In a press conference on Sunday 15 September, Governor Gillmore Hoefdraad explained: (a) the status of the economy, (b) the government’s proposed spending cuts, (c) the credit policy of the banks in the past few months, (d) new monetary policy measures, and (e) agreements with players in the currency market. 

The Governor’s presentation is reproduced here.

The macroeconomic policy stance became inadequate due to foreign and domestic factors. With the fall in the price of gold, mining revenues declined significantly and the government collected about US$ 65 million less in the first half of 2013 than the first half of 2012. At the same time, the government expended significantly more on its development program and as a result of the retroactive increase in wages. The resulting fiscal imbalance added domestic demand pressures and had to be financed through increased Central Bank financing. Additionally, commercial banks increased credit activity at a pace inconsistent with the growth of the economy.

Under the present circumstances it has become necessary to reduce the government imbalance and the excessive credit expansion in order to maintain low inflation and a stable exchange rate. For this purpose, the Central Bank of Suriname and the Ministry of Finance discussed the economic problems facing Suriname and suggested a set of measures considered necessary to restore macroeconomic balance. The primary solution is to cut one's coat according to one's cloth: lower revenue simply means less expenditure.

The government has applied the brakes as regards unnecessary spending on goods and services, while project implementation is being prioritized and made more efficient. This is currently being followed up with a number of measures to restore the necessary level of government revenue by means of:

• discontinuing outdated and very inefficient taxes and stamp duties;
• increasing environmental taxes;
• terminating a myriad of customs duty exemptions that fomented corruption and inefficiencies;
• reducing unapproved direct, indirect, and disguised subsides  to state-owned companies.

Implementing these measures is critical to reduce the government deficit and eliminate the fiscal burden on the economy. Further measures aimed at achieving sound government finances are expected and the Central Bank is confidently awaiting the results.

Credit policy

Government finances are not the only challenge to macro-economic stability. The growth of bank loans to the private sector has been far above the level of economic growth, creating excess liquidity and demand in the economy. 

In 2012, Surinamese dollar (SRD) lending in real terms (corrected for inflation) by banks to the private sector grew by 9.9%; in the first six months of 2013, this figure amounted to 16.8%. Loans in foreign currency expanded at even higher rates. The contribution to liquidity creation through the increase in commercial bank lending amounted to SRD 455m, similar to the increase in credit to the Government during the same period. 

Such rapid credit expansion harbors various risks that have to be addressed well in advance:

1. As credit expands faster than production and income, the excess in demand can lead to an overheated economy, which can lead to inflationary pressures.
2. If left unchecked, an excessive increase in domestic demand can lead to a loss of reserves of the Central Bank and eventually endanger the stability of the exchange rate regime.
3. If credit expands faster than income, households and businesses will face a deterioration of their financial debt ratios, which carries risks for their financial wellbeing.
4. The deterioration of the financial debt ratios of business and households also carries the risk of loan non-performance and defaults in banks’ credit portfolios, which can negatively impact their operating results.
5. If left unchecked and if several banks take increasing risks on a larger scale, there is a systemic risk of contagion and domino effects that could lead to bank failures.

Monetary measures

The Central Bank of Suriname emphasizes that these risks have to be addressed to preserve monetary stability, and must be supported by prudent lending policies in the banking sector. On 14 September 2013, the Central Bank held a meeting with the boards of commercial banks regarding monetary policy. In an effort to curtail the pace of growth in lending, the banks’ mandatory cash reserves will be increased. The cash reserve percentages for both SRD deposits and foreign currency deposits will each by raised by 5 percentage points. The SRD cash reserve will increase from 25% to 30% and the cash reserves for foreign currency from 45% to 50%.

Lending in SRD and in foreign currencies is, for the most part, issued to the trade, housing, personal loans and services sectors. Only 15% of the loans were issued to the primary manufacturing sectors during the first half of 2013. It was further discussed with the banks that the large weight of consumer loans must slowly be reduced in favor of more credit for the manufacturing sectors. 

At the same time, the Central Bank also announced that the discount rate would be increased, which is the interest that commercial banks are charged when borrowing from the Central Bank.

Currency market

The Central Bank of Suriname also met with the board of the association of exchange offices on 14 September to discuss the situation in the currency market. The scope for foreign exchange bureaus [“cambios”] to participate in foreign exchange transactions will be increased, since the Central Bank of Suriname is temporarily suspending the 15% contribution. It was agreed with the foreign exchange bureaus in 2011 that they would resell to the Central Bank 15% of their purchases on a daily basis as a means to support the intervention policy of the Central Bank. Thanks to the solid position of the monetary reserves, the contribution is no longer necessary. The foreign exchange bureaus will continue to carry out foreign exchange transactions in cash with the public.

At the same time, the Central Bank will improve the monitoring of the cambios’ compliance with the reporting and disclosure obligations that are contained in their license agreements. For this purpose, an electronic system to monitor all daily transactions on the currency market will be introduced. In this way, the foreign currency exchanges will be linked with the Central Bank of Suriname via a central trading and reporting platform. The general banks will in future also be linked to the system for cash transactions and transfers via accounts.

Compliance with the laws for foreign currency transactions and transfers will be tightened, such as to provide proof of identity and to report large transactions. The Central Bank also emphasizes that it is prohibited by law to trade at exchange rates outside of the official bandwidth.

A central hotline has been set up at the Central Bank of Suriname (FCM department: This email address is being protected from spambots. You need JavaScript enabled to view it.), where members of the public can bring questions and complaints directly to the attention of the authorities, for instance, if consumers are confronted with improper practices, such as being coerced into making payments in foreign currency or at rates higher than the official rates. The Central Bank of Suriname will work in close cooperation with the judicial authorities to ensure an orderly conduct on the currency market.