- - Tuesday, September 16, 2014

Suriname’s economic trajectory for the past ten years boasts impressive headline numbers. Per capita GDP has risen from about $4,500 in 2005 to a projected $10,200 for 2014, while year-on-year inflation as of June 2014 was just 2.2 percent. The country’s strong track record and favorable intermediate term growth prospects, led by development opportunities in the natural resources sector as well as increased diversity in the revenue base, have raised Suriname’s global credit standing. Both Moody’s and Standard & Poor’s, the leading international rating agencies, have raised their credit ratings for Suriname four times in the past seven years (currently Ba3/BB-).

Suriname’s economic and financial policymakers, however, are anything but complacent in assessing their environment. “The period from 2000 to 2010 was characterized by stability-oriented policies,” says Gillmore Hoefdraad, Governor of the Central Bank of Suriname (CBvS). “But since 2010 our policies have been characterized by a stronger focus on reform.”

Charged with the responsibility of being Suriname’s monetary authority and guardian of its financial system, the Central Bank is a key driving force in the country’s growth. It sees stability-oriented reforms as inherently necessary for an economy increasingly intertwined with global trade and capital markets. “We have to address the challenges posed by changes in the global financial system and the increasing complexity of our own system, and its linkages to the world,” according to Governor Hoefdraad.

A key aspect of financial stability is the health, strength and transparency of the intermediaries which facilitate financial flows between public and private sector lenders and borrowers. Commercial banks have traditionally been the major players in Suriname’s financial system, currently managing about 70 percent of the country’s total financial assets.

In 2011 the CBvS promulgated legislation, through a new Banking and Credit Supervision Act, aiming to bring Suriname up to international best practices in key areas such as minimum capital requirements, risk-asset classification, provisioning for non-performing loans, exposure concentrations and insider activities. While risk-adjusted capital adequacy ratios for Suriname’s banking system are above the prevailing international minimum level of eight percent, the Central Bank is using the new legislation as a means to bring adequacy levels higher still.

Alongside these measures, CBvS Governor Hoefdraad notes that the Bank has adopted a risk-based approach to its supervision activities. “We are conducting more intensive onsite examinations and offsite monitoring geared to the trend and level of perceived risk in each bank’s activity,” he says. The Bank is using the Basel Core Principles for Effective Banking Supervision as guidance for managing liquidity, market, operational and other key risks faced by financial institutions. This guidance extends as well to stricter standards of corporate governance, such as new “fit and proper” standards by which to evaluate significant owners, directors and management.

Despite the traditional dominance of the commercial banking sector, non-bank intermediaries such as pension funds, insurance providers and investment companies have been gaining recently in their share of the total pie. “We welcome the financial deepening brought about by the increase in activity by these institutions and the resulting greater availability of financial services for the Surinamese population,” Governor Hoefdraad says.

Anticipating this continued growth, and in the interest of protecting the interests of the public as they become users of a broader array of financial products, the Central Bank is actively developing and passing new legislation in areas such as insurance, capital markets, deposit insurance and a credit bureau.

Reforms are also underway in monetary policy operations. Traditionally the Bank has relied on reserve requirements as its key policy tool in carrying out its core mandate of providing stability in Suriname’s currency, with higher requirements placed on foreign currency deposits as a means to encourage a gradual de-dollarization of the economy.

Recognizing the importance of an expanded toolkit of monetary policy instruments to provide flexibility in adapting to changing economic conditions, the Bank is spearheading the development of a Treasury bill auction system for open market monetary policy operations. This will afford the CBvS with improved capabilities for guiding the pace of credit creation and managing liquidity. The Treasury bill system will also facilitate a government securities and interbank market to provide flexible access to overnight and short-term liquidity for financial institutions.

Another area key to financial system stability is the national payment system. Currently a major effort is under way to automate the payment system and improve the efficiency of clearing and settling interbank payments. “The ability to use electronic means of payment, including payment for goods and services in the public sector, is an important part of our reform program,” says Central Bank Governor Hoefdraad. “It will bring together the payment systems of different financial institutions that until now have been separate and encumbered with manual processes and procedures, and make the transfer of funds between accounts at different institutions more efficient and less costly,” he adds.

Governor Hoefdraad views these and other current reforms in the context of a coherent, comprehensive modernization effort for the financial system to support Suriname’s continued growth. He notes, for example, that a significant part of this growth derives from natural resources, which make up the country’s major export sector. Commodities-led growth does not come without risk, however. “Dependence on oil, gold and other commodities entails volatility in fiscal revenue flows and in our foreign exchange market,” he says. The CBvS is working with other Surinamese economic and financial policymaking entities on mechanisms to bring more stability to commodity-related fiscal revenues.

The Bank has been investing heavily as well in the internal resources needed to bring these reforms to fruition. One initiative has been to establish a financial stability department within the Central Bank to collect financial and macro-prudential data and evaluate systematic risks. This department is also preparing to publish a periodic financial stability report benchmarking progress in key risk areas.

“We have an all-encompassing strategic plan for the coming years,” says Governor Hoefdraad. “But more importantly, we are putting in place all necessary human, physical and virtual resources to ensure that reform ideas will translate to action, and not simply remain ink on glossy paper.”

This article was produced in conjunction with The Washington Times International Advocacy Department.

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