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By Arthur Deakin

Suriname, like Guyana, has just discovered billions of barrels of recoverable oil offshore its coast. This has attracted a flurry of international investors seeking to capitalize on the sudden boom in its oil & gas sectors. The high levels of attendance at the Suriname Energy, Oil and Gas Summit (SEOGS) taking place on June 1-3, is a sign of the spotlight shining on the small Latin American country with nearly 600,000 people. However, despite the promise of the newfound resources, Suriname had the second worse economy in Latin America in 2020, only trailing the authoritarian Venezuela. With a 13% GDP decline, high levels of inflation and its fifth debt restructuring in the past 15 years, the macroeconomic prospects for the country remain dire.

In April, the newly elected center-left President Chan Santohki reached a $690 million financing agreement with the IMF that includes necessary austerity measures to put the country back on a sustainable economic path. Although the details have not been fully disclosed, energy subsidies (starting at 10% and reaching up to 75%) provided to the state-electricity company will likely be removed. A fuel tax of 1 Surinamese dollar per gallon, will also likely be implemented. These measures will be poorly received by the population and may cause social unrest.

The IMF deal also caused an uproar among bondholders as it recommended that Suriname exclude its unproven oil reserves in its debt sustainability and macroeconomic analysis. The Suriname Eurobond creditors, a bondholder group composed of leading financial players such as Franklin Templeton and Eaton Vance, see the oil resources as a fundamental aspect of the country’s capacity to repay its debt. Hence, they threatened to terminate a recent agreement to defer debt payments if the IMF deal is not reconsidered.[1]

Since the Surinamese government is already issuing $400mn in bonds tied to oil production, with a 5% coupon rate, it is reasonable for the country’s repayment capacity to factor in estimated oil reserves—not just proven finds. If the amount needs to be adjusted in the future, either up or down based on new proven figures, then the government should be given the flexibility to do so.

Like Guyana, Suriname is going to need a well-structured, transparent sovereign wealth fund to invest its oil funds while ensuring savings for future generations. Although the country established a Savings and Stability fund for its mining royalties, the amount of wealth generated from its oil finds will be exponentially larger. The current Savings and Stability Fund also allows for the government to spend up to 15% of its annual funds, which is significantly higher than the 3% limit set by the successful Norwegian Sovereign Wealth Fund. Understandably, a 3% limit is too low for a country with underdeveloped infrastructure such as Suriname, but a 15% ceiling substantially limits the country’s ability to grow its wealth. A more moderate percentage needs to be implemented to allow for the current society to prosper while conserving future cash.

To that end, Suriname needs to pass a new law creating a fund specifically for its oil resources that is professionally managed by an independent body with no political connections. With clear thresholds on the amount that can be spent annually and strict accountability measures that ensure the funds are being spent transparently, Suriname’s oil funds are less likely to be misused and exploited. President Santokhi’s appointment of his wife to the supervisory board of Staatsolie, the state-owned company, signals that Suriname is heading down the wrong path. The people must demand change before it’s too late.

To avoid the “Dutch disease,” ironically named after Suriname’s colonizers after their manufacturing sector declined following the discovery of a vast amount of natural gas, Suriname must also diversify its economy beyond the oil & gas sector. Agriculture, real estate, manufacturing, and mining are some of the key sectors that must be incentivized both in terms of fiscal and regulatory frameworks. Domestic and regional participation will be important in the long-term, but even more so, will be the arrival of global international players that have the expertise and capacity to handle the uptick in economic developments. A local content policy that requires reasonable participation of local labor and companies, while simultaneously providing an investor-friendly regulatory requirement for foreign investors, will be fundamental in the industrialization and diversification of the economy. 

As first oil is produced only in 2025, Suriname has a tremendous opportunity to look at its neighboring Guyana to see what has and what has not worked in its oil development. Guyana has failed to implement many laws prior to first oil that would have allowed for greater local participation and more investor clarity. The local content policy, for example, is still under consultation and will likely be under review for many months to come. Guyana’s new law to administer its oil funds will likely only be approved in 2022. Having these frameworks in place before first oil will be fundamental for Suriname to grow in a healthy manner.  

Racial and political infighting in Guyana has also prevented the country from moving forward at a faster speed as projects have been delayed and elections have been disputed. A collaborative political approach in Suriname will avoid some of the bureaucratic interruptions that are especially harmful for an economy growing at such a rapid pace.

The last and most complex factor involves the elimination of the systematic corruption present both in Suriname and Guyana. A culture of bribes, patronage and nepotism is the greatest danger to the country’s prosperity. Establishing international and domestic accountability bodies, in addition to implementing the necessary framework that prevents the misuse of oil funds, is one solution. Independent news outlets and a more robust educational system is also strongly correlated with transparency levels. Although Guyanese leaders have publicly said a lot of the right things, in practice, few actions have been implemented so far. Suriname must take note to avoid committing the same mistakes.

Arthur Deakin is Co-Director of AMI’s energy practice, where he oversees projects in oil & gas, solar, wind and hydrogen power, as well as battery storage and electric vehicles. Arthur has led close to 50 Latin American energy market studies since 2016 and has project experience in over 20 jurisdictions in the Americas. He has also written and published over 20 articles related to the energy sector.

[1] Reuters