Economic crisis in Suriname: What’s next?

Photo: ANP / Nederlandse Omroep Stichting

Suriname, a country of roughly 600,000 people in northeast South America, is part of the Guyana-Suriname Basin—often called the “Holy Grail” of oil and gas. Major oil and gas discoveries within the last six years revealed at least 13 billion barrels. However, the country is in the midst of a severe economic crisis. Sadly, Suriname has been here before; commodity export dependence has left the country open to external shocks, while political complications have cast a long shadow over decision-making processes.

With the prospects of a booming oil industry, it is important to approach the current crisis with an eye to the past and examine how earlier Surinamese governments have responded to crises. While President Chan Santokhi, elected in 2020, faces many of the same problems as past administrations, he appears determined to put the country back on track. It is critical that a recovery happens sooner rather than later.

The First Crisis: 1980 to the Early 1990s

After achieving independence from the Netherlands in 1975, Suriname dealt with different periods of crisis, many driven by political tensions. In 1980, President Dési Bouterse seized power in a military coup. The first period of crisis, between the early 1980s and the early 1990s, was shaped by the 1982 “December killings,” which saw the arrest, torture, and shooting of fifteen Surinamese men who criticized Bouterse’s military dictatorship. Shortly after, Ronnie Brunswijk—a former presidential bodyguard—formed an insurgent group opposed to the Bouterse regime, demanding democratic reform, civil rights, and economic development for the country’s Maroon communities (descendants of escaped enslaved Africans). While the Surinamese Interior War was largely fought in remote parts of the country, it affected the entire nation from 1985 to 1992.

During this first period of crisis, Suriname’s political turmoil contributed to persistent fiscal deficits, hurt export earnings and government revenue, and diminished the country’s ability to get financing from international financial institutions like the Inter-American Development Bank (IADB). A further blow came in the aftermath of the December murders, when the Dutch government decided to suspend development aid to Suriname. The productive sector reduced its share of GDP and public expenditures increased.

As the government’s financial situation eroded, it resorted to the Central Bank of Suriname (CBvS), depleting the country’s international reserves and worsening the balance of payments. Suriname soon began a downward spiral.

The Second Crisis: Mid- to Late-1990s

The country underwent a second period of crisis from the mid- to late-1990s. Although President Bouterse was no longer in power and the Dutch government restored development aid, Suriname experienced high inflation rates, which hit 144 percent in 1993 and 368 percent in 1994. The Central Bank opted to devalue Suriname’s currency in 1994.

The government reacted to the new economic crisis by implementing a structural adjustment program, which was drafted with Dutch participation as a condition of the restoration of bilateral aid. The European Union, first through Coopers & Lybrand and later the Warwick Research Institute, was responsible for the monitoring and implementation of this program, which focused on strengthening fiscal policy, deregulating the economy, liberalizing imports and export licensing, and privatizing some public enterprises.

The Third Crisis: 2015 to Today

The fall of global commodity prices in 2014 had significant consequences for Suriname. As global trade slowed, the Surinamese subsidiary of the ALCOA corporation decided to stop its bauxite mining activities. Since the government depended on ALCOA’s taxes for revenue, the country faced a deficit.

President Bouterse, in office for a second time following democratic elections in 2010, responded to the crisis by signing a two-year Stand-By-Agreement (SBA) with the International Monetary Fund (IMF) in 2016. In May 2017, however, the Surinamese government cancelled the agreement with the IMF and announced its own recovery plan. In an interview with Belgian news site De Redactie, President Bouterse stated that the country’s citizens would not be able to carry the burden of the original IMF agreement, as it imposed too stringent restrictions.

The Bouterse administration relied heavily on foreign money to finance imports and cover a widening deficit from 2015 to 2020. The IADB and China became the country’s largest creditors, with private investment bank Oppenheimer & Co. and the Swedish National Export Credits Guarantee Board providing additional funding. Suriname’s national debt multiplied over fourfold in just five years.

Corruption and mismanagement eroded the public’s trust in financial institutions from 2015 to 2020. In one prominent case, Bouterse fired Glenn Gersie, the Governor of the Central Bank, for political reasons. Gersie’s successor, George Van Trikt, came under investigation within a year for irregularities and misappropriations, as did his business partner. Bouterse then attempted to replace Gersie with Sigmund Proeve, a candidate who was himself embroiled in scandal. Proeve chose not to accept the role after protests from businesses and banks.

Between 2019 and 2020, oil companies discovered major offshore reserves off the coast of Suriname. These discoveries appeared to offer a new opportunity for Suriname to prosper, but they were largely overshadowed by economic and political turmoil.

Hope for a New Direction

It was in this distressing context that Suriname held elections in May 2020, ousting Bouterse and ushering in what many Surinamese hoped would be a new era. The new government, a coalition led by President Chan Santokhi with Ronnie Brunswijk as Vice President, quickly moved to stabilize fiscal and monetary systems, while also establishing a social safety net for lower income households.

The Santokhi administration also sought to revise the Money Transaction Offices Supervision Act of 2012. While the act was primarily aimed at preventing speculation of foreign currency, the CBvS also intended to use it to close the gap between the official price for foreign currency and the parallel market rate.

While many remain hopeful about the Santokhi administration, Suriname is far from done with its ratings rollercoaster ride. The government failed to make debt payments in July 2020, December 2020, and April 2021, leading credit ratings agencies to downgrade Suriname’s government to “default” status. The Santokhi government has tasked the financial advisory firm Lazard Frères with drafting a Debt Restructuring Plan and decided to re-engage the IMF for support. At the time of this article’s writing, Suriname had reached a staff-level agreement with the bank.

The series of economic crises since independence has had a destructive impact on Suriname’s economy. IMF reports over the years have identified several ongoing challenges, including weak institutions, corruption, lack of transparency, an oversized public sector, high energy subsidies, and insufficient diversification. While natural resources have always brought in significant government revenue, the government is too dependent on mining (especially gold) and the energy sector, squandering the potential to bring in revenue from tourism and agriculture. Previous governments have never dealt effectively with these challenges.

Looking ahead, it is crucial that the current government implements more stringent measures, which may be unpopular in the short-term, but will yield positive results in the medium-term. For example, subsidies to semi-government companies and institutions must be trimmed. Many should be stopped. Furthermore, the Surinamese government must aggressively promote economic diversification and invest more in industries such as agriculture and tourism, as well as work to rebuild confidence in the country’s financial institutions. As it stands, Suriname sits at an important crossroads—if it fails to make the necessary reforms, it may be doomed to repeat the past.

Mavrick Boejoekoe is the founder of the Youth Education and Leadership Foundation and a director at the Suriname Ministry of Regional Development and Sports.

Source: Global americans
Link:https://theglobalamericans.org/2021/08/economic-crisis-in-suriname-whats-next/