P 111901Z FEB 09
FM AMEMBASSY PARAMARIBO
TO SECSTATE WASHDC PRIORITY 0562
DEPT OF ENERGY WASHINGTON DC
DEPT OF COMMERCE WASHDC
INFO EC CARICOM COLLECTIVE
AMCONSUL CURACAO

UNCLAS PARAMARIBO 000046 
 
 
STATE FOR EEB/IFD/OMA 
STATE FOR EEB/EPPD 
WHA/CAR FOR JROSHOLT 
 
REF A)08 STATE 134459 
B) 08 PARAMARIBO 446 
 
E.O. 12958: N/A 
TAGS: EFIN EPET ECON PREL NS
SUBJECT: SURINAME: EFFECTS OF FINANCIAL CRISIS CREEPING UP ON 
ECONOMY 
 
¶1. (U) SUMMARY. Suriname's financial system has remained relatively 
unscathed by the international financial crisis; however, the world 
economic slowdown has begun to impact the country's overall economy 
due to Suriname's vulnerability to price shocks in the commodities 
market, the drastic fluctuation in fuel prices, and the volatile 
Euro-dollar exchange rate. Alumina and oil prices have dropped 
significantly.  Together these two commodities account for 48.9 
percent of the country's exports, 31.2 percent of its GDP, and 23.1 
percent of the government's revenue.  Should the commodity markets 
continue their downward spiral coupled with further profit 
reductions and layoffs, Suriname's economic storm will worsen.  END 
SUMMARY. 
 
--------------------- 
The Financial Sector 
--------------------- 
 
¶3. (U) Assessments by Minister Humphrey Hildenberg of Finance, 
Central Bank Governor Andre Telting, and different bank directors in 
the Fall of 2008 that Suriname's financial sector would remain 
relatively unaffected by the international financial crisis have 
proved sound.  Anne Harmsma, President of the RBTT Bank Suriname, 
told the Econ Assistant in November that due to the small size of 
Suriname's economy and its vulnerability to external shocks, the 
Central Bank of Suriname (CBvS) had already in 2004 and 2005 put in 
place strong control measures on commercial banks to restrict 
speculating excess liquidity on higher risk investments abroad.  The 
maximum banks can do is invest a small percentage of their liquidity 
in secured foreign treasury bills.  These conservative mechanisms 
have so far protected Suriname's commercial banks from the global 
financial crisis.  Harmsma predicted, however, that Suriname's 
financial sector would eventually feel the impact of the crisis 
after investment in the mining and transportation sectors declines 
and jobs are subsequently lost - both of which were economic 
developments in late 2008. 
 
----------------------- 
Double Digit Inflation 
----------------------- 
 
¶4. (U) In 2008, Suriname saw its month over month inflation rate 
increase to 18 percent. The average rate in 2008 was approximately 
14.8 percent, and year over year inflation for December 2008 
compared to December 2007 increased to 9.8 percent. Suriname's 
calculation of inflation is based on a basket of goods, of which 
consumables and transportation had the largest impact.  The increase 
in consumables was caused by early 2008's increasing food prices and 
the fluctuating U.S. dollar-Euro exchange rate, because the 
Surinamese dollar is linked to the U.S. dollar while most 
consumables are imported from Europe; these factors have reduced the 
consumer's buying power.  The transportation segment of the basket 
was influenced primarily by record high fuel prices; later in 
November 2008, the Ministry of Trade and Industry in collaboration 
with the fuel advisory board eased fuel costs when it lowered the 
"set" price for fuel to more closely reflect its reduced market 
value in late 2008. 
 
