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The use of macro economic models in Suriname “Lessons learnt ” “Lessons learnt ” Christine de Rooij 1984-1998 Head macro economic planning /deputy director National Planning Office of Suriname 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. 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. General background information Suriname: Land area of 163,265 sq. km, situated on the northeast 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 20002005 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) 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. 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. 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 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. 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. Poverty 100 80 60 Poverty (%) by location 40 % of national poor 20 0 Urban Rural Interior Working with economic models, an overview 1987-1991 World Bank RMSM model1991 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) Scenario’s 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 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 . 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 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. 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 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. S.A.P and the Multi Annual Plan Short term goals: - food security - consolidation export production - new markets for non traditional products Medium term goals: - modernising agricultural sector - growth agricultural exports - priority sectors: Energy ,Forestry and Mineral production 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 Presentation Policy area Scenario’s Assumptions Scenario 1 Scenario 2 Compare 1-2 Monetary Exchange rate liquidity q. B.o.P Gov .budget Income expend. balance Production GDP Export sectors Employment Wages prices Multi Annual Plan Measures 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 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% Assumptions-2 Growth GDP function of growth export sectors 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 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 1994-1998: Scenario’sdiscussions 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) 1998-2000 Spreadsheet: SURYA model (Excel) Preparations Multi annual plan 19992004 Publication of Manual SURYA model including updated data set and 3 scenario’s Scenario’s 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 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 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 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 Discussion issues 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)