PARAMARIBO, Suriname, CMC—The Central Bank of Suriname (CBvS) says the public debate regarding the financial institution’s open market policy” shows that there are still persistent misconceptions about the nature and operation of this policy instrument.”
In a lengthy statement, the CBvS said that it had taken note of an article titled “OMO debt of SRD 8.3 billion: Who pays the bill?” adding that the “article reflects the persistent misunderstanding and noise within society regarding the open market policy of the CBvS.”
Open Market Operations (OMOs), particularly in the context of debt, refer to a central bank’s purchase and sale of government securities in the open market to influence the money supply and credit conditions, ultimately affecting interest rates and economic activity.
The CBvS said Suriname is not unique in applying this modern monetary policy instrument, which also represents an important step in modernizing the country’s monetary policy.
“Although the article raises questions on several points, the CBvS will not go into this in this response,” it said, adding that “the CBvS does not recognize the analysis presented by the author.
“For example, it is incorrect that the CBvS would have claimed its policy led to price decreases in 2025. The year is not even half over, which makes such a conclusion premature and misleading.
“Moreover, the author seems to base himself on his unverified data. Intellectual honesty requires that he be transparent about the origin and methodology of his data collection so that other interested parties can test the validity of his findings. Finally, the claim that the Bank’s open market operations would have contributed to price increases is not endorsed by any national or international monetary authority,” the CBvS said.
The Central Bank said it is important to clarify when and to which party a so-called OMO debt would be owed.
“The answer is as straightforward as it is simple: the CBvS finances the interest of the open market operations at the expense of the result of the Bank. There is, therefore, no question of a debt to third parties.
“Such a “debt” is therefore not mentioned by the Bureau for the Public Debt and cannot be registered by the Court of Audit of Suriname either, since there is no debt. Moreover, the author is unaware that the Bureau only registers government debts for the Public Debt, not those of autonomous state bodies.”
The CBvS said that the view that its OMOs would have led to an increase in the money supply is also incorrect. This assumption shows a lack of insight into the underlying causes of (net) changes in the money supply.
The CBvS said although it is common knowledge under what circumstances Suriname felt compelled to appeal to the International Monetary Fund (IMF), the article should be placed in the proper context.
It said that on December 23, 2021, Suriname signed a three-year recovery program with the IMF, which was recently completed despite significant challenges. This was the third adjustment program in Suriname’s history.
The previous programmes (1993-1996 and 2000-2003) were supported by Dutch development aid.
“In the second program in particular, the Netherlands, with its triple-A credit rating, played a key role by guaranteeing loans on the international capital market at favorable conditions. Suriname used these resources to repay expensive debts early, clean up the CBvS’s balance sheet, and strengthen international reserves. The social costs of that program were considerably lower than during the first program,” the Central Bank said.
In 2020, Suriname again found itself in a deep economic crisis. The economy shrank by 16 percent, the budget deficit amounted to 13.2 percent of gross domestic product (GDP), the debt burden rose to 148 percent of GDP, the parallel exchange rate deviated by 130 percent from the official rate, and the international reserves of the CBvS were depleted.
In addition, the foreign currency cash reserve scandal seriously damaged confidence in the CBvS. The banking sector was also in a weakened state. The CBvS said that, unlike previous crises, Suriname could not appeal for development aid at this time.
“The authorities had two choices: do nothing and slide economically like Venezuela or appeal to the IMF – like many other countries in times of crisis. However, an IMF program has stringent conditions: “Take it or leave it.”
“After all, the country seeking aid needs the IMF, not vice versa. Countries must approve the proposed package of measures at the start and be responsible for implementing their recovery policy. The IMF monitors the agreed policy framework and carries out periodic evaluations.”
The CBvS meant a fundamental change of course in monetary and exchange rate policy. The exchange rate had to become fully flexible, leaving the CBvS little room to intervene in undesirable developments.
It said currency intervention was only permitted within a strict framework – a situation that did not occur in practice.
“As a result, the exchange rate moved freely without the CBvS being able to intervene. In line with this, the CBvS had to switch to a monetary policy framework based on control of the money supply. This aimed to extract excess liquidity from the banking system and, more broadly, from the economy.