--------------------- 
The Fall of Aluminum 
--------------------- 
 
¶5. (U) Suriname's economy is dominated by exports of alumina, oil 
and gold.  In 2007, alumina accounted for 41.9 percent of Suriname's 
exports and 9.6 percent of government revenues.  In export revenues 
for 2007, alumina accounted for 26.7 percent of GDP.  Although some 
economic diversification has taken place, the country's economy 
remains dependent on its mineral resources.  On January 12, 2009, 
Minster of Natural Resources Gregory Rusland stated to the National 
Assembly that the price of alumina exported from Suriname decreased 
from 350 USD to 250 USD per ton, while production costs increased so 
significantly that they exceeded the price per ton. Both 
multinationals operating in Suriname, Alcoa, under its wholly owned 
subsidiary Suralco, and BHPBilliton, suffered sharp financial 
losses; country-specific reporting is unavailable but Alcoa reported 
a global net income loss of $1.19 billion in the fourth quarter of 
¶2008.  On November 28, after talks between the government and mining 
giant BHPBilliton broke down over the establishment of a new mine in 
Western Suriname, BHPBillition announced it would cease operations 
in Suriname in 2010 when the bauxite in its current concessions are 
depleted.  The company announced several reasons behind this 
decision, including the effect of the international financial crisis 
on commodities prices.  When BHPBilliton closes its operations in 
Suriname, its 1,000 employees will lose their jobs. 
 
¶6. (U) Alcoa has also made hard decisions about its operations in 
Suriname.  Worldwide losses forced the company to freeze all new 
capital expenditures -- the widely speculated reason behind 
Suralco's decision in mid-2008 to drop out of the negotiations with 
the government and BHPBilliton on a new mining concession. As of 
February 2009, Suralco and the Government of Suriname are 
negotiating over the 45 percent stake BHPBilliton has in a refinery. 
 In January 2009, Alcoa announced it would slash 13,500 jobs 
worldwide.  Although no official announcement concerning Suralco 
layoffs has been made, Suralco's labor union, Moederbond, regularly 
indicates to the media its assessment that 350-400 Suralco employees 
will lose their jobs. 
 
¶7. (U) These developments in the bauxite sector will impact all of 
the sectors that depend on the mining industry, such as heavy 
equipment and transport contractors. 
 
----------------- 
Good Oil, Bad Oil 
----------------- 
 
¶8. (U) In 2007, oil accounted for 7 percent of Suriname's exports, 
and 13.5 percent of government revenues and grants came from that 
sector.  In export revenues for 2007, oil accounted for 4.5 percent 
of the GDP.  The 2008 rise and drop in oil prices was both good and 
bad for Suriname. When prices increased in the first half of 2008, 
fuel prices at the pump skyrocketed to almost 5 SRD per liter ($2.20 
per gallon. Associated goods and services such as public 
transportation, bread, air travel, and food followed suit, with 
inflation increasing to double digits. At the same time, Suriname's 
parastatal oil company, Staatsolie, generated record profits. 
 
¶9. (U) The tables started to turn in the second half of 2008 when 
the world price for fuel started tumbling.  In November 2008, the 
Ministry of Trade and Industry in collaboration with the fuel 
advisory board finally lowered the "set" fuel prices.  In December 
2008, prices for associated goods started decreasing.   Staatsolie, 
however, generated less profits, because the precipitous drop in the 
world price for crude and the corresponding lower "set" price in 
Suriname dampened in the second half of 2008 their earlier record 
profits. 
 
¶10. (U) In October 2008, when asked by the Econ Assistant whether 
the financial crisis had changed Staatsolie's plan to expand its 
refinery, Refining Manager Ben Nuboer replied that the company 
remained on track with its expansion plans. The story changed in 
January 2009, however, when Minister Rusland told the press that 
continuing low fuel prices were projected to reduce the company's 
2009 earnings.  As a result, crucial decisions concerning the 
planned 800 million USD expansion, exploration for new drill sites, 
and other future investments would need to be made.  The media 
reported the possibility that the refinery project would be put on 
hold unless the government agreed to reduce parastatal State Oil 
Company's payments to the government, which would consequently 
reduce overall government revenue. 
 
