The Economy of Surinam
Author: Hermann Joseph Dudler, Erhard Fürst, Michiel Hardon, and Marie Henriette Lambert
Publication Date:
01 Jan 1971
ISBN:
9781451969276
Language:
English
Keywords:
SP; interest rate; central bank; Surinam guilder; balance of payments; commercial bank; foreign aid; Commercial banks; Exports; Imports; Budget planning and preparation
Download PDF (3.8 MB)

SURINAM—formerly known as Netherlands Guiana—is situated between the Republic of Guyana and French Guiana on the northeast coast of South America. The country covers an area of about 60,000 square miles but has a population of only about 400,000. Surinam’s economic potential lies largely in its natural resources, which include huge deposits of high-quality bauxite. In the early postwar period Surinam was the world’s main supplier of bauxite, accounting for about one fourth of the world supply. Despite a rapid expansion of bauxite production in the 1960s, Surinam has nevertheless lost its leading position in this field to Jamaica and Australia. Prospecting has revealed the existence of other minerals, which have thus far remained undeveloped. The coastal area and parts of the interior are eminently suitable for agriculture. Production of rice—the main crop—has been stimulated in the framework of the Wageningen scheme, one of the largest mechanized rice estates in the Western Hemisphere. Other important crops include bananas, sugar cane, and citrus fruits. Forests, which cover about 80 per cent of the area of Surinam, include a wide variety of accessible wood resources, which have hardly begun to be developed. The country’s large rivers have a substantial potential for producing hydroelectric power.

Abstract

SURINAM—formerly known as Netherlands Guiana—is situated between the Republic of Guyana and French Guiana on the northeast coast of South America. The country covers an area of about 60,000 square miles but has a population of only about 400,000. Surinam’s economic potential lies largely in its natural resources, which include huge deposits of high-quality bauxite. In the early postwar period Surinam was the world’s main supplier of bauxite, accounting for about one fourth of the world supply. Despite a rapid expansion of bauxite production in the 1960s, Surinam has nevertheless lost its leading position in this field to Jamaica and Australia. Prospecting has revealed the existence of other minerals, which have thus far remained undeveloped. The coastal area and parts of the interior are eminently suitable for agriculture. Production of rice—the main crop—has been stimulated in the framework of the Wageningen scheme, one of the largest mechanized rice estates in the Western Hemisphere. Other important crops include bananas, sugar cane, and citrus fruits. Forests, which cover about 80 per cent of the area of Surinam, include a wide variety of accessible wood resources, which have hardly begun to be developed. The country’s large rivers have a substantial potential for producing hydroelectric power.

I. Introduction

SURINAM—formerly known as Netherlands Guiana—is situated between the Republic of Guyana and French Guiana on the northeast coast of South America. The country covers an area of about 60,000 square miles but has a population of only about 400,000. Surinam’s economic potential lies largely in its natural resources, which include huge deposits of high-quality bauxite. In the early postwar period Surinam was the world’s main supplier of bauxite, accounting for about one fourth of the world supply. Despite a rapid expansion of bauxite production in the 1960s, Surinam has nevertheless lost its leading position in this field to Jamaica and Australia. Prospecting has revealed the existence of other minerals, which have thus far remained undeveloped. The coastal area and parts of the interior are eminently suitable for agriculture. Production of rice—the main crop—has been stimulated in the framework of the Wageningen scheme, one of the largest mechanized rice estates in the Western Hemisphere. Other important crops include bananas, sugar cane, and citrus fruits. Forests, which cover about 80 per cent of the area of Surinam, include a wide variety of accessible wood resources, which have hardly begun to be developed. The country’s large rivers have a substantial potential for producing hydroelectric power.

The population is mainly of African and Indian orgin, each accounting for more than one third of the total. Until a few years ago the population was growing at the exceptionally rapid rate of more than 3.5 per cent per annum, but recently the rate is estimated to have slowed down, mainly as a result of increased emigration. Nearly one half of the population is under 15 years of age and only 4 per cent is 65 or older. Rough estimates put the labor force at 100,000 people, about 25 per cent of the population. More than one fourth of the labor force is engaged in agriculture, which accounts for some 12 per cent of gross domestic product (GDP). By contrast, bauxite mining and processing, which account for about one third of GDP, provide employment for only 6–7 per cent of the labor force. For a number of years there has been a strong movement out of agriculture to small businesses, private services, and, particularly, government employment. About 25 per cent of the labor force is presently on the government payroll.

When Surinam achieved internal self-government in 1954, the authorities set out to stimulate growth through a comprehensive Ten-Year Development Plan, which centered on the improvement of infrastructure. The Netherlands Government agreed to provide most of the financing for the investments projected in that Plan. A separate plan, the so-called Brokopondo Plan, provided for the exploitation of large bauxite deposits in an area fairly close to Paramaribo, including the construction of an aluminum factory and a large hydroelectric complex to provide energy for the smelters. Total investments under the Ten-Year Plan and the Brokopondo Plan have been estimated at some Sur. f. 500 million (Surinam guilders 1.88585 = US$1). Under the impetus of these investments, the growth of real gross national product (GNP) accelerated strongly from the second half of the 1950s to the first half of the 1960s, when most of the investments were implemented. Despite the rapid population growth, per capita income has nearly doubled in real terms since the early 1950s and now amounts to about $600, which is above the average for countries in South America.

II. Structure of the Economy

Country and population

History

The area known as Guiana was visited by Spanish explorers shortly after the discovery of America in 1492, but it was not claimed for the Spanish sovereign until a century later. The Dutch and British were also interested in the area; the latter started the first settlements and founded the colony about 1650. The Dutch captured it during the second Dutch-British war and were so keen on keeping it that during the peace negotiations in 1667 it was assigned to them in exchange for New Amsterdam, which was taken in the same war by the British and renamed New York. Afterward, Surinam changed hands between the British and the Dutch on more than one occasion, until 1816 when it finally became Dutch.

In the seventeenth and eighteenth centuries Surinam derived most of its wealth from agriculture, mainly cotton, coffee, and sugar, which were grown on large plantations. The Dutch plantation owners—in the middle of the eighteenth century there were nearly 1,000 plantations—imported large numbers of Negro slaves from Africa. Prosperity faded toward the end of the eighteenth century when the prices of tropical products in Europe declined sharply, ending in a crisis on the Amsterdam Stock Exchange in 1773. Afterward, many plantation owners abandoned their estates, and the once rich colony had to rely on aid from the Netherlands to offset the deficit in its budget.

The profitability of the remaining plantations was again threatened in 1863, when slavery was abolished and the plantation owners had to look for other sources of labor. In anticipation of the abolition of slavery, Chinese workers were contracted from the Dutch East Indies and later directly from China. Permission was also obtained from the United Kingdom to recruit labor from India, and, beginning in 1890, Javanese were hired—adding new segments to an already mixed community.

In the twentieth century mining has taken the place that agriculture had occupied. Surinam’s bauxite resources are among the richest in the world, and its share of world production rose to more than one fourth of the total immediately after World War II, when new mines were put into operation, but its share has declined to less than 15 per cent since late in the 1950s.

The people

Surinam’s population (including the tribes) is currently estimated at about 400,000. The average density of population (6.5 persons per square mile) is low, but most of the people live in the fairly densely populated coastal areas along the lower reaches of the rivers. At the time of the latest census (1964), one third of the population resided in the city of Paramaribo and about two thirds in the capital and its outskirts, an area of about 1,700 square miles. Most inhabitants in the Paramaribo district are of African, Chinese, or European origin; the majority of the population in the coastal plains is of Indian and Indonesian origin; and the hinterland is inhabited by Negro and Amerindian tribes.

In recent decades the age structure of the population has become markedly younger (Chart 1), placing a correspondingly heavy burden on the economically active generation, the educational system, and the absorptive capacity of the labor market. The educational system is well developed and includes elementary and secondary education, vocational training schools, a teachers’ college, a law school, and a medical school. Illiteracy has been low for decades, as compulsory education for children up to 12 years of age was introduced many years ago.

Chart 1.
Chart 1.

Surinam: Population, 1950, 1955, 1964, and 19681

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Bureau of Statistics, Statistical Yearbook of Suriname, 1960–1965; data provided by the Surinam authorities.1 Excluding tribal population.

Political system

Until 1954 Surinam was a dependent territory of the Netherlands. Following a transitional period, which began after World War II, Surinam became self-governing in domestic affairs in 1951. This status was given formal recognition in 1954 with the establishment of the Tripartite Kingdom of the Netherlands, including the Netherlands, Surinam, and the Netherlands Antilles. The partners in the Kingdom are bound loosely by a Charter; each member has its own constitution and is fully autonomous in internal affairs. External affairs, including defense, are dealt with by the “Kingdom Government,” in which all three partners are represented. The Government of Surinam is headed by a Governor who is appointed by the sovereign and is his representative. The Governor and the Cabinet, chaired by the Prime Minister, form the Council of Ministers. The country’s legislative body, the Staten of Surinam, consists of 39 members.

Agriculture and forestry

General

More than two fifths of Surinam’s total area is suitable for agriculture, but only a minor part is presently classified as farmland—mostly in the young coastal strip—and presumably no more than one half of this is being cultivated effectively. About 80 per cent of the cultivated area is used for raising crops, and the remainder for pasture land.

Paddy (i.e., threshed, unmilled rice) is Surinam’s most important crop, both in area cultivated and in production value. Other main crops include sugar, bananas, citrus fruits, and vegetables (Chart 2). Livestock production accounts for about one fifth of total agricultural production. The rural population, particularly the Hindus, shows a strong preference for self-sufficient family farming. Nevertheless, large-scale farming, which produces most of the crops for export, has gained in importance recently and accounts for the bulk of the increase in cultivated farmland during the past decade. According to the latest statistics, a total crop area of roughly 100,000 acres in 1969 could be divided into 45 per cent large-scale and 55 per cent small-scale farming.

Chart 2.
Chart 2.

Surinam: Agricultural Production, 1958–68

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Centrale Bank van Suriname, Verslagen.

Surinam has long ceased to be self-sufficient in food. An estimated 30–40 per cent of the country’s food needs is imported, and essential import items include meat, dairy products, wheat, and potatoes. The composition of the import package is determined largely by food consumption habits of the urban population, which follow European consumption patterns. The main food export items are rice, bananas, sugar, and fish products. Despite an encouraging increase in agricultural exports in recent years, they have accounted for only 7–8 per cent of total exports.

