Ontwerp/layout: I.D. Graphics Foto s: Hubert Hermelijn, I.D. Graphics CTP en druk: Leo Victor N.V.

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2 Ontwerp/layout: I.D. Graphics Foto s: Hubert Hermelijn, I.D. Graphics CTP en druk: Leo Victor N.V.

3 ANNUAL REPORT 2006 HAKRINBANK N.V. MISSION Hakrinbank is a dynamic, innovative bank that provides its clients with a comprehensive range of high-quality, customised financial services. Our highly skilled employees work together as a team to maximise client satisfaction.

4 The staff party held in Hotel Torarica to celebrate the 70th anniversary of Hakrinbank.

5 28 JUNE JUNE YEARS OF HAKRINBANK N.V. On 28 June 2006 it was exactly 70 years since Hakrinbank started providing services to the community of Suriname. The bank began as a family business under the name of O.R.G.Vervuurts Banking Corporation and grew steadily over the subsequent years. In 1943, it amended its Articles of Association and changed its name to Vervuurtsbank N.V. The bank s healthy growth over the years meant that the original head office on Keizerstraat had become too small by It was consequently decided to move the head office to Dr. Sophie Redmondstraat This office building, which is majestic by the standards of Suriname, is still the highest in Paramaribo. In the same year, the bank decided to restructure. This restructuring included a number of well-known foreign banks and the government of Suriname acquiring shares in the bank, as well as the bank s name being changed to Handels- Krediet- en Industriebank N.V. or Hakrinbank for short. At the same time, the bank installed its first computer and was at that time the only bank in the country to have an automated administration system. In the first half of the 1980s, all the bank s shares once again came into Surinamese ownership. Thanks to the efforts of all its employees, both now and in the past, and the support and trust of all its clients and relationships, Hakrinbank has been able to establish a solid and lasting place for itself in our society. The services we provide as a leading banking institution comprise a wide range of financial products.we are rightly proud of the prominent role we play in product innovation, as witnessed, for example, by the fact that we were the first bank, in early 2004, to introduce internet banking to Suriname. It is now 2007 and our bank is facing a series of major challenges as a result of the rapid and far-reaching changes in both the national and international arenas. These changes include the increasing competition resulting from developments in the Surinamese banking market and the country s continuing economic integration into Caricom and other economic alliances, as well as tighter regulations and the increasing compliance requirements. Clients are also becoming more critical and expect high-quality services and modern banking products. These developments are making it increasingly difficult for smaller banks to fund the rising level of hardware and software investments that are needed. Such banks are consequently increasingly seeking to merge or acquire other organisations in order to achieve the required critical mass. The efforts and commitment of our employees will ensure that we respond effectively to these challenges and continue providing services to the community of Suriname so that our bank develops and flourishes, our employees welfare remains assured and we achieve a return for our shareholders and thus also help to promote the further development of Suriname. We are proud that Hakrinbank has been able to celebrate its seventieth anniversary in such good economic health, with various growth and profitability records being achieved in this anniversary year. The celebrations of this anniversary are very much a dominant theme of this annual report. Our head office in illuminations can be seen on the front cover, while various aerial photographs of the celebrations can also be found on the inside pages. Hakrinbank owes a great debt of gratitude to all those who have helped and supported it over the years.

6 MANAGEMENTTEAM From left to right: Harold Liu Hung Chung (Assistant Managing Director Operations), Jim Bousaid (Chief Executive Officer), Mariette Tjon A Ten (Chief Operations Officer) and Gerard Raghoenathsingh (Assistant Managing Director Commercial).

