The use of macro economic models in Suriname

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The use of macro economic models in Suriname

• Lessons learnt

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Lessons learnt

• Christine de Rooij
• 1984-1998 Head macro economic planning /deputy
  director National Planning Office of Suriname

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Summary

• 1991-1994 workshops and training sessions based
  on the model Macmicas 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.

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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.

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General background information Suriname

• Land area of 163,265 sq. km, situated on the
  north-east 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 2000-
  2005
• 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)

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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.

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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.

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Background Suriname Economic situation-1

• Surinames 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  

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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.

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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.

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Poverty
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Working with economic models, an overview

•  1987-1991 World Bank RMSM model-
• 1991 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 scenarios-discussions, involvement of
  more institutes. Monitoring, further evolution of
  the model linked to the economic situation (
  E-views)
• 1998-2000 spreadsheet SURYA model (Excel)

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Scenarios

• 1992
• 1993
• Jan 1994
• Sept 1994
• May 1995
• 1998
• 1999

• Bauxite crises
• Unification Exchange rate
• Model building in Suriname
• 6 long term scenarios 1995-2010
• Scenarios 1995-2000
• Multi Annual plan
• Surya model

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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 .

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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

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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 scenarios 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.

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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 ratios
  for each product

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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.

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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

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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

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Presentation
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Multi Annual PlanMeasures 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

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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

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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

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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

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1994-1998 Scenarios-discussions

• 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)

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1998-2000 Spreadsheet SURYA model (Excel)

• Preparations Multi annual plan 1999-2004
• Publication of Manual SURYA model including
  updated data set and 3 scenarios

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Scenarios

• 1992
• 1993
• Jan 1994
• Sept 1994
• May 1995
• 1998
• 1999

• Bauxite crises
• Unification Exchange rate
• Model building in Suriname
• 6 long term scenarios 1995-2010
• Scenarios 1995-2000
• Multi Annual plan
• Surya model

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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
  scenarios
• Sustainability training and capacity building

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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

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Strengths

• Shows inter linkages between different key
  variables for analysis and discussion purposes
  scenarios
• Short term projections and visibility of measures
  (f.e. negotiations between Government and trade
  unions)
• Satellite programmes can be linked f.e. income
  distribution

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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)
• 2000Growing gap (1000-2000)