Rice

Rice is the main staple food in the population’s diet and Surinam’s primary export crop. Paddy is grown throughout the coastal strip, although cultivation is more concentrated in the district of Nickerie (close to the Guyana border), where the Wageningen rice estate (established by the Surinam and Netherlands Governments in 1949) is located, and in the district of Surinam near Paramaribo. The Stichting Machinale Landbouw accounts for about one third of Surinam’s paddy production and for most of its exports of processed rice products. Its processed white and cargo rice has found buoyant export markets in the Caribbean and Western Europe.

Small producers do not participate directly in rice exports but sell their produce to rice millers. Part of the paddy is bought by the Government at a guaranteed minimum price and can be stored in silos provided by the Government. It is official policy to keep the price of paddy fairly stable to prevent a marked rise in the cost of living index. Rice exportation is, therefore, subject to licensing and sometimes restricted by the authorities if local prices tend to rise. At times of bad crops and acute rice shortages, distribution is undertaken by the Government. Imports of rice are also restricted.

Other crops

In 1969 the area planted to sugar, which was the most important crop during the plantation period, was not more than 5,000 acres, with a production of 15,000 tons. One fourth of this output was exported, valued at Sur. f. 1.1 million. Part of the crop is processed by a local sugar refinery and rum distillery, where output and exports have been increasing rapidly during recent years, with exports of alcohol and rum amounting to Sur. f. 0.6 million in 1969. The output of coffee and cocoa, also leading plantation crops in past centuries, has continued to decline in recent years, the value of total production, most of which is exported, amounting to less than Sur. f. 0.5 million in 1969. The conversion of those plantations into more economic uses is being subsidized by the Government.

Bananas and plantains were not large crops until the 1960s, when government promotion resulted in a steep increase in output. More than 50,000 metric tons of bananas were harvested on about 4,000 acres in 1968, and investments are under way to add about 2,500 acres. In 1968 exports accounted for about 70 per cent of the production and were valued at nearly Sur. f. 5 million; however, less favorable weather and strikes reduced exports in the following year to Sur. f. 4 million.

The cultivation of citrus fruits has also been encouraged by the Government. Surinam’s oranges have found a promising market in Western Europe, where good prices can generally be achieved because the crop becomes available when other supplies are seasonally low. In 1969 more than 5,500 acres were utilized for citrus growing (mostly oranges), and exports amounted to nearly Sur. f. 1.0 million.

Livestock production and fishing industry

Livestock production was valued at Sur. f. 12 million in 1968, of which dairy products covered nearly one half, meat one fifth, and poultry about one third. Although total production has more than doubled since 1955, domestic demand has increased even more sharply, with the result that imports have risen—more than Sur. f. 5 million in 1968—while exports are almost nonexistent. Import needs are likely to continue rising, as livestock production in Surinam is not well developed and only a few plantation farmers use modern techniques of animal husbandry.

Since 1955 fishing has expanded rapidly. The fastest increases have been achieved in shrimp catching, which is performed on a large scale with a fleet of nearly 100 trawlers and a modern packing plant that processes shrimp for export—mostly to the United States and Japan. Shrimp catching, amounting to Sur. f. 3.4 million in 1969 (over half the total fish production), accounts for the bulk of exports of fish and fish products.

Forestry

About 80 per cent of Surinam’s area is covered with forests, but less than 10 per cent of the total is considered easily accessible for exploitation. Only a small fraction is actually being used. The wood industry produces not only roughly trimmed logs and semifinished products, such as timber, plywood, and particle board, but also prefabricated houses. Total production grew only modestly in the 1960s, and the share of the forestry sector in GDP declined gradually to less than 1.5 per cent in 1968. Total exports of wood products stagnated during the same period, fluctuating between Sur. f. 6.5 million and Sur. f. 8.5 million, while their share in total exports declined from about 8 per cent in 1960 to about 3.5 per cent in 1969.

Mining

Surinam’s greatest natural resource is its mineral deposits, the most important of which are its large bauxite reserves. Other resources include deposits of gold, platinum, iron, nickel, and other ores, and mineral fuels. Gold production, in which Surinam experienced a short-lived boom at the end of the nineteenth century, has declined to the point where it is mined primarily as a raw material for the domestic gold-working industry.

Bauxite mining and related industries

Bauxite mining and, since 1965, the production2 of alumina and aluminum constitute the leading nonagrarian economic activity and together make the greatest single sectoral contribution to GDP. In 1968 bauxite mining accounted for about 15 per cent and the aluminum and alumina industry for another 15 per cent of GDP at current factor cost. Exports of bauxite, aluminum, and alumina are the prime source of foreign exchange earnings, accounting for over 85 per cent of exports of goods in recent years. During the 1960s the investment activity of the bauxite industry largely determined the level of private investment and of imports of capital goods, and reinvested or repatriated earnings of the foreign-owned bauxite companies severely affected the balance of payments. A considerable proportion of government revenue is derived from bauxite companies through royalties and direct taxation, or is indirectly attributable to their activity. The bauxite sector also strongly influences the expansion of other sectors, such as commerce and transportation.

Surinam’s bauxite deposits contain a high grade of aluminum ore with generally little overburden, particularly the deposits located in the northeastern parts of Surinam where economically exploitable reserves have been estimated at 50 million tons. Large deposits of bauxite amounting to about 400 million tons (see also Section III, Development Planning and Economic Growth) of somewhat lower quality were discovered early in the 1960s in the central western part of Surinam. At present, only deposits in the central eastern part of the country are being exploited, as they are easily accessible and are situated near large rivers so that mined ore can be loaded onto seagoing vessels.

Surinam has produced a considerable share of the world’s bauxite since mining began on a large scale in 1927 (Chart 3). Most of the mineral is exported to the United States, where Surinam’s leading bauxite company—the Surinam Aluminum Company (Suralco), an affiliate of Aluminum Company of America (Alcoa)—is registered. The only other mining company presently operating in Surinam is Billiton Company Surinam (an affiliate of Royal Dutch/Shell).

Chart 3.
Chart 3.

Surinam: World Production of Bauxite, 1950, 1955, 1960, and 1965–69

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Centrale Bank van Suriname, Verslagen; United Nations, Statistical Office, Monthly Bulletin of Statistics (New York); Bureau of Statistics, Statistical Yearbook of Suriname, 1960–1965.

Since 1965 the exploitation of Surinam’s bauxite deposits has been augmented by the manufacturing of alumina and aluminum (Table 1). This activity is the offspring of the Brokopondo project (named after a village about 100 miles up the Surinam River from Paramaribo), on which Suralco and the Government agreed in 1958. Under the project, Suralco erected on the Surinam River a dam and hydroelectric power station with a generating capacity of 150,000 kilowatts, and constructed an alumina plant and an aluminum smelter. The investments were financed by Suralco, which in return received a limited monopoly for bauxite extraction on deposits east of the Surinam River and a special tax regime. In 1965 production facilities were completed. Total annual capacity amounts to 70,000 tons for the aluminum smelter and 1,000,000 tons for the alumina plant. Billiton participates in the utilization of Suralco’s production capacity under a contract that provides for increasing quantities of Billiton’s bauxite to be processed at Suralco’s alumina reduction plant. Moreover, in 1969 an agreement was reached between Alcoa and a French company involving the exploitation of bauxite deposits in French Guiana that are to be processed to alumina in Surinam. This extra work will necessitate an extension of Suralco’s alumina reduction plant to a capacity of 1.5 million tons. This project is not expected to be completed before 1974–75.

Table 1.

Surinam: Production and Exports of Bauxite, Alumina, and Aluminum, 1955, 1960, and 1965–70

article image
Sources: Centrale Bank van Suriname, Verslagen.

In August 1971 Parliament approved legislation authorizing a new government-owned industrial corporation to enter into joint ventures with Reynolds Suriname Mines Ltd. for the exploitation of the bauxite deposits in the Bakhuis and Coppename areas (see map). These projects are discussed further on pages 684–86.

Manufacturing

Apart from the production of bauxite derivatives, which account for more than 60 per cent of industrial production, the manufacturing sector consists of a number of small industries. The principal products of the foodstuffs industry are processed rice, sugar and molasses, beer and soft drinks, dairy products, edible oils, and cattle fodder. The wood products industry is dominated by a large foreign-owned factory that makes prefabricated houses, plywood, and particle board. Other industries that are geared to local consumption produce bricks, cigars, cigarettes, matches, clothing, and footwear. The manufacturing sector, excluding the production of alumina and aluminum, contributes about 10 per cent to GNP at factor cost.

Various factors adversely affect the climate for industrial development: natural sources of energy other than water are lacking; unit labor costs seem to be relatively high compared with many other less developed countries; entrepreneurial experience and skilled labor are scarce; industries producing for domestic consumption operate in a small domestic market fragmented by differing consumption habits of the urban and rural population; and shipping costs for exports are high. Access to the main world markets as well as to neighboring markets is limited. Foreign entrepreneurs have not shown much interest in establishing manufacturing facilities in Surinam, even after it became an associate member of the European Economic Community (see pp. 745–47).

Transportation and tourism

The transportation system has long been dominated by the rivers, which allow ocean vessels as far inland as 100 miles. Paramaribo is the main harbor for sea transportation and handles approximately 2,000 vessels with about 7 million gross register tons a year; new harbor facilities have been constructed with financing from the European Development Fund (EDF) of the European Economic Community (EEC).

Tourism in Surinam is not well developed. In 1968 only 7,000 tourists visited the country, mostly from the United States and the Netherlands; in addition, nearly 10,000 visitors arrived primarily for business purposes. Total revenue from tourists and businessmen together did not exceed Sur. f. 4 million, an estimated Sur. f. 2 million less than expenditures of Surinamese traveling abroad. According to a recent study, revenue on account of tourism could be considerably increased, particularly through “up-country jungle tours.”

III. Development Planning and Economic Growth

Development planning

Most of the Government’s development activities have been within the framework of the Ten-Year Plan, which covered the period 1955–64; it was extended by a Supplementary Development Plan, the execution period of which (through 1968) partly overlapped the First Five-Year Plan, 1967–71. These development plans have been financed largely with aid from the Netherlands. Other development projects have been executed with the support of the EDF, the European Investment Bank (EIB), the U.S. Agency for International Development, and the United Nations Special Fund. In addition, the Government made special arrangements with foreign investors to execute large projects, in particular the Brokopondo project and the Wageningen scheme.

The Ten-Year Plan and the Supplementary Development Plan (1955–68)

The Ten-Year Plan was to entail total expenditures of Sur. f. 127 million. Infrastructure would account for 62 per cent, while the remaining 38 per cent was appropriated for directly productive sectors—agriculture (23 per cent), mining, forestry, and manufacturing. The Netherlands agreed to provide two thirds of the financing of the Plan—one third as a grant and one third as a loan, on which interest at 3 per cent per annum would be paid until the expiration of the Plan. The accrued interest and capital were consolidated into a 25-year loan to be repaid in equal yearly installments.

