The Central Bank of Suriname floated the country’s currency on June 7. The International Monetary Fund required the country to deregulate its exchange rate in return for a three-year, $690 million loan.
The agreement – struck at the staff level on April 29 – comes as Suriname has repeatedly defaulted on its heavy debt load, which exceeds 150% of GDP. The country’s new administration, elected last year, is also prosecuting two former central bank governors, alleged examples of a larger problem of systemic corruption.
As part of the loan agreement, Suriname pledged “to realign the official exchange so as to eliminate the current parallel market premium”. The country also committed to an anti-inflationary monetary policy.
In a statement published on June 6, the central bank said it was following a “reserve money targeting” regime, which aims to control inflation by managing the size of the money supply. It said this system was not compatible with a controlled exchange rate.
From May 20, the central bank had set the exchange rate in a band between 14.29 and 21 Surinamese dollars to the US dollar. Media sources reported that the Surinamese dollar was trading at just below 21 to the US dollar on June 7.
Default becomes a default
Suriname is beset by a crippling debt load, endemic corruption and high inflation. According to the ministry of finance, Suriname owed sums equal to 159.1% of its GDP in December 2020. The country borrowed nearly $1 billion in 2016 alone, according to the European Network on Debt and Development (Eurodad), a civil society coalition.
Steven Coutinho, CEO of the commercial De Surinaamsche Bank, tells Central Banking that foreign debt “has always been [spent] on non-productive assets and more on consumption and ‘white elephant’ projects”.
Covid-19 has delivered a harsh blow. The country suffered a 13.5% decline in GDP in 2020, according to IMF figures. Fund statistics also show skyrocketing inflation, which soared from 4.4% in 2019 to 34.9% in 2020, and a forecast of 52.1% next year.
Suriname has defaulted three times since the Covid-19 pandemic began, most recently in March 2021. The country is one of five sovereign states to default in 2021, and one of three in South America.
Under a debt-restructuring plan published by the finance ministry on June 2, the country aims to reduce the debt load to 60% of GDP by 2035. The debt plan would impose a 70% haircut on commercial creditors and a 30% cut on official bondholders.
The plan acknowledges that oil and gas revenues may be forthcoming soon, but “they remain uncertain and have consequently not been incorporated in the macro-fiscal framework”.
Simon Hinrichsen, a PhD student at the London School of Economics and portfolio manager at Sampension, who studies debt defaults, said that the Suriname plan is not unprecedented. “When compared to so-called ‘hard defaults’ and restructurings in which the face value of debt is reduced, it would not stand out as extraordinary,” he wrote in an email.
Coutinho, who took office on June 7 as head of the Surinamese Bankers Association, says the government and bondholders seem “very far off from a deal”.
In March 2020, Suriname adopted a law allowing it to repay US dollar loans to Surinamese banks in Surinamese currency, effectively imposing a haircut.
Central bankers in the dock
Suriname’s new government is currently prosecuting two former central bank governors who held office under the previous presidency of Desi Bouterse. The state accuses Gillmore Hoefdraad, governor between 2010 and 2015, and Robert van Trikt, governor from 2019–20, of defrauding the central bank. Van Trikt resigned as governor in January 2020, after accusations of corruption and conflicts of interest.
Central Banking attempted to contact legal representatives for Hoefdraad and Van Trikt, but was unable to obtain comment.
Bouterse fired another central bank governor, Glenn Gersie, in early 2019 after Gersie refused to resume central bank financing of the deficit. The central bank had agreed to stop this practice under a 2016 IMF programme, which Suriname abandoned in 2017.
The Surinamese government names the central bank governor for a term of five years. Bouterse named Maurice Roemer in February 2020, succeeding van Trikt.