III. Economic Trends and Outlook -Major Trends and Outlook Suriname has been experiencing economic difficulties since the early 1980's due to a combination of poor economic policy and poor markets for its principal export, alumina (aluminum oxide). After rebounding in 1988 and 1989, gross domestic product (GDP) began declining in 1990 and appears to have continued declining ever since. (No GDP statistics are yet available for 1993.) This trend will likely continue until a comprehensive economic structural adjustment plan is implemented. The democratically elected Surinamese government, which took power in late 1991, immediately began to consider an economic structural adjustment plan. For a variety of reasons, very little has been done as yet on implementing such a plan. The exchange rate regime has been improved, though there are still multiple exchange rates. Some licensing requirements have been eliminated, but the majority remain in place. The government continues to run a sizeable budget deficit and to finance it by increasing the money supply. This has led to a rapid increase in inflation, which we estimate at 292 percent in 1993. The government has committed itself to unifying the exchange rate on July 1, 1994. If this is successfully accomplished, it will eliminate some of the major price distortions that currently afflict the Surinamese economy. The government has also stated that it will revise and implement its structural adjustment plan. It has already increased revenues through tariff reform and may do more in that regard in the context of the unification of exchange rate and implementation of the structural adjustment plan. This will be necessary to close the fiscal deficit. One of the most encouraging signs recently has been a large increase in foreign investment and foreign investor interest. This has been primarily in natural resource-based industries, which have become more attractive due to the return of peace to the interior of the country. -Principal Growth Sectors Bauxite mining and refining have been the backbone of the Surinamese economy during most of this century. It continues to be the most important sector of the economy, providing more than seventy percent of total exports and the majority of the government's hard currency income. Decisions will have to be made before the end of the century on substantial investments in new mines, if the industry is to continue. The most likely area for such mines is the Bakhuis area of western Suriname. The return of peace to the interior of Suriname has opened up major opportunities in natural resource development. Among these are wood harvesting and processing, gold, kaolin, and building/decorative stone mining and tourism. Recently, an Indonesian firm, known locally as Musa, has begun development of a 150,000 hectare timber concession in western Suriname. A Canadian/U.S. gold exploration company has conducted extensive exploration near the Brokopondo dam in south central Suriname and is planning exploration near the southern part of the Marowijne River. -Government Role in the Economy The government has a very substantial role in the Surinamese economy. Government accounts for about thirty percent of GDP and forty percent of total employment. The government intervenes heavily in economic activity through an extensive system of license requirements and export and price controls. It is the stated intention of the government to substantially reduce this degree of intervention in the course of implementing its economic structural adjustment program, but little progress has been made to date. -Balance of Payments Situation Suriname has been experiencing acute official foreign exchange shortage since 1991. This has been primarily caused by declining remittances by the bauxite companies. The result has been a steady diminution in the government's ability to service its foreign debt and to provide foreign exchange at artificially low official exchange rates. The government has attempted to cope with this situation by raising the official exchange rate at which some imported goods are purchased (notably fuel), and by forcing importers to provide their own hard currency for imports. This has meant that the implicit exchange rate for an increasing proportion of imports has been the unofficial parallel rate. Through 1992, this had had very little impact on the overall level of imports in dollar terms, which stayed at around $600 million, even though the parallel rate rose dramatically. The government has stated its intention to unify the exchange rates on July 1, 1994. -Trade and Investment Barriers The principle barrier to trade has been the continuing difficulties of both government and private importers in obtaining the necessary foreign exchange. Customs valuation procedures (see Section VI below) have meant real tariffs were very low. This may change with the proposed unification of the exchange rate in July, 1994. The greatest barriers to investment have been the difficult state of the economy, with its associated hard currency problems and poor security conditions in the interior of the country. The latter condition is improving, but meaningful economic reform has yet to be instituted. -Labor Force Suriname has a labor force of approximately 100,000 persons. Of those, over 40,000 are employed by the government. The labor force is generally well educated (literacy over 90 percent), but many skills are in short supply. This problem has been compounded in recent years by significant emigration. -Major Local & Third Country Competitors Suriname depends on imports for approximately 80 percent of consumption. Local competitors are generally insignificant for nearly all potential U.S. exporters. Foreign competition is strong. The Japanese have the largest share of the automotive market, but the U.S. share is growing. The U.S. is the leader in agricultural and construction machinery, with the Japanese and Canadians as serious competitors. In processed foods, the Dutch and the Brazilians are the primary competition. Asian producers are the main competition in the leisure and garments area. -Infrastructure Situation Suriname inherited a highly developed infrastructure at independence in 1975. That infrastructure is still largely in place, though severe signs of wear are showing and breakdowns are occurring in some areas. The main causes of this are Suriname's inability to maintain the infrastructure with its own resources and reductions and cutoffs in foreign (mostly Dutch) assistance after 1982. This problem was greatly exacerbated in the interior of the country by the 1986-92 insurgency, which led to the destruction and abandonment of much of the infrastructure of the interior. The telephone system in the country is relatively good and a vigorous program of expansion and renovation is underway. The road network outside Paramaribo is limited and in need of major repair. The electricity system in Paramaribo is overloaded and reliability is decreasing. The water system in Paramaribo still delivers an acceptable quality of water, but will need major investments to avert serious future problems. The airport terminal facilities are poor, but the government has started a program to upgrade them. -Major Infrastructure Projects Underway The state oil company, Staatsolie, plans to build a small refinery in the near future.