In 1960 the Surinam and Dutch Governments agreed on a Supplementary Development Plan that entailed an additional expenditure of Sur. f. 80 million, thus raising the total to Sur. f. 207 million. A large share of the Supplementary Plan was appropriated for agriculture, transport, and mining (including a geological survey of the bauxite fields in western Surinam).

By 1964 the expenditure originally planned under the Ten-Year Plan (Sur. f. 127 million) had been made. In the meantime, Surinam’s budgetary situation had deteriorated seriously, and after 1962 the country was no longer in a position to make its financial contribution to the Plan. As a result, Plan outlays were reduced to Sur. f. 191.5 million, and this amount was actually spent by the end of 1968. Most of the reduction was reflected in a lower percentage of realization in the directly productive sectors (Table 2).

Table 2.

Surinam: Ten-Year1and Five-Year2 Development Plans, 1954–71

article image
Sources: Centrale Bank van Suriname, Verslag over 1968; data provided by the Surinam authorities.

Including Supplementary Development Plan, 1964–68.

1967–71.

Actual expenditures made by the end of 1970.

The Five-Year Plan (1967–71)

Before the Ten-Year Plan expired, the Government instructed the Stichting Planbureau Suriname (a government agency in charge of development planning) to draft a new plan. Since private investment had not responded sufficiently to the development of infrastructure under the First Ten-Year Plan, the main emphasis of the new plan would be on directly productive investments. The Netherlands Government agreed to provide financing for a Five-Year Plan up to Sur. f. 125 million, of which one half would be in grants, 40 per cent in soft loans, and the remainder in loans at market conditions.

The implementation of the Plan, however, did not start until mid-1968, and actual expenditures have lagged significantly behind the original schedule. Therefore, the Plan was extended to 1972. By the end of 1970 actual outlays had amounted to only Sur. f. 65.9 million, leaving some Sur. f. 59 million to be spent during the remaining two years of the Plan period—a large part of which had not yet been authorized. Moreover, one of the main objectives of the new Plan, i.e., the channeling of more funds into directly productive investments, has not materialized thus far.

The present Plan is scheduled to be followed by a Second Five-Year Plan, 1972–76. However, the preparation of this new Plan is only in a preliminary stage, and thus far the Government and Parliament have not decided on the main targets and priorities. The Netherlands is expected to make available Sur. f. 208 million for financing the Plan. In addition, a substantial amount of aid will be forthcoming from the EDF. Apart from a number of relatively small projects that are in various stages of preparation, two major investment projects have been decided on, viz., for the exploitation of the bauxite reserves of the Bakhuis Mountains and of the Coppename area.

In August 1971 the Surinam Parliament approved legislation creating a government-owned industrial corporation, Grasshopper Aluminium Company (Grassalco), and authorizing this corporation to enter into joint ventures with Reynolds Suriname Mines Ltd. for the exploitation of the above-mentioned bauxite resources. These ventures are to operate in accordance with the guidelines laid down in the legislation. These guidelines are fairly complex, since they define the respective roles and responsibilities of Grassalco and Reynolds in the various joint ventures that can be established, as well as the conditions for exploitation of the mineral resources and the special tax regime that applies to both corporations. Reynolds will manage both projects.

In the Bakhuis project, Grassalco and Reynolds are to operate together as concessionaires on an equal footing. The project involves the exploration and mining of bauxite in an area of almost 2.5 million acres, its shipment by rail to an alumina plant to be constructed near Apoera on the Corantijn River, the construction of an aluminum reduction factory in the same area if a new source of hydroelectric power can be developed, and the shipment of bauxite and bauxite products by river barges to the coast for reshipment. The alumina plant will have an initial annual capacity of 200,000 tons, to be increased gradually depending on the size of the proved bauxite reserves. The aluminum smelter will be constructed if enough bauxite is proved and if adequate electric power can be provided to make the operation profitable. Surinam is responsible for the construction of the railroad (for which Reynolds will provide a long-term loan) and the Apoera harbor, the dredging of the river between Apoera and the ocean, and the provision of land and certain basic materials for industrial and residential construction. The bauxite mines cannot come into full operation until the mid-1970s, when the infrastructural investments are expected to be completed. The agreement specified that no more than 500,000 metric tons of bauxite may be exported annually from the Bakhuis region, so that all bauxite mined in excess of this quota is to be processed domestically.

As soon as the Bakhuis project is operational, Reynolds Suriname Mines Ltd. is entitled to start exploitation of the Coppename deposits to which it has been granted exclusive rights for a period of 65 years. These deposits have a higher aluminum ore content with less overburden than those of the Bakhuis region, and their exploitation is also more attractive because they are situated fairly close to the coast. Reynolds will perform the exploration and development of the mine and has undertaken to build (before the end of 1978) an alumina plant with an initial annual capacity of 500,000 tons, to be expanded later depending on the size of the proved bauxite resources. Grassalco has an option to purchase a participation in the alumina plant, the share of which will increase with the size of the plant, viz., from 7.5 per cent for the first 200,000 tons of annual capacity to 50 per cent when the annual capacity exceeds 2.4 million tons. If hydroelectric power can be made available at competitive rates, Reynolds will construct for account of the Surinam Government a hydroelectric power plant generating at least 125,000 kilowatts. This power plant would work exclusively for a smelter that Reynolds would construct and pay for. Grassalco has an option to participate on a fifty-fifty basis in the aluminum reduction factory.

The agreements stipulate that at least 90 per cent of those employed in the two ventures should be Surinam nationals. Reynolds will be responsible for the technical training of the employees, while the partners have a joint responsibility for the development of social and educational infrastructure. To promote the processing in Surinam of a large part of the aluminum ore, total exports of bauxite by Reynolds from Bakhuis and Coppename are not to exceed 30 million tons over the lifetime of the projects.

Aid programs other than the Ten-Year and Five-Year Plans

The status of Surinam as an associate member of the EEC entitles it to receive financial and technical assistance from the EDF and the EIB. (See also pp. 745–47.) The Convention of Association appended to the Treaty of Rome of 1957 established the EDF and allocated Sur. f. 18.5 million for grants to those countries and territories that maintained special relationships with the Netherlands (Surinam and the Netherlands Antilles). The Yaoundé Convention of 1964 provided for Sur. f. 16.9 million in grants and soft loans from the second EDF to the Netherlands Antilles and Surinam, and Sur. f. 1.59 million in loans from the EIB over a five-year period (1964–69). The Second Yaoundé Convention, signed in 1969, in effect extended the previous Convention for another five years (1970–74) and allocated Sur. f. 15.9 million in grants and Sur. f. 3.18 million in soft loans from the third EDF, and Sur. f. 2.6 million in loans at market conditions from the EIB. If the Netherlands Antilles and Surinam were to share equally the amounts allocated to them jointly, the share of Surinam would be about Sur. f. 29.1 million for the commitment period ending on May 31, 1974.

At the end of 1970, the EDF had committed nearly Sur. f. 15.3 million in grants, of which some Sur. f. 7.7 million had been disbursed. Most of these funds are channeled into infrastructural projects, such as schools, the construction of a central market in Paramaribo, land reclamation and irrigation, and road construction. Toward the end of 1968 the EIB made a loan of Sur. f. 0.98 million for the construction of warehouses and other facilities in the harbor of Paramaribo.

Foreign investment projects

A major contribution to agricultural development in Surinam, outside the development plans, has been made by the Wageningen project. In addition to improving the rice standards in model farms and research and selection centers, increasing attention was paid in the 1960s to the education of Surinam farmers and the creation of middle-sized (about 60-acre) farms.

Of all projects, the Brokopondo project has made the most important contribution to the development of Surinam. Apart from creating an industry for bauxite processing, the project has stimulated the development of the interior through road construction, hydroelectric power supply, improved navigability of the Surinam River, and employment opportunities in the hinterland. Most of the Brokopondo investments (totaling some Sur. f. 300 million) were financed by Suralco, which also extended a loan of Sur. f. 12 million to the Government to cover its budgetary outlays under the project.

National product and expenditure

In 1968 Surinam’s GNP was estimated at Sur. f. 425 million. The corresponding per capita income (about $600) places the country in the upper range of per capita income levels in South America. From 1955 to 1968 GNP at current prices increased by 250 per cent but, owing to price increases and a rapid population growth, real per capita GNP increased by only about 75 per cent.

Four phases of growth can be distinguished since 1955: (1) a relatively modest real growth rate in the second half of the 1950s; (2) a noticeable acceleration in the period 1960–64, connected with the large investments made in exploiting the Brokopondo bauxite reserves; (3) two years of exceptionally high growth (14 per cent in 1965 and 21 per cent in 1966) following the completion of the Brokopondo investments and the entry into operation of the alumina and aluminum plants; and (4) a sharp slowdown in real growth since 1967, which has been accompanied by increasing wage and price inflation.

Since 1955 the composition of GDP at factor cost has changed significantly. The gap between GDP at factor cost and GNP at factor cost is large, reflecting the transfers abroad of income by the foreign-owned companies (Charts 4 and 5). Transfers of income averaged nearly Sur. f. 30 million in the period 1960–66, but more than doubled, reaching about Sur. f. 75 million, in 1968–69, which is equivalent to some 16–17 per cent of GNP.

Chart 4.
Chart 4.

Surinam: Composition of Gross Domestic Product, 1958–68

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Source: Stichting Planbureau Suriname.1 Including construction.
Chart 5.
Chart 5.

Surinam: Gross National Product, Gross Domestic Product, and Net Factor Income Transferred Abroad, 1958–68

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Source: Stichting Planbureau Suriname.

Data on the development of the main categories of expenditure within the Surinam national accounts are not available on an annual basis. However, available data for certain years indicate the substantial changes in the composition of demand during the past 15 years (Table 3). Public investment expenditure was stepped up sharply in the initial phase of the Ten-Year Plan and rose at an average annual rate of about 30 per cent (at current prices) between 1955 and 1960. Afterward, the Surinam Government was no longer able to contribute to the financing of the Plan from domestic revenue, and public investment expenditure declined between 1960 and 1965. Private investment expenditure rose markedly in the period 1960–65, when the Brokopondo project was executed, but most of the increase was financed with resources imported from abroad. The deficit on goods and services of the balance of payments rose from the equivalent of 4 per cent of GNP in 1955 to 36 per cent in 1965. The increase in investment activity prompted a strong increase in imports, especially of investment goods, and between 1955 and 1965 imports of capital goods rose at an average annual rate of 15–20 per cent.

Table 3.

Surinam: Gross National Product at Current Market Prices, by Category of Expenditure, 1955, 1960, 1965, and 1967

article image
Sources: Stichting Planbureau Suriname, Jaarverslag, 1965; Nationaal Ontwikkelingsplan Suriname, 1965, Deel II; and Macro-Economische Beschouwingen, 1966 and 1967.