----------------- 
The Gold Standard 
----------------- 
 
¶11. (U) Gold prices have remained stable during the financial 
crisis.  In 2007, gold accounted for 31.7 percent of Suriname's 
exports and 20.2 percent of the country's GDP.  Rosebel Goldmines, 
the subsidiary of the Canadian IamGold, contributed a record 50 
million USD to the Suriname government's coffers.  The company 
produced approximately 300,000 troy ounces at a gross value of 248 
million USD in 2008. After completing its expansion project in the 
first quarter of 2009, the company plans to expand production to 
400,000 troy ounces and increase the size of its workforce from 1150 
to 1450.  Suralco has formed a joint partnership with Newmont Gold 
in order for Newmont to begin gold mining operations on Suralco's 
Nassau concession as soon as negotiations with the government are 
completed. 
 
------- 
Layoffs 
------- 
 
¶12. (U) While the impact of the financial crisis has not yet 
significantly affected local companies unconnected to international 
businesses, multinational and foreign companies, including franchise 
operations, have announced layoffs in anticipation of a tough 
business year in 2009.  Digicel, a Caribbean multinational and 
Suriname's second largest telecom provider, Burger King, and 10 to 
20 local contracting companies for the mining sector have already 
announced layoffs.  Sham Binda, Chair of the Organization for Small 
and Medium Enterprises, told Pol-Econ Chief in February 2009 that 
while businesses in Suriname usually have decreased profits in 
January, he has already heard from his business contacts that 
decreased profits are continuing into February.  He further 
predicted that some smaller companies that have larger inventories 
and creditors may start going bankrupt half-way through 2009. 
 
------------------------- 
Hit on Government Income 
------------------------- 
 
¶13. (U) The Government of Suriname relies heavily on the income from 
its exportable commodities.  In his annual address and presentation 
of the 2009 Budget to the National Assembly on September 29, 2008, 
President Ronald Venetiaan made a general prediction that the 
financial crisis would influence the government's 2009 policy 
decisions.  Minister Rusland announced during the government's 
internal budget negotiations that income from bauxite and oil (a 
combined 55 percent of total exports in 2007.)  was expected to 
decrease by 500 million SRD (178.6 million USD) in 2009. Government 
income from bauxite for 2008 was estimated at 57 million USD, and is 
estimated in 2009 to decrease to 30 or 40 million USD. In 2008, the 
State Oil Company reported record pre-tax earnings of 380 million 
USD, with total government earnings from 2008 oil estimated at 260 
million USD. 
 
¶14. (U) In a presentation to the National Assembly, Finance Minister 
Humphrey Hildenberg announced that the government was revising the 
estimated 2009 GDP downward from 9.2 SRD billion to 8.9 billion 
SRD(3.3 billion USD to 3.18 billion USD) to take into account 
decreasing commodities prices. Hildenberg also stated that the 
Planning Bureau had revised its 2009 growth outlook from 5.8 to 5 
percent.  In a study released in late 2008, the U.N. Economic 
Council for Latin America and the Caribbean (ECLAC) projected 
Suriname's economy would grow by a modest 3 percent in 2009. 
Although still above the projected growth rate of 1.4 percent 
estimated for the Caribbean, it is well below the 5 percent the 
government cites. 
 
¶15. (U) Minister Hildenberg has announced that the government will 
make budget cuts to compensate for income deficit, and CBvS Governor 
Telting told the media that the Central Bank has already prepared 
for possible events that could lower the government's income. 
Telting noted that the CBvS has built up sizable reserves that 
should be able to help the government weather the current storm. 
 
¶16. (U) Comment.  As of February 2009, Suriname is weathering the 
financial crisis, but continued profit reductions, layoffs, and 
reduced commodity prices could darken the economic storm clouds and 
cause further economic challenges.  While the Central Bank has put 
aside reserves, the IMF and International Rating Agencies have long 
advocated in their annual reports on Suriname for the creation of a 
stabilization fund using profits from commodities during boom years 
as a way to systematically mitigate the effects of commodity price 
swings.  Should the commodity markets continue their downward spiral 
coupled with further profit reductions and layoffs, Suriname's 
economic storm will worsen.  End Comment. 
 
 
SCHREIBER HUGHES