7 CONTENTS Mission 1 Hakrinbank N.V years in action 3 Organogram 6 Key consolidated figures Report of the Supervisory Board 10 Report of the Executive Board 13 Looking back at the year under review 13 Economic developments in Business of the bank 29 Nationale Trust- en Financierings Maatschappij N.V. 41 Financial developments of the bank 42 Auditors report 49 Financial statements Consolidated balance sheet 52 Consolidated profit and loss account 53 Company balance sheet 54 Company profit and loss account 55 Notes to the financial statements 56 Other information 62 Curricula vitae and details of ancillary positions of members of the Supervisory Board and Executive Board of Hakrinbank 62 Addresses 65 Appendix I: Suriname: Key macro-economic data 66 5

8 Organogram as at 31 December 2006 C.E.O. C.O.O. Assistant Managing Director Operations Assistant Managing Director Commercial Human Resources & General Affairs Information & Communication Technology Internal Audit Credits Insurance Domestic Administration & Management Information (Accounting) Nationale Trust & Financierings Mij. N.V. Credit Administration Cash Administration & Management Information (Financial Controlling) Affiliates (Credits) Foreign Transfers Affiliates (Operations) Treasury & Securities Compliance & Legal Maintenance & Technical Support Risk Management 6

9 As at 31 December 2006 SUPERVISORY BOARD A.K.R. Shyamnarain - Chairman R.A. Mac Donald - Deputy Chairman H.B. Abrahams Ms G. Lie Sem-Nawikromo H.R. Ramdhani M.M. Sandvliet J.J.F. Tjang-A-Sjin EXECUTIVE BOARD J.D. Bousaid Ms M.M. Tjon A Ten - Chief Executive Officer - Chief Operations Officer DEPUTY DIRECTORS H.S.K. Liu Hung Chung - Assistant Managing Director Operations G.M. Raghoenathsingh - Assistant Managing Director Commercial Ms M.M. Tjon A Ten Human Resources & General Affairs M. Naarendorp, Head of Department N. Samoedj Insurance R. Tjon A Kon, Head of Department Credit Administration I. Loenersloot, Head of Department Compliance & Legal M. Schaap Maintenance & Technical Support R. Tjokro, Head of Department Foreign Transfers M. Lie A Njoek, Head of Department (until ) A. Hagens, Interim Head of Department (from ) L. Karg, Deputy Head of Department Information & Communication Technolog y T. Sanches, Head of Department R. Mahabier A. Semoedi T. Csaba Domestic M. Tjon, Head of Department J. Legiman Cash A. Budel-Samiran, Head of Department Affiliates Branchmanagers - Tourtonne V. Ramtahalsing - Nieuwe Haven N. Elshot-Chelius - Latour R. Wimpel - Flora R. Mohamatsaid J.D. Bousaid Credits Account Managers C. Halfhide-Chou S. Kisoensingh-Jhauw S. Jadoenathmisier L. Venloo P. Quintius E. Frangie Treasury & Securities P. Tjon Kiem Sang, Head of Department R. Amirkhan Nationale Trust & Financierings Mij. N.V. H. Vijzelman, Head of Department R. Sitaram, Deputy Head of Department G. Jong Administration & Management Information R. Liesdek, Accounting R. Sheorajpanday, Financial controlling Internal Audit B. Jewbali, Head of Department Risk Management S. Shair-Ali, Head of Department Affiliates Branchmanagers - Nickerie R. Mangala, Head of Department A. Anandbahadoer, Deputy Head of Department - Tamanredjo S. Resomardono Assets & Liabilities Management Committee 7

10 KEY CONSOLIDATED FIGURES (in thousands of SRD) Balance sheet Cash and cash equivalents 104, , , , ,498.2 Clients 306, , , , ,123.8 Other assets 195, , , , ,401.5 Total assets 606, , , , ,123.5 Savings 239, , , , ,063.3 Other funds 334, , , , ,689.0 Shareholders equity 33, , , , ,271.2 Total liabilities 606, , , , ,123.5 Results Operating income 49, , , , ,664.4 Operating expenses 27, , , , ,120.1 Provision for credit risks 1, , , , ,196.8 Operating profit before tax 19, , , , ,347.5 Taxes 7, , , , Net result 12, , , , ,502.4 Cash dividend 4, , , , Stock dividend Ratios (%) Efficiency ratio Return on average equity Return on average assets Capital ratio BIS ratio Share information*) Number of shares issued 465, , ,696 1) 465, ,080 Net earnings per share ) Dividend per share ) Dividend percentage 6, , , ) 1, Payout ratio Net asset value (tangible) Market price of share Market capitalisation (x SRD 1,000) 63,335 57,746 49,364 36,883 23,673 Number of employees Number of branches ) 3) 2) 2) *) x SRD 1. The amounts have been adjusted for the purposes of comparison and are based on a nominal value of SRD 0.15 per share. 1) Calculated on the number of shares before the stock dividend 3) Including shares in share premium reserve of SRD ) Excluding shares in share premium reserve 4) Including shares in share premium reserve of SRD