In the second half of the 1960s investment declined but consumption expenditures accelerated substantially, stimulated by large wage increases and expansionary government budgets. Ordinary budget expenditures increased at an average annual rate of 12 per cent in that period, compared with 9 per cent in the preceding five years, Imports of consumer goods increased at an annual rate of about 10 per cent—nearly twice as much as in the first half of the decade.

Employment, wages, and prices

Employment

Comprehensive statistics on employment are not available. According to the census data for 1964, the labor force was about 80,000. Assuming an annual increase of roughly 3,500 employed persons, the 1970 labor force may be put at about 100,000 (25 per cent of the total population). This relatively low rate of participation is partly the result of the low average age of the population and the high proportion of the total population attending school.

The principal sources of employment are agriculture and the public sector, while mining, manufacturing, and commerce also absorb substantial proportions of the labor force. There are no official data on changes in the pattern of employment since 1964, when the distribution, by sector, was as follows:

article image
Source: Bureau of Statistics, Statistical Yearbook of Suriname, 1960–65.

At present, about one fourth of the labor force is estimated to be employed in the public sector, about one fourth in agriculture, and about one fourth in private services, construction, and small manufacturing industries; the bauxite sector employs some 8 per cent, while the remaining 15–20 per cent is unemployed. As a result of the urbanization process, the problem of unemployment is particularly acute in Paramaribo and the surrounding areas. As employment opportunities in industry increase only slowly, the population tends to seek employment with the Government or in the trade sector.

Apart from persistent unemployment, Surinam’s labor market also suffers from severe structural discrepancies. While the supply of unskilled labor is abundant, there are increasing shortages of plantation workers and skilled labor. The Government has made considerable efforts, including adult training, to meet the need for skilled labor in the private sector. These efforts are, however, partly counteracted by the emigration of skilled laborers to the Netherlands, which, in recent years, has reached considerable proportions. At the end of 1968 an estimated 35,000 Surinamese were living in the Netherlands, of whom about 10 per cent were students, while those of working age represented 16 per cent of Surinam’s estimated labor force. There are no limitations in the Netherlands on the immigration of Surinamese, as they are Dutch nationals.

Wages and prices

No official data on wages are available. There is no government-controlled wage system, and employers and employees freely negotiate wages and other labor conditions. In 1968 a Foundation of Labor, comprised of an equal number of representatives of the employers’ organizations and of the trade unions, was established and entrusted with the task of assisting in the peaceful settlement of labor disputes. Until the mid-1960s, Surinam had a reputation for stable industrial relations. Since that time, conditions on the labor market have changed, trade unionism has spread rapidly, and unions have been established in nearly all important firms in industry and services. The trade unions have become increasingly vocal and have aggressively pressed their demands for higher wages and better working conditions. Early in 1969 a protracted teachers’ strike caused a government crisis and general elections. These events led to a substantial acceleration in wage increases. Collective labor agreements hardly existed before 1969 (the first such agreement was concluded in 1966 in the Suralco enterprises), but they have since become general. The average length of the agreements is two years, and often they include a provision for periodic cost of living adjustments of wages.

Available data on individual enterprises suggest that in the period 1966–70 wages in the private sector increased at an annual rate of nearly 10 per cent; in 1969 the increase appears to have been well in excess of that rate. Wages in the public sector, which had remained fairly stable since the early 1960s, were also raised substantially in 1969.

The only price index published in Surinam is a cost of living index for families in Paramaribo with weekly earnings of Sur. f. 20–60.3 Based on this index, a relatively high degree of price stability was recorded during the period 1955 through 1965, when annual price increases averaged about 2.5 per cent. However, during the four-year period 1966–69 prices in Surinam increased on average by 6.5 per cent a year; they reached an annual rate of about 11 per cent in both 1967 and 1969. The steepest price increases occurred in foodstuffs and beverages of domestic origin (Chart 6). The recent sharp acceleration in price increases may have been caused by a number of complex and partly interrelated factors. On the supply side, a shortage of domestically produced foodstuffs has developed, and poorly developed distribution channels have aggravated this situation. At the wholesale level, trade in foodstuffs is dominated by a few firms, while at the retail level there is an excessive proliferation of outlets. The authorities have taken some measures to counteract the rise in the cost of living index, including maximum sales prices for certain sensitive products, such as rice. However, a stabilization of food prices depends mainly on a thorough reform of the distribution system and on a substantial increase in production of foodstuffs for domestic consumption.

Chart 6.
Chart 6.

Surinam: Cost of Living Index, 1954–69

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Source: Bureau of Statistics.

IV. Money and Banking

The monetary system

Surinam’s currency unit is the Surinam guilder. The par value is Sur. f. 1.88585 = US$1, and the corresponding rate of exchange for the Netherlands guilder is 1.919555 = Sur. f. I.4 Surinam guilder banknotes have been issued since 1865, when the first commercial bank, the Surinaamsche Bank, was established. Until 1942 the exchange rate of the Surinam guilder was tied and equal to that of the Netherlands guilder. However, in anticipation of a possible devaluation of the Netherlands guilder as a result of World War II, the Surinam guilder was introduced as a separate curency, independent of the Netherlands guilder. The exchange rate of the Surinam guilder has, in fact, remained unchanged since 1936.

Surinam’s credit system is fairly well developed; it includes, in addition to the Central Bank, three commercial banks, a postal savings bank, and three public credit institutions—one for agriculture, one for industry, and a People’s Credit Bank. The latter provides credit mainly to those who generally could not obtain credit from a private commercial bank. Other financial intermediaries include life insurance companies and pension funds.

The Central Bank of Surinam

The Central Bank of Surinam was established under the Bank Ordinance of October 10, 1956 and began operations on April 1, 1957. On that date, the Surinaamsche Bank, which had acted as bank of issue until that time, transferred its gold stock and various claims against, and liabilities to, the public sector to the Central Bank, and banknotes issued by the former were exchanged against new notes issued by the Central Bank. The Central Bank also took over the gold and foreign exchange assets of the Foreign Exchange Fund. From the reserves of the Exchange Fund, the Government paid Sur. f. 6 million to the Bank as capital and reserve fund. In addition, the Bank has created special reserves to cover foreign exchange risks. The Bank Ordinance stipulates that at least 50 per cent of the aggregate amount of banknotes, balances on current account, and other sight liabilities of the Central Bank shall be covered by unrefined gold, gold coin or bullion, or convertible foreign exchange. At least one half of the cover must consist of gold. Subject to parliamentary approval, the Minister of Finance, at the request of the Bank, may reduce these cover requirements.

The President of the Bank is appointed by the Government for a term of five years and conducts the affairs of the Bank in accordance with the provisions of the Bank Ordinance and with guidelines adopted by the President and a Board of Directors. In the event of a disagreement between the Minister of Finance and the President on matters of policy, the Minister is empowered, after consultation with the Board of Directors, to issue directives to the President. Objections by the President can be notified to the Government, which will then decide whether the directives issued by the Minister of Finance must be followed by the President. The decision of the Government, together with the advice of the Central Bank, must be communicated to Parliament.

The Central Bank has to promote the stability of the monetary unit of Surinam and is responsible for the circulation of banknotes, the supervision of the banking and credit system, and payments relations with foreign countries. The Bank also acts as fiscal agent of the Government and of certain public institutions. At the request of the Minister of Finance, the Central Bank is obliged to grant advances to the Government for temporary reinforcement of its cash position. Such advances are not to exceed Sur. f. 4 million, of which Sur. f. 600,000 is interest free while the remainder carries an interest rate equal to the Bank’s discount rate. Table 4 summarizes the Central Bank’s main assets and liabilities from 1960 to 1970.

Table 4.

Surinam: Main Assets and Liabilities of the Central Bank, 1960, 1965, and 1967–70

(In millions of Surinam guilders; end of period)

article image
Sources: Centrale Bank van Suriname, Verslagen; 10 Jaar Centrale Bank van Suriname, Paramaribo (1967).

The Central Bank may discount, rediscount, purchase, and sell treasury paper, bills of exchange, and promissory notes with a maximum maturity of six months. Other permissible operations of the Bank include the short-term investment of funds abroad in foreign treasury paper or bills of exchange and promissory notes, and dealings in precious metals.

Instruments of monetary policy

In 1968 Parliament approved the Ordinance on the Supervision of the Banking and Credit System, which gave the Bank certain policy instruments to control the volume of credit and to promote the solvency of the banking system. The Bank may now lay down rules for the conduct of the banks’ business, and if they are not freely accepted by the credit institutions, they can be enforced by government decree. These rules, which can be applied for periods of not more than one year, include (1) obligatory liquidity reserves, (2) quantitative restrictions on outstanding bank credit, and (3) the prohibition or limitation of certain forms of credit or components of assets. The Central Bank is thus in a position to control the volume of bank credit indirectly by establishing liquidity ratios and directly by imposing quantitative credit ceilings and qualitative credit controls.

Before 1968 the Bank relied on gentlemen’s agreements with the commercial banks for credit control. Since that date, standing instructions have been given to the commercial banks whereby the permissible increase in credit to the domestic economy is linked broadly to the rise in time and savings deposits of banks. The new credit ceiling is also based on an assumed trend increase in real GNP of 6 per cent a year. If in any given year the amount of credit granted by a bank remains below the ceiling, the difference is “credited” to the following year. The arrangement also provides that discussions on a tightening of credit will be opened if the foreign reserves of the banking system decline by 5 per cent or more.

While the Bank advises banks to direct credit as much as possible to the financing of investments and to be cautious in granting consumer credit and personal loans, thus far it has not introduced qualitative credit controls. In addition to the Bank’s powers in this field, Parliament passed a law in 1970 empowering the Government (Minister of Economic Affairs) to supervise hire-purchase agreements in order to control the expansion of consumer credit granted by nonbanks and to protect the consumer. The new law provides the Government with the authority (1) to lay down rules on downpayments and repayment periods for hire-purchase transactions; (2) to regulate interest charges; (3) to require that these provisions be made public; and (4) to require registration of enterprises and institutions that grant hire-purchase credit.

The commercial banks

There are three commercial banks that fall within the purview of the 1968 Ordinance on the Supervision of the Banking and Credit System. These are the Surinaamsche Bank, the Algemene Bank Nederland, and the Vervuurts Bank. The Surinaamsche Bank and the Algemene Bank Nederland, with the greatest market share in Surinam’s commercial banking business, have attracted foreign capital to Surinam and have introduced the technical know-how of the largest Netherlands commercial bank, with which they are both affiliated. Otherwise, the banks generally do not attract foreign capital for their internal credit transactions. The Vervuurts Bank is the only domestically owned commercial bank, although it recently placed part of a new share issue with three foreign banks.

