The use of macro economic models in Suriname

1. The use of macro economic models in Suriname “Lessons learnt ”

2. Christine de Rooij 1984-1998 Head macro economic planning /deputy director National Planning Office of Suriname “Lessons learnt ”

3. Summary • 1991-1994 workshops and training sessions based on the model “Macmic”as developed by Dr. M.van Schaaijk • 1995-1998 Development of Suriname model and Surya model for economic monitoring as preparatory activity for the implementation of the SAP.

4. Objective of this session • To present some experiences on working with macro models in Suriname, • Sharing experiences as counterpart of the consultant : government employee with the task to present an analysis and to prepare policy decisions. • It is very difficult to get ownership and add something new to an existing complete model.

6. General background information Suriname: • Land area of 163,265 sq. km, situated on the north-east coast of South America bordered by Guyana to the west, French Guyana to the east and Brazil to the South. • Independent from the Netherlands since 1975 • Term of Office elected government: August 2000- 2005 • Population: 443.000 ( 1997) 45% Afro-Surinamese, 35% East Indian descent, 16% Indonesian , 3% Amerindian, 3% a mix including Chinese, Koreans, Lebanese and Europeans. • Per Capita GDP: US$ 1,345 (1997)

8. Background Suriname:Political situation 2000 • Parliamentary system, with minority representation guaranteed under the Constitution, designed to enhance a multi-ethnic balancing of power • Turbulent years since its Independence in 1975: Military rule during the 1980s, with a suspension of the Constitution and press censorship and serious human rights violations in 1982.This resulted in the suspension of the Dutch development Aid • The Second Ventiaan Government took office in August 2000 after his coalition of four parties, won the elections of last May with 33 seats out of 51.

9. 2000-2005 Government policy • Recovery Programme with focus on Sustainable Human development, especially on Education • Topics: - the development of a pro-poor growth programme within the framework of the Recovery Programme - Good Governance.

10. Background Suriname:Economic situation-1 • Suriname’s economy is centred on mineral resource extraction. Bauxite mining and alumina exports make up 60% of income tax revenues and 75% of export earnings (about US$ 450 million). • Gold mining, petroleum and forestry show significant potential. • The agriculture and fisheries sector are the second most productive sector and the second largest employer (20,000) after the Government (40,000). accounts for 10% of GDP  

11. Background Suriname:Economic situation-2 • Little development in the interior of the country, upcoming Eco-tourist industry , estimated 7 percent of the GDP (about US $44 million) direct employment at 5,000 persons, •  1996 –20000 again general deterioration of economic conditions, high inflation ,escalating debt, over-extended public sector , growing budget deficit ,decline of living standards of the general population.

12. Background Suriname:Social situation • Suriname is faced with problems that affect sustainable human development. These include poverty, decreased access to health care, a rapid spread of the HIV/AIDS epidemic, a poor education system with a high dropout rate and low results, and the rise in crime, drug trafficking and abuse.

13. Poverty

14. Working with economic models, an overview • 1987-1991 World Bank RMSM model- • 1991 Introduction Macmic model • 1991-1992- ”Suriname model”, (TSP) • 1992-1994 Preparations of the structural adjustment programme. Different exchange rates, parallel market growing informal sector • 1994-1998 scenario’s-discussions, involvement of more institutes. Monitoring, further evolution of the model linked to the economic situation ( E-views) • 1998-2000 spreadsheet: SURYA model (Excel)

15. 1992: 1993: Jan 1994 Sept 1994 May 1995 1998 1999 Bauxite crises Unification Exchange rate Model building in Suriname 6 long term scenario’s 1995-2010 Scenario’s 1995-2000 Multi Annual plan Surya model Scenario’s

16. World Bank RMSM model • Start: 1987, World Bank mission and report,presenting a mid term projection based on the use of the RMSM model. • Two economist sent to the World Bank to be trained in working with the RMSM model • Dissatisfaction with approach of the production sectors (Public sector investments , subsidies and available manpower) based on so called expert views. • Development –”Planprog” model • Note: clear figure of projected GDP growth highly appreciated by the policy makers.

17. 1991-1992- ”Suriname model” • In 1991, after elections , there was a need for economic projections based on calculations of the policy measures to be taken. • Dissertation of Marein van Schaaijk , presenting a full fledged model for Suriname: Macmic • Training on the Macmic model for 3 government officials. Output: - some feeling on the possibilities of the model, but no capability to work with the model. ( new software and a lot strange abbreviations for all the economic variables used in the model) Follow-up: project for further training in Suriname for a larger group of potential users of the model

18. Results • 1992 First exercise: draft publication showing the status of the work: an unreadable document, useful for the autors and colleagues but not for decision makers. • 1992 Second report: Framework to arrive at a sound programme for the Surinamese Economy, aimed to stimulate the discussion on adjustment measures and to speed up the decision making process. Quantification of proposed measures and the timeframe with 3 different scenario’s for bauxite prices. • End 1992: decision to start with a SAP. • End 1993: none of the suggested measures were implemented : the exchange rate was increasing and the economy started its own adjustment.