“To this end, an active open market policy was introduced, whereby the CBvS determined the volume of money to be absorbed (the so-called OMO volume), and commercial banks were free to make their interest rate bids. Due to the strict rules, the CBvS could not intervene in determining the interest rate.”
It said the Ukraine war had adverse economic effects worldwide, including on Suriname.
“The government was forced to deploy additional resources for social support, which led to an increase in liquidity in the banking sector – and thus to the rise in the OMO volume. Banks then offered very high interest rates, a development that the CBvS disapproved of and made known to the banks.
“The CBvS then proposed to the IMF to introduce a maximum interest rate but encountered resistance. For the IMF, the program objectives were leading; the costs were considered secondary importance.
“For the CBvS, on the other hand, both the objectives and the costs were of essential importance. Nevertheless, the CBvS and the Ministry of Finance had to achieve the agreed objectives to secure a successful review – and thus a next tranche of financial support.”
The CBvS said the Surinamese society must realize that the IMF support is not free; the costs of economic recovery are ultimately always borne by the country itself and that the IMF program, which was based on market-based rates and interest rates, had far-reaching financial consequences for the CBvS.
“The initially sky-high OMO interest rates had to be borne by the CBvS to initiate the inflation control process. After all, the CBvS is not focused on profit maximization and uses principles different from those of institutions that serve a commercial interest. However, the monetary policy decreased inflation from 60 percent to 5.8 percent in approximately two years.
The CBvS, under its responsibility, has tried several times to steer the interest rate development. However, this has jeopardized the program’s progress.
“The CBvS was faced with a choice: either accept the costs or jeopardize the program. Stopping the IMF program would have had disastrous consequences. Confidence in Suriname would have disappeared, resulting in the complete loss of access to bilateral, multilateral, and international financing.
“Open market operations are not conducted as described in theoretical textbooks. They are a policy instrument that central banks master through experience. The CBvS has built up this experience over the past four years,” the CBvS said, noting that in 2022, the IMF could not provide direction for the follow-up during discussions on monetary policy.
“That is why the CBvS initiated additional policy measures in early 2023: the SRD cash reserve percentage was increased, a credit growth ceiling was temporarily imposed for banks, and CBvS Certificates (CBCs) were issued. The IMF went along with these policy measures, which led to monetary tightening and a sharp drop in inflation. In successive IMF reports, the CBvS was praised for its decisive monetary policy.”
The CBvS said that in April this year, a delegation from the Central Bank paid a working visit to the Central Bank of Guyana, “among other things, to exchange knowledge about exchange rate policy and IMF experiences.
“Guyana started its IMF trajectory in 1989 and introduced an OMO framework in 1991 that is still in use. The shared experience shows that modern monetary policy, based on open market operations, is expensive.
“Ideally, OMOs are carried out with treasury paper so that the executing central Bank does not bear any interest costs. However, in underdeveloped financial markets with insufficient confidence in the government, central banks are forced to take the lead and carry out OMOs with their securities. Therefore, the interest costs in this case are for the Central Bank.”
The CBvS acknowledged that Suriname’s recent cooperation with the IMF was painful but also very useful and instructive.
“The implementation of the program required courage, dedication, and daring. Frustrations and disappointments were not absent, but the scale and impact of the realized reforms are historic, including making the CBvS independent and implementing fundamental reforms in the government budget.
“Never before has Suriname implemented such radical changes. However, they form a valuable basis for further institutional strengthening our country’s monetary-financial policy.”
The CBvS said that Suriname, like every other country that implements an IMF program, “ultimately pays for the recovery of its economy. In the case of open market operations, the CBvS has borne these costs since the government is not yet able to issue treasury papers.
“This is simply the price that comes with fulfilling its legal mandate of price stability.
Depending on the economic situation, the money supply, and the interest rate policy pursued, the CBvS may pay or receive interest when implementing the OMO policy, which will be charged or credited to the result for the relevant financial year, respectively,” the CBvS added.ac
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