During the 1960s there was an important shift in the composition of the banks’ liabilities toward time and savings deposits, which accounted for 60 per cent of total deposits at the end of 1970, compared with 37 per cent at the end of 1960. Nevertheless, the emphasis of bank lending remained on short-term financing of trade and industry. Housing is another sector that experienced a rather sharp increase in its share of total bank credit; on the other hand, the share of bank credit to mining and agriculture declined. Total outstanding credit to the private sector doubled in the period 1966–70 (Table 5).

Table 5.

Surinam: Combined Balance Sheet of Commercial Banks and Savings Deposits of the Postal Savings Bank, 1960, 1965, and 1967–70

(In millions of Surinam guilders; end of period)

article image
Sources: Centrale Bank van Suriname, Verslagen; 10 Jaar Centrale Bank van Suriname, Paramaribo (1967).

The commercial banks usually hold considerable liquid assets, including cash, deposits with the Central Bank, and short-term foreign assets (Chart 7). As a matter of policy, the Central Bank does not wish the banks to reduce their liquidity to the point where they might need to borrow from the Central Bank. The liquidity ratio of the three main commercial banks amounted to about 30 per cent at the end of 1969. Under the Foreign Exchange Control Ordinance, commercial banks in principle are obliged to sell all their foreign exchange to the Central Bank. In view of their high liquidity position, however, the Central Bank allows the commercial banks to invest part of their liquid assets abroad, as long as the Central Bank’s monetary reserves remain adequate.

Chart 7.
Chart 7.

Surinam: Liquid Assets of Commercial Banks, 1960–70

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Centrale Bank van Suriname, Verslagen; data provided by the Surinam authorities.

Other financial intermediaries

The Surinaamse Postspaarbank (the Postal Savings Bank) was founded in 1903. Savings deposits and interest liabilities of the bank are guaranteed by the Government. The deposits with the Postal Savings Bank have tended to increase only moderately over the past decade, against a very rapid rise of time and savings deposits with the commercial banks. One reason for the apparent greater attractiveness of deposits with commercial banks may be the fact that the banks can offer more attractive interest rates. To allow the Postal Savings Bank to compete more actively with the commercial banks, the Government is considering granting it greater leeway in its operations and allowing it to pay higher interest rates to depositors.

The Surinaamse Hypotheekbank, founded in 1951, is the only mortgage bank operating in Surinam. It is of minor importance in size and level of activity; at the end of 1968 its outstanding credits amounted to less than Sur. f. 1 million.

The 8 life insurance companies and 15 pension and provident funds operating in Surinam all experienced a rapid expansion during the 1960s. They have been fairly active as collectors of household savings and, as shown in Table 6, invest a large part of their funds in mortgages and real estate. In principle, institutional investors, like individual residents, are not allowed to invest in foreign securities. The Foreign Exchange Control Board has granted permission to foreign-owned life insurance companies, however, to remit to their parent companies 20 per cent of the premiums received.

Table 6.

Surinam: Investments by the Main Nonbank Financial Intermediaries, 1965 and 1969

(In millions of Surinam guilders)

article image
Source: Centrale Bank van Suriname.

Domestic and foreign.

Including foreign investment.

Other nonbank financial intermediaries are the National Development Bank and the Agricultural Credit Fund. The government-owned National Development Bank was established in 1963 to promote and to participate in the financing of productive investment. However, it has made few loans and at the end of 1968 its outstanding credits amounted to only Sur. f. 1.6 million. The Agricultural Credit Fund was founded in 1958 to provide farmers with loans for building a house, clearing land, for planting materials, and other expenses during the installation period. Repayment periods are usually from three to ten years. At the end of 1968 less than Sur. f. 2 million was outstanding.

Interest rates

To encourage economic activity, the Central Bank favors low interest rates. Its discount rate has remained unchanged at 5 per cent since 1962; however, a change in the rate would have little more than a psychological impact, since banks as a rule are not indebted to the Central Bank. At present, debtor interest rates charged by commercial banks range from a 5 per cent prime rate to 9 per cent; the current rate on mortgages is about 8 per cent. Creditor interest rates vary from 4½ per cent to 6¼ per cent for time deposits of one to five years, while a uniform 3 per cent on savings accounts is paid by both commercial banks and the Postal Savings Bank. On current account balances, an interest rate of ½ per cent to 1 per cent is usually allowed. In recent years, interest rates in Surinam have been well below rates prevailing abroad; this has encouraged borrowing in the domestic market, and at present most of the foreign enterprises established in Surinam have recourse to the domestic banking system.

Financial markets

There is a small securities market with a rather limited capacity for new issues; only a few local joint-stock companies have issued shares, which amounted to an annual average of Sur. f. 1.3 million during the period 1966–68. There exists a limited secondary market, but readily marketable securities are likely to remain rather scarce. As a rule, institutional investors keep their security portfolios unchanged until their investments mature and do not normally offer securities for sale. Moreover, private savers who would be able to enter the securities market as investors have thus far been engaged mainly in investments in mortgage loans and fixed property.

The institutional investors—including the Postal Savings Bank, mortgage banks, life insurance companies, and industrial pension and provident funds—channel a large proportion of their resources into the financing of housing and construction, which therefore seems to be relatively well developed, especially as private savers also contribute directly to mortgage lending. The commercial banks’ lending activity centers around short-term financing of trade and consumer credit; they also have high liquidity ratios and invest a substantial part of their assets abroad at short term. Domestic financing of industry and agriculture remains limited. The public credit institutions specializing in this field are not well developed; they have limited funds at their disposal, and their lending conditions may not be sufficiently attractive. The financing of productive investment by banks and institutional investors has remained limited because they have more attractive investment opportunities and because they prefer to avoid the risks involved or are not adequately equipped to enter those fields of operation. Domestic financing of the Government has also remained rather limited because the Treasury generally has been able to obtain funds abroad at more favorable terms and has considered domestic borrowing only in the last resort. While Surinam’s gross domestic savings ratio is fairly high for a developing country (some 20 per cent of GNP in 1965–67), the main investments in industry and public services have been financed with retained earnings or with funds imported from abroad.

Recent monetary and credit developments

Monetary and credit developments in the 1960s have been strongly influenced by the inflow of capital. This led to a gradual increase of the net foreign assets of the banking system, despite the fact that the country’s balance of payments persistently showed sizable deficits on current account. In the five-year period 1963–67, when the Brokopondo investments were completed and production of bauxite and bauxite products increased sharply, the rate of increase in money plus quasi-money (some 9 per cent a year) lagged behind the growth rate of GNP. Inflows of private capital and foreign aid exerted a strong expansionary impact, but bank credit to the domestic economy rose only moderately (Charts 8 and 9). As a result, the liquidity ratio of the economy as a whole (total money supply as a ratio of GNP) declined from 29 per cent in 1963 to 25 per cent in 1967.

Chart 8.
Chart 8.

Surinam: Assets of the Banking System, 1960–69

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Centrale Bank van Suriname, Verslagen; data provided by the Surinam authorities.
Chart 9.
Chart 9.

Surinam: Liabilities of the Banking System, 1960–69

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Centrale Bank van Suriname, Verslagen; data provided by the Surinam authorities.

Since 1967 demand for credit from the private sector has accelerated markedly. At first, the growth of bank credit was held back when the monetary authorities in August 1967 imposed sharp restrictions in response to a sudden decline in foreign reserves. These restrictions were largely abolished a few months later when the overall balance of payments reverted to a surplus, and since 1968 credit to the private sector has increased rapidly. This development, together with substantial increases in foreign reserves and a widening budget deficit, led to a rise of nearly 40 per cent in the money supply in 1968–69, the highest rate ever recorded by Surinam in any two-year period. This accelerated monetary expansion coincided with a much reduced real growth rate of GNP and strong upward pressures on prices and wages. The liquidity ratio of the economy as a whole rose to about 30 per cent in 1969. The sharp acceleration of bank credit since 1968 has been due substantially to the growth of consumer credit and to increased needs of working capital for enterprises.

V. The Tax System5

Surinam has a progressive but fairly mild tax system except for customs duties, which are rather high. The maximum personal income tax rate is 38 per cent, and no tax is levied on net taxable incomes of less than Sur. f. 2,000. As a result, receipts from personal income taxes are rather low—only 8 per cent of total tax receipts in 1969. In 1971 the maximum corporate income tax rate was raised to 40 per cent. However, tax reliefs are granted as an incentive for corporations to invest in Surinam. A special agreement limits the maximum rate to a figure well below 40 per cent for Suralco, the largest single, corporate income-tax payer. The August 1971 legislation on the exploitation of the Bakhuis and Coppename bauxite resources also included a special tax regime that is applicable to Reynolds Suriname Mines Ltd. and to Grassalco, the new government-owned industrial corporation.

Customs duties, on the other hand, have a heavy weight in total tax receipts—earning more than 40 per cent in 1969. Surinam has no general turnover tax. This omission is not compensated by high import duties because the Treasury’s indirect tax receipts hardly “benefit” from domestic price rises. The total tax burden relative to GNP has decreased, dropping from 29.5 per cent in 1960 to 24.0 per cent in 1969. (Excluding tax payments by the two bauxite companies, the decline was from 19.5 per cent in 1960 to 15.0 per cent in 1969.) At present, the Government is making efforts to improve the system of tax collection.

Direct taxes

The personal income tax

The tax is based on a concept of taxing net income after generous deductions, even beyond expenses incurred in connection with the production of income, e.g., all interest paid on debts or all medical expenses exceeding 2 per cent of gross income. Apart from a fixed sum of Sur. f. 25, which is to be paid on any income that is higher than Sur. f. 2,000, there is a progressive marginal rate structure ranging from 6 per cent for incomes of between Sur. f. 2,000 and Sur. f. 3,000 to 38 per cent for incomes of more than Sur. f. 22,000.

The corporate income tax

All net earnings realized by corporations are subject to tax. Besides the current costs of production, some other expenditures are deductible from gross profits for tax purposes, such as initial expenditures arising from the establishment of the enterprise, which can be amortized over several years. In principle, additions to reserves are not deductible, but losses in one source of income may be set off against other taxable earnings and carried forward over a period of seven years. There are no specific regulations on depreciation allowances; the tax legislation only refers to “good business practice,” and some general rules have been established in a body of case law. Once a depreciation scheme is adopted it cannot be changed later on, and it must be applied consistently to all similar assets. The present rates of the corporate income tax start with 27 per cent for the first Sur. f. 20,000; 30 per cent for the second Sur. f. 20,000; 33 per cent for the third Sur. f. 20,000; 38 per cent for the fourth Sur. f. 20,000; and finally, 40 per cent for the share of taxable income that is above Sur. f. 100,000. However, the relevance of these rates for corporate tax receipts is reduced, because the taxes paid by the most important corporation are set by special tax agreements (see later discussion).