11 SUPERVISORY BOARD From left to right: Harold Ramdhani, Roy Shyamnarain (Chairman), Johan Tjang-A-Sjin, Milton Sandvliet, Ghamie Lie Sem-Nawikromo, Richard Mac Donald (Deputy Chairman) and Enrico Abrahams. 9

12 REPORT OF THE SUPERVISORY BOARD To the shareholders General We are pleased to present our report on our activities in the 2006 financial year, in which the celebrations of the bank s seventieth anniversary played an important part. In this report we also discuss the activities of the Audit Committee and the Remuneration and Nomination Committee. We have also included our recommendation that the financial statements for the year and the proposed appropriation of profit be adopted. Activities of the Supervisory Board The Supervisory Board held eleven ordinary meetings and fifteen extraordinary meetings during Ordinary meetings are held monthly in the presence of the Executive Board, while extraordinary meetings depend on the subjects to be discussed and are normally attended only by members of the Supervisory Board. Our supervision focused primarily on the company s results and strategy, and included regular discussions of the figures showing the results achieved to date, as presented by the Executive Board, and approval of the 2007 Policy Memorandum, together with the accompanying Operational and Investment Budget for Other subjects on the meeting agendas included corporate governance, risk management, the possibility of introducing a system of performance management for the Executive Board, adopting a new pension scheme for the Executive Board, a proposal to amend the pension scheme for some former members of the Executive Board, details of the working relationship between the Audit Committee and key officers in the bank s internal control organisation, devising a proposal for reviewing the remuneration of members of the Supervisory Board and various other subjects. Some of these issues are discussed in greater detail below. Corporate governance In June 2006, the chairman of the board and those of the Audit Committee attended the launch and inaugural meeting of the Caribbean Association of Audit Committee Members (CAACM) on behalf of the Supervisory Board. This Committee was set up by the Caribbean Association of Indigenous Banks (CAIB), an alliance of regional banks of which our Chief Executive Officer, Jim Bousaid, is a Board member. Being a member of CAACM enables us to share in the knowledge and experience gained by other regional banks in the area of corporate governance and in devising strategies benefiting the work of our Audit Committee. The Supervisory Board intends to play an active role in the activities of both CAIB and CAACM wherever it considers such involvement to be necessary and effective. The chairman of the Supervisory Board and the Executive Board consequently attended CAIB s annual meeting in Port of Spain in November 2006, at which various issues relating to corporate governance, risk management and the implementation of the Basel II guidelines for banks in the region were discussed. Activities relating to the Executive Board The Supervisory Board asked an external consultant for advice in 2006 on devising and implementing a system of performance management for the Executive Board and on an accompanying bonus scheme for the individual members of the Board.We have since received the consultants advice and are considering how best to implement the proposed performance management system. By introducing a related bonus system, the Supervisory Board is seeking to establish an effective and efficient link between the appraisal of performance and remuneration of the individual Executive Board members. Our primary goal in this respect is to encourage and inspire the Executive Board to make even more efforts to achieve the organisation s objectives. The Supervisory Board also gave further consideration to the existing pension arrangements for the Executive Board and concluded that these arrangements needed to be amended in order to bring them into line with the changed circumstances in the market. We have since adopted a new pension scheme, following advice from external specialists. We reported last year that the Executive Board would be expanded to include a Finance Director (Chief Financial Officer) within the foreseeable future. We duly started the appointment process in this respect on January 1 st,

