UNCLAS PARAMARIBO 000810
SIPDIS
STATE FOR WHA/CAR LLUFTIG, EB/IFD/OMA TFORSYTH
USDA FOR DERIKSON
E.O. 12958: N/A
TAGS: EFIN, ECON, ETRD, PREL, PGOV, NS
SUBJECT: SURINAME'S FOREIGN CURRENCY RATING IMPROVES, BUT
NOT WITHOUT WORDS OF WARNING
REFS: (A) PARAMARIBO 684 (B) PARAMARIBO 514
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Summary
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1. (U) The credit-rating agency Standard and Poor's
recently improved the outlook on Suriname's foreign
currency rating from stable to positive. The agency
affirmed the outlook on local currency as stable and
assigned 'B-' and 'B' ratings on long term foreign and long
term local currency, respectively. The short-term foreign
and short-term local currency both received a 'B' rating.
This improvement in Suriname's rating is, however,
accompanied by a firm warning to the government to address
the issue of its large arrears, revealing the
precariousness of the country's economic stability. We
reiterate ref B's request for a response to the Government
of Suriname (GOS) on how it might resolve its outstanding
U.S. debts and arrears. End Summary.
2. (U) Standard and Poor's improved its outlook for
Suriname's rating based on the progress it has observed the
government make over the past year to improve debt
management practices at the institutional level, especially
as it relates to external debt. The agency cites the
establishment of a debt management bureau as a major
achievement. This bureau's primary focus is to develop and
implement a debt management strategy, maintain a central
record of all government debt, give payment instructions,
control debt payments, and rationalize the outstanding debt
arrears. The positive outlook on foreign currency was
granted in expectation of a more rigorous push for debt
management improvement supported by continuing monetary and
fiscal prudence. The agency states that even though it
does not have sufficient information on the servicing of
local debt, it has left the rating unchanged. This is in
expectation that debt management improvement in external
debt will have a spillover effect on local debt
arrangements.
3. (U) But not all was positive for Suriname. According to
the agency, large arrears continue to weigh negatively on
the country's ratings. More specifically the agency
mentions the 131 million USD in total arrears on external
bilateral debt. Of these arrears 77 percent are due to
Brazil and the United States (See ref A). Also mentioned
are recurring arrears the government has with two Spanish
banks, which amount to 20.8 million USD. The agency points
to inadequate ability and in some instances a weak payment
culture as reasons for the defaults. Standard and Poor's
concludes that Suriname's long-term foreign currency rating
is constrained by existing challenges to make full and
timely payments on accumulated debt. The agency warns that
if the government does not impose a proactive stance in
addressing its small and recurring arrears with the Spanish
banks, eliminating technical arrears, and advancing
negotiations with major bilateral creditors on
restructuring, the government could see the outlook revised
back to stable.
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Comment
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4. (U) The improvement in Suriname's currency rating
symbolizes a step in the right direction for Suriname, but
it does not signal a drastic change in the country's
economic health. The change should encourage the
government and the Central Bank to continue improving the
country's payment culture, manage government debt and
safeguard the fragile monetary and fiscal stability it has
achieved. Setting up a new debt management institution
helped to improve Suriname's currency rating, but to
maintain the rating in the coming year, it will have to use
the unit in earnest to effectively facilitate debt
repayment or restructuring. Standard and Poor's comments
provide yet more impetus to apparent GOS eagerness to
resolve its debts and arrears to the United States. We
would appreciate receiving guidance requested in Ref B
soonest.
BARNES
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