Table 7 gives the maximum marginal income tax rates for most of the Caribbean countries. It appears from that table that the maximum corporate income tax rate in Surinam is practically the same as in most of the countries listed, while the maximum individual income tax rate is generally below that in Caribbean countries.

Table 7.

Caribbean Free Trade Area, the Netherlands Antilles, and Surinam: Comparative Rates of Taxation on Corporate and Individual Incomes

article image
Source: United Nations, Economic Commission for Latin America, Office for the Caribbean, Report of the United Nations Expert Team on Harmonization of Fiscal Incentives to Industries in the Caribbean Free Trade Area (E/CN.12/845, Port-of-Spain, 1969).

Plus 37.5 per cent withholding tax on all distributions.

Including 15 per cent surcharge.

Married taxpayers; including 25 per cent surcharge.

Subject to requirement that the average rate not exceed 50 per cent.

The property tax

Individuals are subject to a tax on the net value of their personal property. Net property value is defined as the sum of movable and immovable assets minus liabilities at the begining of the tax year. Certain specific assets, such as jewelry (up to a certain value), art objects, life insurance policies, pension rights, are exempt from tax, as well as all property up to a value of Sur. f. 10,000 for unmarried persons and Sur. f. 15,000 for married persons. This latter exemption does not apply if the total property value exceeds Sur. f. 71,000.

Indirect taxes

The most important indirect taxes levied in Surinam are the bauxite, beer, motor vehicle, stamp, and liquor duties. In addition, indirect taxes are levied on the rental value of commercial and residential property, lotteries, and entertainment and by means of liquor licenses and turnover taxes on locally produced cigarettes.

The Brokopondo Agreement provides for the payment by Suralco of a bauxite duty of Sur. f. 1 per ton (Sur. f. 0.5 per ton of deep-sited bauxite) for all bauxite mined and sold to third persons. For bauxite processed in Suralco’s alumina and aluminum plants, the duty is Sur. f. 125 per ton.

A beer tax is levied on the production of beer for domestic consumption. The rate is 45 per cent of the wholesale price.

The duty on motor vehicles varies with the weight and passenger capacity of a motor vehicle and amounts to Sur. f. 75–135 for private automobiles and to Sur. f. 100–240 for trucks.

A stamp duty is levied on most legal documents and contracts; the rates vary, depending mainly on the nature of the contract.

There is a tax on locally produced spirits; the rate is Sur. f. 425 on each hectoliter.

Taxes and duties connected with foreign trade

These include export and import duties, statistical duties, and duties on foreign exchange licenses. The only export duty is a 10 per cent levy on roughhewn timber.

At present, customs duties vary between 3 per cent and 20 per cent on equipment and raw materials and between 25 per cent and 40 per cent on food products; they range from 40 per cent to over 100 per cent on consumer durables and luxury goods. Import duties have been changed frequently to meet budget needs, to protect domestic industry, and to attract foreign investment. The 1960 Ordinance for the Promotion of Investment provides for temporary exemptions from import duty for corporations. More extensive exemptions have been granted to certain foreign-owned companies.

In 1969 a preferential tariff treatment was introduced for the EEC countries, with rates that are between 3 per cent and 10 per cent lower than the normal rate. For customs purposes, the Netherlands and the Netherlands Antilles are considered to be foreign countries.

Statistical duties are assessed on the value of all imports and exports (excluding re-exports) and amount to 1.5 per cent of the c.i.f. value of imports and of the f.o.b. value of exports. An additional duty is levied on the issue of import, export, and foreign exchange licenses (0.5 per cent for import licenses and 0.1 per cent for export and foreign exchange licenses, on the value of the transaction). No licenses are required for trade with EEC countries.

Income from public enterprises and public property

Little information is available on income from public enterprises. These enterprises have no separate accounting system; their budgets are included in the general government budget, where their expenditures do not appear separately and their income is shown only as gross income. The main enterprises (and their gross income in millions of Surinam guilders in 1969) are telegraph and telephone (3.2), harbor facilities (2.9), postal service (1.8), flight service and general garage (1.8), bus service (1.1), electric power service (0.8), and hospitals (0.4). All the government enterprises appear to be operating at a loss.

The system of tax collection

More than 50 per cent of all individual taxpayers are presently subject to a withholding tax system, and this share is increasing, The tax liability is to be paid in ten equal installments from March to December. Individual taxpayers not subject to the withholding system and corporations have to pay their income tax in five equal monthly installments.

The system causes a marked seasonality in income tax receipts except for individual taxpayers under the withholding system In practice, however, this seasonality is much reduced by a special agreement with Suralco and Billiton (which together account for about 60 per cent of total direct tax receipts), whereby these two corporations pay their taxes in monthly installments.

At present, serious efforts are under way to improve the technical aspect of the collection system. It is estimated that about 5,000 of an estimated 31,000 individual taxpayers are not filing their returns. By increasing the fines and centralizing the collection system, important gains in receipts are expected in the next few years.

Investment incentives

Before 1960 Surinam had granted special tax treatment to certain foreign corporations. The most important tax agreement was made with Suralco in the 1958 Brokopondo Agreement.

The Investment Ordinance of 1960

In 1960 Surinam generalized the tax incentive system in the Investment Ordinance. The Ordinance applies only to corporate enterprises and differentiates between new enterprises and investments by existing enterprises; it is less favorable for the latter category. To be eligible for preferential tax treatment, an investment must amount to at least Sur. f. 25,000 and must lead to (additional) wage payments of at least Sur. f. 10,000 a year, excluding salaries of supervisory personnel.

The tax incentives consist of either tax exemptions or favorable depreciation allowances, depending on the choice of the investor. Corporate tax holidays can be granted for a period of five to ten years, depending on the size of the investment. In addition, exemptions from import duties are possible for the importation of all capital goods that are part of the investment, of raw materials for a period of up to three years, and of packaging materials that are to be used in the production process in Surinam.

Enterprises can opt for liberal depreciation allowances instead of the tax holidays. Depreciation rates on the invested assets may then be fixed freely, provided that their amount does not exceed the difference between the initial cost of the asset and its remaining value.

These concessions are granted upon request by a Special Investment Committee. However, the Minister of Finance has much discretionary power in this field, which adds to the flexibility of the system.

The Brokopondo Tax Agreement

An accounting price at which Suralco sells its production to the parent company serves as a basis for the calculation of Suralco’s tax liabilities to Surinam. The price is adjusted annually according to a multiple price index composed of the prices of iron and steel, pig aluminum, and finished aluminum, but it cannot fall below Sur. f. 17.5 a ton. So far, the so-computed accounting price of bauxite has remained higher than the world market price.

The Brokopondo Agreement provides that Suralco will pay an annual minimum of Sur. f. 10 million in corporate income taxes to the Surinam Government and that its maximum income tax rate will be 35 per cent for the bauxite operations and 30 per cent for the alumina and aluminum operations. In addition, it allows Suralco extensive exemptions from import and export duties.

The Bakhuis-Coppename Tax Agreement

The tax regime applicable to Reynolds Suriname Mines Ltd. and to the government corporation, Grassalco, for their activities relating to the exploitation of the bauxite reserves of the Bakhuis and Coppename areas provides for a corporation tax rate of 36 per cent, which will be applied through 1988; this rate will be raised to 40 per cent in 1989 and can be further increased afterward by 1 percentage point a year to a maximum of 45 per cent.

For the computation of taxable income, sales of bauxite and bauxite products to nonaffiliated companies will be accounted for at their actual sales price, while sales to affiliated companies will be computed at prevailing world market prices. However, the agreement includes a minimum accounting price for “base-grade” bauxite of Sur. f. 17.5 a metric ton, and for alumina of Sur. f. 112 a metric ton. Furthermore, the accounting prices for bauxite and bauxite products for tax purposes are not to be lower than the accounting prices agreed with other U. S. corporations presently engaged in mining operations in Surinam.

All taxes, retributions, and royalties in addition to the corporation taxes on exports of bauxite to be paid by Reynolds are not to exceed 1.78 per cent of the sales prices for surface bauxite (with a minimum of Sur. f. 252 a metric ton) and 1.08 per cent of the sales price for raised bauxite (minimum, Sur. f. 152 a metric ton).

Tax incentives for Reynolds and Grassalco include the facility to write off exploration costs and possible operating losses over a number of years. For the calculation of taxable profits, a “development deduction” has been introduced, ranging from 14.7 per cent of the value of bauxite sales to 8 per cent of aluminum sales. Imports of goods for investment and maintenance are exempt from import duties. No duties can be imposed on exports of bauxite and bauxite products. The Surinam Government has agreed that new taxes not included in the present agreement are never to exceed 2½ per cent of the profits of Reynolds and Grassalco.

VI. Government Finance

The public administration in Surinam is highly centralized, since there are no local governments or local legislative bodies. Moreover, there is no social security system, and the accounts of the public enterprises are integrated in the central government budget. Thus, the accounts of the Central Government give a fairly comprehensive picture of the operations of the public sector. The Central Government consists, at present, of 13 Ministries.6 It is represented by a Commissioner in each of the eight districts of Surinam under the authority of the Ministry of District Affairs.7

The Government submits the budget (which includes an ordinary budget, an extraordinary budget, and, beginning in 1971, a development budget)8 to Parliament on the first working day in September for authorization prior to the first day of the fiscal year, which coincides with the calendar year. The ordinary budget includes current expenditures and expenditures for amortization of public debt. The development budget contains sizable current expenditures, mainly in the form of wage payments in connection with development projects. A large part of the overall budget deficit not covered by ordinary receipts has been financed with grants and loans by the Netherlands, and since 1964 the EDF has also contributed to the financing of projects.

During the 1960s the decline in the share of the public sector in the economy, defined as the ratio of total government budget outlays to GNP, was as follows:

article image
Source: Ministerie van Financiën.

In 1960 total ordinary and extraordinary budget (including development) expenditures were equivalent to about 50 per cent of GNP. By 1969 this share had declined to 35 per cent, largely as a consequence of the relative decline in development expenditures throughout the 1960s. The ratio of ordinary budget expenditures to GNP, on the other hand, declined little during that decade, and in 1969 ordinary expenditures accounted for 80 per cent of total budget outlays, compared with 62 per cent in 1960. Thus, during the 1960s public investment expenditures on the “development effort” were reduced significantly. This “deterioration” in the structure of budget expenditures was further accentuated by the fact that most of the increase in ordinary expenditures represented a rise in personnel costs, which presently account for nearly two thirds of total ordinary budget outlays. By contrast, other current expenditures, particularly those for the maintenance of public services in the social, educational, and economic fields, may not have increased enough, taking into account the rapid growth of the population.