13 Activities of the Audit Committee In June 2006, the chairman of the Supervisory Board together with the chairman of the Audit Committee attended the launch and inaugural meeting of the CAACM. More information on this meeting can be found in the section on corporate governance above. In October 2006, the Audit Committee held a plenary meeting with all key officers in the bank s internal control organisation. The meeting included detailed discussions of existing relationships at work, relationships with the Executive Board, job descriptions and authorisations and staffing. A meeting, which was also attended by the Executive Board, was held in November 2006 with the external auditors to discuss the management letter for Agreements were reached for more intensive contact between the Executive Board, the Audit Committee and the internal and external auditors to discuss issues such as the management letters, the audited annual figures and other relevant financial reporting. In February 2007, the external auditors discussed ways of managing the risk of fraud with the Audit Committee, the Executive Board and the relevant bank officers. The Audit Committee reported on its activities at the ordinary meetings of the Supervisory Board throughout the year. Activities of the Remuneration and Nomination Committee The Remuneration and Nomination Committee focused in 2006 on formulating proposals for amending the pension schemes of the Executive Board and certain former members of the Executive Board. After advice on this subject had been obtained from external specialists, proposals were submitted to the Supervisory Board and have since been approved. The Committee was also advised by external consultants on proposals for introducing a system of performance management for the Executive Board and a linked bonus scheme. More information on this can be found in Activities relating to the Executive Board above. The Committee also contributed to the discussions within the Board on finalising the position of the CFO. More information on this is also provided above. The Committee reported on its activities at the ordinary meetings of the Supervisory Board throughout the year. Independence and composition of the Supervisory Board The Supervisory Board believes that all its members comply with the requirements for independence as referred to in the Hakrinbank N.V. corporate governance code. Information on the individual Board members and their ancillary positions can be found elsewhere in this report. There were no changes in the Supervisory Board during the year under review, and the Board continues to have seven members. Mr. J.J.F. Tjang- A-Sjin and Mr. H.B. Abrahams are the next supervisory board members scheduled to resign by rotation. Both have confirmed that they wish to be considered for reappointment, and we recommend that they be reappointed. Remuneration of Supervisory Board members The Supervisory Board has for some time been considering how best to formulate a proposal for reviewing the remuneration paid to members of the Supervisory Board. The general principle in these discussions has been that members of the Board should be properly remunerated for their work. Account also has to be taken of the bank s corporate governance policy as proper performance of the Board s supervisory activities requires individual members of the Board to be closely involved in these activities of the bank. This inherently requires the members responsibility for their work to be more clearly defined. And this in turn will ultimately result in a higher quality of supervision. The efforts to establish an appropriate level of remuneration take account in the first instance of the individual member s relevant expertise and the amount of time required to perform the activities pertaining to his or her position on the Board. The fees set should also take account of any representative tasks performed and any logistic and support facilities provided. Financial statements and proposed appropriation of profit The Supervisory Board is pleased to present the bank s financial statements for the 2006 financial year. These financial statements comprise the company balance sheet as at 31 December, the company profit and loss account, the consolidated balance sheet as at 31 December, the consolidated profit and loss account and the accompanying notes. The financial statements have been audited by the external auditors, as provided for in the bank s 11