19. The Macmic model • The early models ( Macmic 1-Macmic7) were very similar to the original version :TSP software and 246 equations including 75 behavioural and semi behavioural equations and 49 exogenous variables. • A macro block including the Government sector, the exchange rates, the Balance of Payment, monetary aspects,the labour market, unemployment and wages. • A micro block with equations on the most important export production sectors (10): explaining 95 % of the economy, based on the originally rather complicated logarithmic functions of calculated price and costs ratio’s for each product

20. 1992-1994 : S.A.P and the Multi Annual Plan 1994-1998 • Multi Annual Plan 1994-1998, included challenge to translate policy objectives into a quantitative programme • Issues: External orientation of the economy, restructuring and growth of the economy, poverty eradication , technology, environment development aid.

21. S.A.P and the Multi Annual Plan • Short term goals: - food security - consolidation exportproduction - new markets for non traditional products • Medium term goals: • modernising agricultural sector • growth agricultural exports - priority sectors: Energy ,Forestry andMineral production

22. Steps to Quantify Multi Annual Plan • Analysis of the situation 1988-1992 • Estimation of the current year (1993) • Macro economic policy • Translation of policy objectives: - recovery of the financial and monetary balance -stoppage of decrease of real GDP and employment -growth export sectors

23. Presentation

24. Multi Annual PlanMeasures to be quantified: • Government budget, income :increase import duties; intensify tax operations; new tax regimes on land and properties • Government budget, expenditures Rationalisation subsidies and transfers Government reform; decrease of employees Freeze of total labour costs/wage sum • Monetary measures: Introduction dual exchange rate system ( from 4 to 2 to 1 rate) • Production policy: crash investment programme

25. Assumptions-1 • Exchange rate: unification of 4 existing exchange rates mid 1994: • Level of 1994 import = 1992 import • Liquidity quote 20 % of GDP • Balance of Payment support US$ 15 million • Import duties will be based on free market exchange rate and will be reduced from 15% to 5% • Reduce subsidies to the productive sectors • Increase social transfers with 65%

26. Assumptions-2 • Growth GDP function of growth exportsectors • Assumptions for volume and prices of the different production sectors • Decrease government employees with 5% • Wage correction government employees for inflation; for private sector time with a delay of one year

27. From macmic to Suriname model • Micro block simplified logarithmic functions removed • Further streamlining of the model to 200 equations • Oil sector added to the micro block; 4 other products removed • Adjustment of coefficients in parallel market equations • Development of satellite model for the Government budget

28. 1994-1998:Scenario’s-discussions • Involvement of more institutes. Bureau of Statistics: Turbo ABS, Central Bank, Ministry of Trade and Industry • Preparation for Economic Monitoring • Further evolution of the model linked to the Economic situation • New software: E-views • (see publications)

29. 1998-2000 Spreadsheet: SURYA model (Excel) • Preparations Multi annual plan 1999-2004 • Publication of Manual SURYA model including updated data set and 3 scenario’s

30. 1992: 1993: Jan 1994 Sept 1994 May 1995 1998 1999 Bauxite crises Unification Exchange rate Model building in Suriname 6 long term scenario’s 1995-2010 Scenario’s 1995-2000 Multi Annual plan Surya model Scenario’s

31. Lessons learnt: • Model as tool for analysis, presentation of alternatives, policy decision • Early dialogue with of all partners/stakeholders: technical and policy level • Distribution of information on possibilities and impossibilities; • Transparency on use of data and the model itself • Careful selection of information and layout with regard to distribution • Participation of policy makers in defining scenario’s • Sustainability: training and capacity building

32. Weaknesses: • Data problems: need for of reliable data • Sustainability • Unfamiliarity with models by policy makers, (black box- exchange rate; projections # predictions ) • Trend discontinuity: behaviour of consumers, workers ( wages), investors producers

33. Strengths: • Shows inter linkages between different key variables for analysis and discussion purposes: scenario’s • Short term projections and visibility of measures (f.e. negotiations between Government and trade unions) • Satellite programmes can be linked: f.e. income distribution

34. Parallel market exchange rate ( exogenous variable) 1991: 2 to 8 exchange rates 1993: 8 to 4 exchange rates 1994: 4 to 2 exchange rates ( one formal/ one informal) 2000:Growing gap (1000-2000) Discussion issues