most bilateral creditors by eliminating payment arrears and is engaged in discussions with the creditors on the two main bilateral arrears still outstanding. Recognizing Suriname’s high growth prospects and its efforts to clear arrears, in December 2006, Standard and Poor’s upgraded Suriname’s long-term foreign currency sovereign credit rating from a B- to a B.

4. There is no doubt that confidence in the economy has been boosted. Nevertheless, the high degree of concentration of activities in the mineral sectors, capacity constraints, and the weakness of certain institutional levers in the public sector are challenges that still need to be conquered. Some diversification of Suriname’s export base has been achieved in recent years, but Suriname’s mineral resources will remain the major source of fiscal revenue and foreign exchange for some years to come. Investments envisaged for the near term in the extractive industries (bauxite, gold and oil) are very large in relation to the size of the economy and will for the most part be financed by foreign capital. While they are indeed an opportunity to jumpstart the economy, enabling Suriname to fulfill its growth potential, the authorities recognize the need to be cautious to prevent natural resources from turning into a “rich man’s curse”. Putting in place effective investment strategies and efficient allocation mechanisms for the use of the incomes from these large-scale investments is a priority for the Surinamese government, whose chief concerns include ensuring fiscal sustainability and an equitable sharing of benefits.

5. While there is widespread public recognition of the value of the macroeconomic stability attained in recent years, the government is under mounting pressure to produce a significant improvement in the well-being of the population, particularly in light of the much vaunted wealth of the country in terms of natural resources and the occasion at hand to unlock such wealth. Thus, one of the several challenges the authorities face is that of finding the appropriate mix of fiscal, monetary and social policies, in order to safeguard internal and external balance while yielding significant sustainable growth and a reduction in poverty. In this regard, the authorities look forward to the Fund’s assistance in setting up a revenue stabilization fund, and thank the mission for its prompt provision of basic information on some successfully managed funds around the world. The establishment of the stabilization fund is of utmost priority and perfectly in line with the efforts of the authorities to enhance the credibility and sustainability of fiscal policy. The Fund’s support in designing the overall fiscal framework within which this stabilization fund would be integrated is also being sought. Such a framework would facilitate the construction of budgets that are more efficient policy tools with realistic expenditure targets based on reliable revenue projections and prioritized objectives.

6. While it is the authorities’ hope to carry forward the aforementioned projects in the very near future, they are cognizant of the primary importance of broad political consensus on the timing and sequencing of reforms, in order to obtain legislative approval and general social acceptance. The limited availability of qualified human resources has also turned out to be a binding constraint against which the authorities will have to press in their reform efforts. The reliability of the statistical database is another key element for the successful implementation of a revamped macroeconomic framework, including a revenue stabilization fund as one of its elements. As staff notes in the report, despite notable improvements over recent years, important weaknesses remain in the statistical area. Accordingly, the Surinamese authorities are looking forward to the assistance they will receive from the IMF to address the remaining statistical deficiencies and to shorten data production delays.

7. To conclude, we offer a few comments on two issues staff touched upon in the report, namely dollarization and exchange rate policy. On financial dollarization, it is important to note that the reserve requirement on domestic deposits has been progressively lowered since last year, thus increasing the spread between reserve requirements on liabilities in domestic currency versus those in foreign currency. It is the authorities’ expectation that this measure will help dampen dollarization until more permanent prudential norms are adopted. On exchange rate policy, it is worth underscoring that several steps have been taken towards the unification of the private and official markets. The latest include the purchase of petroleum products through the private market, which practically reduces transactions at the official rate to government payments only. Nonetheless, the CBvS has no immediate plan to discontinue the publication of the official exchange rate as it remains persuaded that the published rate provides a credible and tested anchor to inflation expectations, which has served Suriname well in spite of the progressive strengthening of domestic demand management policies. The authorities also point out the fact that the CBvS, while not legally mandated to observe a ceiling on the spread between the market and official rates, has in practice generally kept the spread below 2 percent, which is evidence that the existing system has not caused material distortions in the foreign exchange market.