14 Articles of Association. This report includes the auditors report and unqualified approval of the financial statements. The operating result is essentially the outcome of the realization of the policy objectives defined in the 2006 Policy Memorandum which were conscientiously implemented by the Executive Board. This year,too,the operating result was boosted to some degree by the continuing positive developments in Suriname s macro-economic environment. Prudent financial management by the government, together with the favourable prices on the world market for commodities such as oil, gold and alumina, has also undoubtedly played a role in this. It is interesting to note in this respect that much of 2006 was dominated by public discussions of whether we as a country are earning enough from our natural resources, which are largely owned by foreign multinationals. These discussions high-lighted the community s deep sense of involvement in and commitment to this subject and the need for the government s policy on developing our natural resources, to be transparent. This transparency is particularly important in respect of the revenues that we as a community generate from our natural resources and the way in which these revenues are used. There also seems to be public consensus on the need for reviewing the way in which we as a country have to date dealt with our natural resources. This may provide support for the government in its forthcoming negotiations on the bauxite operations in Western Suriname and the goldmining activities in the Nassau mountain area. Profit before tax amounted to SRD million, with a net profit after tax of SRD million. We propose appropriating SRD 4.66 million of this for dividend pay-out to the shareholders and transferring SRD 8.11 million to the general reserve. This means a dividend of SRD 10 per share of SRD 0.15 nominal value in our anniversary year of This dividend will be paid in cash. An amount of SRD 1.40 per share was previously distributed as an interim dividend in October 2006, which means a final dividend of SRD 8.60 per share of SRD 0.15 nominal value. Vote of thanks for the good results The Supervisory Board would like to express its gratitude for the way in which the Executive Board represented the company s interests during the year under review and specifically its efforts and the strategic choices that produced the good operating result for the year. We would also like to thank the management and other employees for the way in which they have individually contributed to a successful year for the bank and to express our recognition of the vital role that they have played in achieving the objectives set. We would also like to thank our clients and all the other parties who demonstrated their trust and confidence in Hakrinbank N.V. during the year and provided such a good basis for a mutually beneficial relationship. Last but not least, we would like to thank you, our shareholders, for the support that you provide us in our work. This inspires us as an organisation to continue striving for excellence in everything we do. Paramaribo, 10 April 2007 Supervisory Board A.K.R. Shyamnarain - Chairman R.A. Mac Donald - Deputy Chairman H.B. Abrahams Ms G. Lie Sem-Nawikromo H.R. Ramdhani M.M. Sandvliet J.J.F. Tjang-A-Sjin We recommend that you, our shareholders, adopt these financial statements and thus ratify the Executive Board s management and the Supervisory Board s supervision of the bank in the year under review. We also recommend that you approve the proposed distribution of the profit for the year. 12

15 REPORT OF THE EXECUTIVE BOARD Looking back at the year under review Our bank recorded an excellent performance in 2006, the year in which it also celebrated its seventieth anniversary. Total assets in the consolidated balance sheet rose by almost 29% to SRD million, while the profit before tax increased by over 50% to close to SRD 20 million.all the key performance ratios improved, with the return on assets rising from 1.95% to 2.37% and the return on equity increasing from 46.1% to 46.9%. The efficiency ratio improved from 59% to 56%, while the non-performing loans ratio decreased from 3% to 2%. The healthy development in the bank s operations is the result of a combination of factors, including the benefits that have accrued from the favourable macro-economic environment of low inflation, stable exchange rates and higher levels of economic growth. This also meant a good level of lending, with total lending increased with 33.4% which was higher than budgeted. An element of saturation was seen in the consumer credit market, while the foreign currency market was calm as a result of supply and demand essentially being in equilibrium at the prevailing exchange rates. The Minister of Finance stated in his Financial Memorandum for 2007 that the favourable economic developments were primarily a result of the strict and disciplined implementation of the budgetary policy, underpinned by the favourable international economy and prudent monetary policies. Government finances improved considerably, with a small cash budget surplus being achieved for the first time in years. The budget policy and consistently strict monetary policy pursued by the Central Bank of Suriname resulted in the rate of inflation falling, while the Surinamese dollar remained stable against the US dollar, our most important trading currency. The favourable prices on the world markets for our mineral exports had a positive effect on the government s finances, the balance of payments and the monetary reserve. For the first time in years, there was a surplus on the current account, while the monetary reserve rose substantially to reach an internationally acceptable level of import coverage of close to three months. Positive trends were also seen in the mining sector, as well as in the building and construction sector, the banana industry, aquaculture and the dairy and the water and soft drinks industries. Significant developments were also seen in the services sector, specifically in tourism and telecommunications. Suriname s National Planning Office is forecasting real growth of 5.8% in the country s GDP, and we regard this as realistic. The national debt also decreased during the year. The improved management of state debt and improved international debt servicing were two of the main reasons why the international rating agency Standard and Poor s decided towards the end of the year to increase Suriname s sovereign credit rating by one notch. This is the first upgrade in the country s rating since Suriname started working with the renowned rating agencies in The rating outlook also changed for the better, from stable to positive and this is often a precursor of an upgrade. Suriname is seeking to achieve an investment-grade rating in the medium term, and we also regard this as feasible. The IMF s Article IV consultation mission, which conducted its annual examination in early 2007, commented very favourably on the Surinamese policymakers performance, which exceeded expectations. It was disappointing on the other hand to see the limited extent of progress achieved in Public Sector Reform, which is of such importance for the sustainable and balanced development of the country. The current favourable developments in the macro-economy mean this PSR programme can, however, succeed. The benefits of the economic growth are also not yet sufficiently visible in society as a whole. Our bank has benefited from the favourable economic environment of the year under review. The company policies pursued by the Executive Board have also proved successful and translated into good results for the year. The main business objectives in 13

