By GREGORY McGUIRE
The year 2011 comes to a close with the Trinidad and Tobago economy no better off than at the end of 2010. Our economic performance can be summarized very simply as disappointing stagnation. The promise of a return to positive growth in 2011 remains unfulfilled and the outlook of highly uncertain times endures in the face of recent events. The popular inclination to blame the international economic environment for our condition would have little basis in fact as it relates to 2011. But the culture of blame is well entrenched in this society, where politicians in particular, seem averse to introspection. The challenges we face have little to do with the external environment but with the choices we have made with the resources with which we have been blessed. So many have done so much more with so much less than we have. Regardless of the pros or cons of the external environment, it is our own resourcefulness and self belief that will launch us into a future.
At the start of the year and for most of the first half, the general consensus was that the economy was poised for growth. This view came not only from the Government quarters but from the “independent” authorities as well. The IMF in its Article 4 report noted “growth is expected to pick up in the second quarter of 2011 and is projected to be 2.0 percent for the year.” In its October 2010 Monetary Policy report the Central Bank forecast a 2-3 per cent GDP growth, based on the resumption of private sector confidence and the contribution of fiscal stimulus. By March however, the Central Bank had tempered its growth expectations to a slower 1-2 per cent.
Both institutions warned of possible downside risks including delays in capital spending on infrastructure projects, settlement of the Public Service wage despite, resolution of the Clico debacle and payment of arrears to contractors and for VAT.
In some ways the Government successfully navigated these troubled waters. It found an ally in the PSA and settled several public servants’ pay dispute, firm proposals were made to the Clico policy holders and some if not all received payment of VAT refunds. Capital spending on infrastructure projects commenced in earnest in the second half of the fiscal year. .
By the end of the fiscal year however the picture had changed. It had become clear that the economy had slowed. The official Review of the Economy noted that “the economy is projected to decline by 1.4 per cent in real terms in 2011 as a result of flat growth in petroleum coupled by lower levels of economic activity in the non petroleum sector.” Consecutive quarterly declines indicated that, by definition, a recession had set in. Not surprisingly, the Finance Minister cast the blame on the global uncertainties stemming from the European debt crisis and the stuttering US economy.
“Mr. Speaker, these uncertainties were transmitted to our economy through the impact on oil and gas and other commodity prices, the performance of the Caribbean region and the falling markets for our exports.”
The evidence does not however support Mr. Dookeran’s claims. Far from being depressed, oil and petrochemical prices soared to levels not seen since 2008, while LNG exports benefited from significant cargo diversions to alternative markets yielding netback values well in excess of the budgeted well head price of US$ 2.50/MMBTU. Notwithstanding lower production, both Government revenue and export earnings were boosted by higher commodity prices. Government revenue in 2011 fiscal was actually in excess of $1 billion more than budgeted , supporting growth in expenditure to $50.1 billion, excluding contributions to the Heritage and Stabilization Fund.
We need to therefore look elsewhere for the root causes of this strange phenomenon of an enduring economic slump, during a period of high commodity prices larger than anticipated revenues and export earnings.
Several related and contributory factors may be identified. The first is certainly the delays in kick-starting the public sector investment programme. The Government’s capital spend is typically the means through which Government stimulates economic activity. In fact one of the major reasons for changing the fiscal year from a calender year basis to that of October to September was to facilitate the advantage of the dry season to commence major capital spend on infrastructure. The Government for various reasons seemed slow to get off the mark. A related factor was the inexplicably long delay in appointing new Boards of Directors of state enterprises. Even after Boards were appointed, the extended period of settling in resulted in further delays. The PSIP and the expenditure of the State Enterprises represent the most significant elements of the Government injections into the non-energy sector of the economy. Thirdly, any positive impact of a late surge in expenditure from these sources would have been muted by the State of Emergency and curfew imposed in August . To date, no official estimates of the economic impact of the SOE are available but anecdotal evidence suggests that it took its greatest toll on the entertainment, restaurant and small scale business sectors. Hundreds of people were put on the breadline if only temporarily. Restaurants reported a 25 over cent drop in business. A host of small night-time entrepreneurs, including taxi drivers, peddlers, vendors, entertainers would have suffered severe losses in income.
An often overlooked factor is the Government’s tardiness in defining a clear macro economic framework within which its priorities would be determined. Private investors, local and foreign, are more likely to make long term capital investments within a context of clear macro-economic policy framework Michael Porter makes the point that “successful countries exhibit consistency and stability in national macro-economic development policy over time.”.
In Trinidad and Tobago and the wider Caribbean a change of Government usually is characterized by changes in institutions, strategies and people, most of which are merely cosmetic. In this case there was a heavy cost to the delays. It took the PPG over fifteen months and two ministers to develop its Medium term Planning Framework, which at the end of the day, has much in common with Vision 2020, notwithstanding the Government’s posturing to the contrary .
Perhaps the most notable feature of this Government’s fiscal stance has been the use of the purse as an appeasement mechanism. It began with the increase in certain social benefits in the Budget 2010-11, which was followed by the hefty prize money for Carnival activities. When the Finance Minister sought an increase in the Budget allocation for 2011 of $ 2.7 billion, some 17 per cent was allocated to the Ministry of the People and Social Development, while the ministries tasked with economic transformation, innovation development and nurturing entrepreneurship – collectively received 1.5 per cent of the supplement. The policy of appeasement has culminated in the $300 million boost to CEPEP reloaded as “ Colour Me Orange”. The fiscal impact is registered in the burgeoning share of transfers and subsidies in the national budget now approaching 56 per cent. But while these populist programmes may quell some voices temporarily, everybody knows that they are not sustainable and do not yield increases in output and productivity.
The factors identified above have more to do with economics. What we have witnessed over the last 18 months is a Government determined to retain power by any means necessary, while at the same time ensuring that there are adequate returns for political investors. Populist measures continue to trump economics every day. Long term transformation effort has been sacrificed at the altar of the short term expediency. Mr. Dookeran’s “new politics” appear to be dead on arrival.
It is not surprising therefore that such a deep sense of distrust of the Government persists. This in turn feeds the lack of confidence on the part of investors and consumers alike. The economy is in a vicious cycle. Private investors wish for clarity, transparency and consistency in Government policy and processes before committing to major investments. On the other had Government continues in extempore mode responding to successive crisis with cash and promises, often in contradiction to previously stated goals. In the meantime, the economy and society continue to spiral downwards. We collectively hope and pray for a more productive 2012
Merry Christmas to you all.