The relative decline in public sector expenditures was accompanied by a fall in the ratio of ordinary budget receipts and of foreign aid receipts to GNP. Between 1960 and 1969 the ratio of total ordinary receipts to GNP fell from nearly 34 per cent to 27 per cent, and that of tax receipts from 25 per cent to 22 per cent. In the same period, nontax current receipts and gross income from public enterprises as a ratio of GNP fell from 9 per cent to 5 per cent. Foreign aid receipts in the period 1960–64 amounted to 8.8 per cent of GNP but fell to 5.9 per cent in the second half of the 1960s. Since 1969, however, foreign aid receipts have risen substantially, and it is expected that the upward trend will continue in the next few years. The relative decline in ordinary budget receipts was most pronounced for indirect taxes (including customs duties) and nontax revenues (mainly operating receipts of government enterprises). Year-to-year changes in direct tax revenues are influenced heavily by the growth of the bauxite and aluminum enterprises. In the three-year period 1965–67, when the Brokopondo enterprises came into operation, direct tax receipts increased by 209 per cent. Although the tax burden has declined considerably, it still remains fairly high by international comparison.

During the past decade as a whole the ordinary budget has shown a small aggregate surplus, while the overall budget deficits, excluding development expenditures that were incurred only in function of foreign aid commitments, were generally well in excess of what the Surinam authorities felt that they could finance in the domestic market. In fact, most of these deficits were financed with “budget” aid from the Netherlands and other long-term borrowing at home and abroad (Table 8). Treasury financing by the domestic banking system has remained fairly limited.

Table 8.

Surinam: Ordinary Budget and Treasury Financing, 1960–71

(In millions of Surinam guilders)

article image
Sources: Centrale Bank van Suriname, Verslagen; data provided by the Surinam authorities.

Defined as total expenditures minus ordinary receipts minus extraordinary receipts that are not the result of financing.

Excluding the postponement of debt servicing to the Netherlands, viz., Sur. f. 6.1 million in 1969 and Sur. f. 8.6 million in 1970.

Including grants from the EDF.

The deterioration in the budgetary position in recent years has been largely the result of a sharp increase in government personnel costs and of the slow growth of tax receipts. The Government is presently making efforts to improve the budgetary situation, particularly to reduce the ordinary budget deficit. To help the Surinam Government to overcome its current difficulties, the Netherlands Government has provided special budget aid for the period 1969–71; at the same time, the disbursement of development aid by the Netherlands and the EEC is being stepped up considerably.

The structure of revenue and expenditure

Revenue

Ordinary receipts include direct and indirect taxes, import and export duties, income from public property and enterprises, and miscellaneous receipts (including fees and legal charges). (See Table 9.) The preliminary data for 1970 show that direct taxes accounted for almost 40 per cent and customs duties (including the statistical tax) for almost 34 per cent of total ordinary receipts. Then follow indirect taxes (9.2 per cent), income (mainly gross) from government enterprises (9 per cent), and income from property and miscellaneous revenues (8.4 per cent). During the 1960s the relative weight of direct taxes increased, mainly as a consequence of the rise in corporation tax payments by the bauxite companies beginning in 1966, while the share of indirect taxes and other receipts fell from 37 per cent of total receipts in 1960 to 27 per cent in 1970.

Table 9.

Surinam: Government Income on the Ordinary Account, 1960–70

(In millions of Surinam guilders)

article image
Source: Data provided by the Ministerie van Financiën.

Preliminary.

During the 1960s ordinary budget receipts increased irregularly. Chart 10 shows the close relationship between changes in ordinary receipts and changes in exports of bauxite and bauxite products. In the period 1960–63 ordinary receipts rose by only 3 per cent a year; in the following four years (1964–67) the increase accelerated to 15 per cent a year, but since then (1968–70) it has slowed down to less than 6 per cent per annum.

Chart 10.
Chart 10.

Surinam: Ordinary Budget Receipts and Exports of Bauxite and Bauxite Products, 1956–70

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Centrale Bank van Suriname, Verslagen.

Chart 11 shows that the share of direct taxes in GDP remained rather stable at about 9 per cent in the first half of the 1960s, increased suddenly in 1966 after the Brokopondo enterprises had come into operation, but has declined since then. Despite the progressiveness of the direct tax rates, the share of these taxes in GDP in 1968–69 was hardly higher than in 1961–62. This relates in part to the favorable tax regime that was granted to Suralco. Furthermore, a large number of income earners employed in the public and private sectors remain below the taxable minimum net income of Sur. f. 2,000 a year. Thus, it is estimated that only about 2–3 per cent of the total government wage bill flows back in the form of income tax payments.

Chart 11.
Chart 11.

Surinam: Ordinary Budget Receipts as a Ratio of Gross Domestic Product (GDP), 1960–691

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Ministerie van Financiën and Stichting Planbureau Suriname.1 GDP for 1969 estimated.

Indirect tax receipts and customs duties declined throughout the 1960s as a percentage of GDP (from 14.6 per cent in 1960 to 10.5 per cent in 1969) with one exception, in 1964, when certain tax increases were implemented. One reason for the relative decline of indirect taxes as a ratio of GDP is the absence of a turnover tax.

Thus, during the 1960s, total ordinary receipts as a share of GDP tended to decline rapidly. While this reflected largely the relative decline in indirect tax receipts, it was reinforced by the slow growth of income from public enterprises. It is believed that all these enterprises run increasing deficits.

Extraordinary receipts, other than foreign aid in the form of grants or loans, are fairly small. They amounted to less than Sur. f. 1.5 million a year in the period 1968–70, including mainly proceeds from sales of government stocks or property, of repayments of advances granted by the Treasury, and the like. In the framework of the Surinam budget, extraordinary receipts consist, in large part, of aid funds from the Netherlands in the form of grants and loans and of other borrowing, which are discussed later in this section.

Expenditures

An economic or functional breakdown of ordinary expenditures is not available. Moreover, it is not possible to isolate the operating expenditures of public enterprises or the transfers between government agencies and from the Government to the private sector from the budget accounts.

A breakdown of total government expenditures into some main categories of expenditure is available only for 1969 (and in forecasts for 1970 and 1971). Table 10 shows that outlays for personnel account for nearly two thirds of all current expenditures. Despite the high level of public debt—which is equivalent to about 30 per cent of GNP—the cost of servicing the debt has thus far remained below 10 per cent of ordinary budget outlays, mainly as a result of the easy lending conditions obtained from the Netherlands. The share of other current expenditures in total budget outlays is fairly low and tends to decline. The Surinam authorities have estimated that, taking into account the high rate of population growth, the annual increase in budget outlays required to maintain a satisfactory level of public services (including maintenance of economic infrastructure and of such social services as education and health) is about Sur. f. 9 million a year. This is well in excess of the annual increase in ordinary budget receipts since 1967.

Table 10.

Surinam: Categories of Government Expenditure, 1969–71

(In per cent of total)

article image
Source: Data provided by the Ministerie van Financiën.

Estimates.

Excluding wage payments financed from development funds (Sur. f. 8.4 million in 1970).

Chart 12 shows the considerable year-to-year fluctuations in increases in ordinary expenditures and receipts. The chart also suggests that the large increases in revenues in 1965–67 were followed with a time lag by a substantial acceleration in the growth of expenditures in 1967. As a ratio of GNP, ordinary budget expenditures remained about 31 per cent in the first half of the 1960s. Following the spurt in growth of GNP in the years when the Brokopondo enterprises came into operation, the ratio of ordinary outlays to GNP declined to 25 per cent in 1966–67. Since then, however, the ratio has tended to increase rapidly again and may well have been close to 30 per cent in 1970.

Chart 12.
Chart 12.

Surinam: Ordinary Budget, 1956–71

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Centrale Bank van Suriname, Verslagen; data provided by the Surinam authorities.1 Forecast.

The budget for extraordinary expenditures includes also some current expenditures (an estimated Sur. f. 7–8 million in 1969) but mainly investment expenditures. A large part of these are Development Plan expenditures financed by the Netherlands. Extraordinary expenditures financed by Surinam itself have, since 1963, related largely to investment outlays outside the Development Plan. In the period 1963–66, they totaled some Sur. f. 16 million. Little is known about the specific projects financed under this program, but they include financial investment, such as purchases of participations in existing enterprises.

In the period 1960–69 about 60 per cent of all extraordinary budget expenditures were financed with development aid from the Netherlands. Throughout this period Netherlands development aid fluctuated around Sur. f. 18 million a year. Since 1969, however, aid receipts from the Netherlands have risen considerably.

Overall budget developments

Since the mid-1950s the financial situation of the Surinam Government has shown wide swings. In the second half of the 1950s the ordinary budget showed fairly sizable surpluses, which averaged Sur. f. 6 million (about 5 per cent of GNP) a year. These surpluses, together with loans and grants obtained from the Netherlands and the proceeds of government borrowing in the domestic market, were used for financing the Development Plan. At the end of 1960 the total public debt was equivalent to less than 17 per cent of GNP.

In 1961 the ordinary budget surplus began to deteriorate rapidly, and the surpluses recorded in previous years gave way to large deficits in 1963–64 (averaging Sur. f. 6 million a year). The deterioration in the ordinary budget was largely the result of the slow growth of ordinary receipts. The overall budget deficit, excluding development aid from the Netherlands, was well in excess of what Surinam felt able to finance domestically.

The Netherlands thereupon agreed to provide Surinam with substantial budget aid (mainly in the form of interest-free loans) and to remit all interest payments on Ten-Year Development Plan loans up to 1968. Surinam used most of this budget aid in the period 1962–65 (Table 11). As of 1963, the Netherlands, in fact, provided all the financing for Development Plan expenditures.

Table 11.

Surinam: Long-Term Net Financing of the Cash Deficit, 1960–70

(In millions of Surinam guilders)

article image
Sources: Centrale Bank van Suriname, Verslagen.

Total expenditure minus ordinary receipts and debt amortization.

Mainly a loan from the Export-Import Bank of the United States for the improvement of the telephone system.

Mainly a loan from Suralco.

Including use of cash balances.

In the period 1965–67 the budget position improved, suddenly and sharply. This was partly the result of measures taken in 1964 to raise additional taxes and to curtail ordinary outlays but mainly because of the substantial increase in tax revenues that was generated by the sharp rise in domestic output following the coming into operation of the Brokopondo alumina and aluminum plants. The ordinary budget showed surpluses averaging some 3 per cent of GNP in 1966–67.