16 2006 were to achieve sustainable growth, improve our profitability and balance sheet, increase our efficiency and reinforce our risk management policies and customer relationships. Other objectives included increasing the level of job satisfaction and social corporate citizenship. These objectives were largely achieved. A multi-disciplinary working group was set up during the year to develop a Balanced Score Card (BSC) for the bank as a whole. This card will also be extended in due course to departmental and individual levels, and will be an important tool for monitoring our operational performance. The Hakrinbank corporate governance code was introduced during the year under review and will serve as a basis for the bank s activities. The Supervisory Board also decided to set up an Audit Committee and a Remuneration and Nomination Committee during the year. In order to improve corporate governance, we established an independent Risk Management department during The primary aim of this department is to assess and manage risks within the limits set by the bank management and to optimise the balance between risk and return. Our subsidiary, Nationale Trust- en Financierings Maatschappij N.V., also had a reasonable financial year. Its total assets increased by 28%, while its profit rose by 16%. These growth rates were slightly below budget as a result of a certain element of saturation in some categories of the consumer credit market and also the increased levels of competition. The price of Hakrinbank N.V. shares rose by 10% to reach SRD 136 at the 2006 year-end. The cash dividend proposed for the 2006 financial year amounts to SRD 10 per share of SRD 0.15 nominal value. This comprises the normal dividend of SRD 9 per share mark the bank s seventieth anniversary. An interim plus an additional amount of SRD 1 per share to dividend of SRD 1.40 per share was previously paid in October 2006, which means a final dividend of SRD 8.60 per share. This corresponds to a dividend percentage of 6,667% and a dividend pay-out ratio of 36.5%. In our view, this represents an attractive return for shareholders and translates into a favourable price/earnings ratio. More information on the economic developments in the year under review that are relevant to our bank s performance can be found elsewhere in this report. This report is more detailed than is customary in the banking sector because we decided that the limited availability of and access to up-to-date statistical information for large parts of the society justified our devoting extra attention to these aspects in our report. We also discuss various developments within Hakrinbank and Nationale Trust- en Financierings Maatschappij in this report, as well as the bank s financial development and the proposed appropriation of profit. 14

