Transcript Surinammodelworkshop

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
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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:
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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
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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
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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
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Background Suriname:
Economic situation-2
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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
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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
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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
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1992:
1993:
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Jan 1994
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Sept 1994
May 1995
1998
1999
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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
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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”
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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
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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
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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
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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
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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
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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:
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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
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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
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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
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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
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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)
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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:
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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:
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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:
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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)
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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)