Since 1968, however, the ordinary budget position has again deteriorated seriously. The deterioration was partly the consequence of the slow rise in receipts (5.4 per cent in the three-year period 1968–70) but mainly a result of the large increase in outlays (12 per cent in 1968–70), the latter resulting in large part from the wage increases for civil servants that were granted following the teachers’ strike and the government crisis early in 1969. As a result, the ordinary budget reverted from a surplus of Sur. f. 9.4 million in 1967 to an estimated deficit of almost Sur. f. 10 million in 1970.

In order to finance these budget deficits, the Surinam Government again requested special assistance from the Netherlands. In 1968 Surinam had drawn the remaining Sur. f. 68 million of the credit line that the Netherlands had made available early in the 1960s. In 1970 the Netherlands agreed to provide additional budget aid in the form of a postponement, until 1972, of servicing of the public debt to the Netherlands. This involved a total of Sur. f. 24.2 million. In addition, Surinam can draw on a new interest-free credit line of Sur. f. 10.4 million.

The new Government, which took office late in 1969, has stated its determination to achieve a major improvement in the budgetary position, A freeze was ordered on the hiring of additional government personnel, and certain expenditure and payments authorizations were postponed. As a result of these measures and of the afore-mentioned postponement of debt servicing, financing the remaining treasury cash deficit for 1970 posed no major difficulties.

Table 12 summarizes the budget outcome on a cash basis and the financing of the Treasury in the period 1968–70. Data on total budget expenditures have been derived as the sum of budget revenues, foreign grants, and the change in the public debt position.

Table 12.

Surinam: Budget Expenditures and Financing, 1968–70

(In millions of Surinam guilders)

article image
Source: Centrale Bank van Suriname.

In the 1971 budget the level of ordinary expenditures was maintained roughly unchanged from the revised forecast for 1970. The freeze on hiring of government personnel would be continued. Special measures would be put into effect to improve the control of expenditure and the collection of taxes. At the same time, certain tax increases (mainly in corporation taxes and in certain excise and other indirect taxes) were adopted, which would yield Sur. f. 4.2 million on an annual basis. The forecast for ordinary receipts for 1971 is on the cautious side, especially when compared with the preliminary outcome for 1970. At the same time, however, the forecast expenditures did not allow for a possible increase in salaries for government personnel during 1971. Extraordinary and development expenditures are forecast to increase further, but they would be financed largely by the Netherlands and the EEC.

Treasury financing and public debt

Table 11 shows that on average the Government has had relatively little recourse to short-term financing of the cash deficit. Grants and loans from the Netherlands and, in recent years, grants from the EEC have provided most of the financing. Occasionally, special loans have been contracted for particular projects, e.g., the loan from the Export-Import Bank of the United States for modernizing the telephone system in 1969. While the amounts of foreign aid are broadly independent of the budgetary situation, the latter is reflected in the Nether lands aid to the budget, which Surinam received on several occasions, and in the liquidity balance, defined as the overall deficit on a cash basis minus grants and long-term borrowing. Domestic long-term financing of the Treasury has thus far remained fairly modest.

The total government debt outstanding at the end of 1970 amounted to Sur. f. 165 million and was equivalent to nearly one third of GNP and to nearly 125 per cent of ordinary budget receipts (Chart 13). This debt burden is high by international comparison. A recent survey of 75 developing countries by the Organization for Economic Cooperation and Development shows that only about one fourth of them have outstanding debt that exceeds 30 per cent of GNP.

Chart 13.
Chart 13.

Surinam: Government Debt, 1960–70

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Centrale Bank van Suriname, Verslagen.1 GNP for 1969 estimated.

Domestic debt amounted to about one fifth of the total (Table 13); about two thirds of the domestic debt represented loans from Suralco, which were used mainly to finance certain public investments in connection with the Brokopondo project. Since 1963 the Government has not issued new long-term bonds in the open capital market but has placed some long-term loans directly with institutional investors (pension funds and insurance companies) and the Postal Savings Bank.

Table 13.

Surinam: Net Debt Position, Showing Changes Over Previous Year, 1960–70

(In millions of Surinam guilders; end of year)

article image
Sources: Centrale Bank van Suriname, Verslagen.

Of which, Sur. f. 19.2 million for a loan from Suralco.

Of which, Sur. f. 7 million for a loan from the Export-Import Bank of the United States.

By the end of 1970 the foreign debt totaled Sur. f. 132.5 million. The bulk of the foreign debt is to the Netherlands, viz., Sur. f. 88.8 million on account of the Ten-Year and Five-Year Development Plans and Sur. f. 30.9 million on account of budget aid (Table 13).

VII. Balance of Payments

General features

The balance of payments of Surinam usually shows fairly large deficits on current account, which are more than offset by capital inflows, including public transfers (Table 14 and Chart 14). Over the years, the foreign reserves of the banking system have tended to increase and have remained equivalent to about four months’ imports (c.i.f.).

Table 14.

Surinam: Balance of Payments, 1960–70

(In millions of Surinam guilders)

article image
Source: International Monetary Fund presentation on the basis of data provided by the Centrale Bank van Suriname.

Preliminary.

From 1960 to 1963, including identified trade credits.

From 1960 through 1963, including unidentified trade credits. From 1964, including all trade credits.

Increase (—) or decrease (+) in foreign assets.

Chart 14.
Chart 14.

Surinam: Balance of Payments, 1955–70

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Centrale Bank van Suriname, Verslagen.1 Including public transfers and errors and omissions.2 Including private transfers.3 Including changes in foreign reserves of the banking system.

Developments during the past decade can be divided roughly into two periods:

1960–65. As large investments under the Ten-Year Development Plan and the Brokopondo project took place, the trade balance recorded large deficits, particularly in 1964 and 1965. Deficits on the services accounts did not fluctuate markedly, as their major component—transfers abroad of investment income—amounted to approximately the same sum every year. These deficits were broadly offset by inflows of capital and unrequited public transfers; the inflows of private capital were particularly large in 1964 and 1965. Overall balance of payments deficits in 1960 and 1961 were followed by fairly sizable surpluses in the following years.

1966–70 As the Brokopondo project came to fruition and the investment boom subsided, exports increased substantially while the rate of growth of imports leveled off. The sizable trade deficits of the first half of the 1960s gave way to surpluses, but outflows of investment income increased markedly. On the whole, the deficit on current account (goods, services, and private transfers) declined to some Sur. f. 40 million in the period 1966–70, against Sur. f. 65 million in the period 1960–65. At the same time, the inflow of private capital was sharply reduced but the overall balance of payments remained in surplus.

Another main feature of the balance of payments during the 1960s was the increased weight of transactions of foreign-owned companies (Table 15). In 1969, 88 per cent of export receipts related to sales by foreign-owned companies, against 60 per cent in 1960. In the same year, foreign-owned companies imported 32 per cent of total imports of goods, against 16 per cent in 1960. The ratio of imports by foreign-owned companies fluctuated from year to year in response to foreign investment projects that had a high import content. The current account of Surinam is, therefore, largely a function of foreign capital flows. During the execution of foreign investment projects, imports, and the corresponding capital inflows, rise sharply. After the investment has been completed, imports of goods tend to decrease and exports of goods to increase, while profits transferred abroad rise and capital inflows are reduced.

Table 15.

Surinam: Share of Foreign-Owned Companies in the Main Components of the Balance of Payments, 1960 and 1969

article image
Source: Estimates provided by the Surinam authorities.

Most of the huge inflow of private capital in the past decade (some Sur. f. 300 million) took the form of direct investments by the bauxite companies. The impact of these investments on domestic demand was reduced because of their high import component (mainly equipment) and the transfer abroad of profits.

The net inflow of official capital in the form of loans in the period 1960–70 amounted to some Sur. f. 105 million, provided mostly by the Netherlands. Total foreign aid received by Surinam during 1960–70, including some Sur. f. 136 million in public transfers, exceeded Sur. f. 242 million (see pp. 739–42). As a result of the favorable repayment conditions agreed with the Netherlands, the burden of the servicing of the foreign debt on the balance of payments has so far remained relatively moderate.

The current account

Trade 9

Surinam’s exports are heavily dependent upon the mining and processing of bauxite, as shown below.

article image
Sources: Centrale Bank van Suriname, Verslagen.

(See also Chart 15). This dependence became more pronounced when the production of alumina and aluminum started in 1965. From 1959 to 1969 exports of bauxite and derived products increased by 263 per cent, to about 90 per cent of total exports, compared with 80 per cent in 1959. The realization of the Bakhuis and Coppename projects (see Section III, Development Planning and Economic Growth) is likely to further increase the dependence of the economy and of exports on bauxite and bauxite products.

Chart 15.
Chart 15.

Surinam: Foreign Trade—Commodity Distribution, 1960–69

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Centrale Bank van Suriname, Verslagen.

Exports of bauxite declined sharply after 1966, as a consequence of the increased processing of that raw material in Surinam (Chart 15). In 1969 bauxite exports represented nearly 32 per cent of the total export value (against somewhat less than 80 per cent in the period 1960–65), while the share of alumina had risen to 38 per cent and that of aluminum to 19 per cent.

Exports of agricultural products nearly doubled between 1959 and 1969 (Chart 16). Their share in total exports, however, remained broadly unchanged at about 9 per cent (excluding drought years, such as 1969), which is a good performance considering the rapid increase in exports of bauxite and bauxite products. In 1969 the agricultural trade balance deteriorated markedly, owing largely to bad weather, and preliminary figures for the first nine months of 1970 suggest a further deterioration. Two products account mainly for the expansion of exports of agricultural products: bananas, which were exported for a total value of about Sur. f. 4 million in 1969, and rice, exports of which more than doubled in the past decade, to about Sur. f. 10 million.10 In the same period, exports of forestry products increased by only 34 per cent and their share in total exports was reduced by more than one half.

Chart 16.
Chart 16.

Surinam: Foreign Trade, 1955–69

Citation: IMF Staff Papers 1971, 003; 10.5089/9781451969276.024.A007

Sources: Centrale Bank van Suriname, Verslagen.1 1961 and 1964 were drought years.

Changes in the geographical distribution of exports (Table 16) reflect the increasing importance of the EEC market for Surinam. Higher exports to the EEC included mainly bauxite products. The share of the EEC in total exports increased from 10 per cent in 1960 to 23 per cent in 1968, while the share of the United States and Canada decreased from 80 per cent to 58 per cent during the same period. The status of associate member in the EEC and the ensuing trade advantages are described later in this section.

Table 16.

Surinam: Geographical Distribution of Imports and Exports, 1960–68

(In per cent of total)

article image
Sources: Centrale Bank van Suriname, Verslagen.

Including Cuba, Guyana, French Guiana, and Venezuela.