17 Economic developments in 2006 This section of the annual report discusses various economic developments in 2006 and includes a description and analysis of the government s finances,the national debt,monetary and exchange rate policies, the balance of payments and the monetary reserve, as well as information on developments in the real sector. Government finances The National Assembly approved the amended draft government budget for the financial year in September This was later than originally planned because the government, which took office in September 2005, first had to complete the handling of its Multi-Annual Development Programme, of which the budget of 2006 forms a part. The budget approved for the year was as follows: Expenditure on the current account totalled SRD 1,342.8 million, which was SRD 48.2 million, or 3.5%, lower than initially budgeted. This was primarily the result of lower spending on goods and services. Actual current expenditure was as follows (in millions of SRD): Wages and salaries Goods and services Subsidies/Government grants Interest on state debt Total current expenditure 1,342.8 Budget for 2006 financial year (in millions of SRD)* Description Expenditure Income Difference As % of GDP Current account 1, ,283.5 (107.5) (2) Capital account (224.7) (4) Total current and capital account 1, ,504.7 (332.2) (6) * Source: Financial Memorandum 2007 As the Flash Report for 2006 shows, the actual figures on a cash basis were as in the previous three years significantly better than initially budgeted. Thanks primarily to higher than forecast direct tax revenues and dividend payments by state-owned companies (mainly State Oil Company), together with lower than budgeted capital expenditure, the country actually recorded a small surplus of SRD 49.2 million. This can be regarded as quite an achievement. Income on the current account totalled SRD 1,523 million, which was SRD million, or 18.7%, higher than budgeted. The total amount can be broken down as follows (in millions of SRD): Direct taxes Indirect taxes Non-tax revenues Total income 1,523.0 Wages and salaries in 2006 rose by around 30%, which was higher than budgeted. Expenditure on purchases of goods and services fell from the peak seen around the time of the parliamentary elections in 2005, while interest payments and subsidies rose by around 5%. Capital expenditure came out substantially lower than budgeted at around SRD 160 million because of the limited capacity available for the execution of projects. The deficit on the capital account totalled SRD 131 million. Net unforeseen income and expenditure resulted in an overall budget surplus of SRD 49.2 million instead of the deficit of SRD million that had been budgeted. This surplus was used to repay foreign loans and some of the advances granted by the Central Bank of Suriname. Previous annual reports consistently referred to the weak structure of the government s finances and the threat that this represented for monetary and financial stability and, 15

18 therefore, for the economy as a whole. Calls were made for a properly planned Public Sector Reform Programme. It is regrettable therefore that, despite the good intentions expressed in this respect, no meaningful steps have yet been taken. And this in an environment in which the conditions for success are certainly present. In other words, the economy is growing and the outlook is favourable. The government s financial position has clearly improved, and there is consequently more scope for funding restructuring programmes. More attention needs therefore to be devoted to programmes of this nature, which are of such importance for the sustainable development of Suriname. Developments in state debt The extent and nature of Suriname s domestic and foreign state debt are shown below. It should be noted that the definition of state debt used in the State Debt Act differs from the definition widely used in international circles. According to the Surinamese definition, state debt includes undrawn amounts under committed loan facilities and also state guarantees that have not been called, whereas the international markets do not normally include these items. It would be sensible, therefore, to consider revising the definition used in the State Debt Act. Consideration should also be given as to whether the statutory debt ceiling of 60% of GDP is perhaps rather high, given the government s repayment capacity. Type of lender 31 Dec. 2006*) 31 Dec Dec Domestic debt by lender (x SRD 1000) Owed to the Central Bank of Suriname 326, , ,962 Owed to banks 206, , ,009 Owed to private individuals 118,366 82,823 56,219 Total domestic debt 650, , ,190 State guarantees 19,540 18,379 16,549 Committed loans and guarantees 63,551 89, ,411 Total domestic debt including committed loans and guarantees 733, , ,150 Foreign debt by lender (x USD 1000) Multilateral lenders 63,672 54,768 55,629 Bilateral lenders 319, , ,348 Commercial lenders 5,077 15,744 13,077 Total foreign debt 388, , ,054 State guarantees 922 3,208 9,601 Committed loans 101,934 96, ,268 Total foreign debt including committed loans 491, , ,923 * Provisional figures Source: Government Debt Management Office 16

19 The state debt developed well in 2006, with domestic debt falling by slightly over 6% to SRD million, while foreign debt remained essentially unchanged. The rise in the value of the euro resulted in an increase in euro-denominated debt when converted into US dollars. The foreign debt ratio (i.e. foreign debt as a percentage of GDP) decreased to around 20%, which compares very well to other countries in the region. The reduction in domestic debt is the result of repayments of floating-rate loans provided by the Central Bank of Suriname. There was little change in the amounts owed to banks because no new treasury paper was issued. Some of this short-term paper is expected to be repaid in 2007 because of the state s improved financial position. In recent years Suriname has generally complied with its repayments commitments to multilateral and commercial lending institutions, and this was also the case in During the year, the bilateral loans from Japan, Germany and Italy were either repaid in full or restructured. Some repayments of amounts owed to Brazil and the United States are, however, overdue, and these loans need to be restructured as soon as possible. There are some indications that Suriname will be able to count on an element of debt-forgiveness. The improved management of state debt and the country s improved compliance with its international debt repayment commitments were two of the main reasons why the international rating agency Standard and Poor s decided to increase Suriname s creditworthiness by one notch to B for international creditworthiness and B+ for domestic loans. Another important aspect is the positive outlook in the rating as this is often a precursor of a rating upgrade. Assuming the current policies continue, we expect to see a further improvement in Suriname s credit rating during Monetary developments The Central Bank of Suriname relaxed its tight monetary policy to some extent in At the start of the year, for example, the cash reserve requirement that has to be held in Surinamese dollars was reduced from 30% to 27% of the reserve base. The latter comprise all the balances held by third parties in SRD at the country s banks. This was one of the reasons prompting the commercial banks to cut their lending rates by an average of two percentage points. The percentage of the compulsory cash reserve that may be used for long-term, low-interest housing loans was increased from 8% to 9% of the reserve base. The following table shows the changes in the money supply in the Surinamese economy (M2, in millions of SRD): 2006*) Liquidity created for the state (31.5) Lending to the private sector Other liquidity created (88.2) (59.9) (64.5) Total domestic liquidity created (60.9) Liquidity from abroad Total increase in M ) Liquidity ratio (M2 : Nominal GNP market prices) *) Provisional figures 1) Own estimates Source: Central Bank of Suriname 17

20 Domestic M2 liquidity, which is an important measure of the effects of monetary policy, rose in 2006 by SRD 201,8 million to SRD 1,082 million. This increase of 22.9% was wholly attributable to inflows from abroad as the net effect of various domestic factors was a reduction in the money supply. Gross lending to the real sector added SRD 58.8 million to the money supply, while the government cash surplus reduced it by SRD 31.5 million. The growth in the money supply resulted in a rise in the liquidity ratio, which is the domestic M2 measure of liquidity as a percentage of GNP. This measure currently remains just below the long-term average of around 25%, which suggests that the monetary and real sectors of the economy are reasonably in equilibrium.it should,however,be noted that the ratio takes no account of the effect of the dollarisation of the economy. The reserve requirements for foreign currencies remained unchanged in 2006 at 33.3% of the relevant reserve base. Banks are permitted to hold part of their compulsory cash reserves in highquality, liquid assets that are likely to generate a reasonable return on investment. On 2 January 2007, the domestic currency reserve requirement was further reduced from 27% to 25% of the reserve base. This was a responsible move, given the stable macro-economic and monetary environment. The percentage of the reserve base allowed to be used for low-interest housing loans was increased at the same time from 9% to 10%. The reduction in the SRD cash reserve was one of the reasons why the commercial banks were able to reduce their SRD annual lending rates further to around 12% - 13%. Rates have fallen considerably in recent years as a result of the falling inflation rate. On 1 January 2007, the interest on 6-month Republic of Suriname treasury paper was also reduced further from 10% to 8% a year, while the rate charged on advances by the Central Bank fell to 10% a year. The monetary policy pursued in 2006 is expected to continue in We are once again, however, forecasting fairly substantial inflows from abroad, and it is important to ensure that these do not result in inflationary pressure within the country s domestic economy. Exchange rate It was calm on the exchange rate front throughout 2006 thanks to the prudent budgetary and monetary policies pursued. The inflows of foreign currency (primarily from the mining sector) also contributed to this calmness. Supply and demand on the currency market were clearly in equilibrium at the prevailing pricing levels. The following chart shows the movements in the US dollar in USD buying and selling rates in Jan Feb Mar Apr May June July Aug Sept Okt Nov Dec Buying Selling