“Devalue, the book sense people insist, he must devalue! He has to let the $TT find its true value!
“They know book but they don’t know chapter…”
Local economist Warren Thompson takes a different view on the Minister of Finance’s 2017 Budget and tells Wired868 why he thinks Colm Imbert got it right:
Only 15% on cigarettes and 20% on liquor? Well, there is also a 7% tax on online purchases.
Daiz all? Phew! We gehway!
You could almost hear the population breathe a sigh of relief, you could almost touch the air coming out of their nostrils. Like little children who had misbehaved while Papa was away, we were all expecting licks, licks and more licks from Papa Colm. Instead of a good cut-tail, a rap on the knuckles was all we got.
The Finance Minister has cut expenditure but not as far as those steeped in the wisdom of the economics textbooks would have liked him to. He has also refused to countenance a devaluation—he should go as low as ten TT to one US and that still wouldn’t be murder, some say—leaving the management of the exchange rate squarely in the hands of the relatively new Central Bank. And who could forget what happened to the last Governor?
So we know that the MoF is not afraid to give debit where debit is due!
So his estimated revenue is only $47.4bn but he plans to spend $53.5bn. That means that, for 2017, the projected deficit is $6.1bn or 3.9% of GDP. For a third consecutive year, the size of the economy as measured by GDP has contracted in real terms, -2.3% in 2015/16 following successive years of 0.6% of what political correctness now styles “negative growth.”
He has not, say the book specialists, cut expenditure enough!
I disagree. In Trinidad and Tobago, government is still a major player in the economy and still a major, if not the major, customer of the private sector. Hear Papa Colm last week:
To bring expenditure in line with revenue too quickly would remove the income of many of those in the private sector, not to mention [cause] massive unemployment and the concomitant social fallout. Further, the private sector usually awaits the government’s lead where investment and expenditure are concerned.
Makes a lot of sense to me.
Devalue, the book sense people insist, he must devalue! He has to let the $TT find its true value!
They know book but they don’t know chapter. Listen again to what Papa Colm had to say in his statement on the subject during his budget presentation:
“As has been demonstrated in many regional economies—including Jamaica, Guyana and most recently Suriname—a free-floating exchange rate carries enormous risks for small developing countries. These include serious inflationary pressures, the possibility of a wage-price spiral and, as a consequence, adverse income and distribution effects.”
The texts say that often devaluation—or a freely floating exchange rate—leads to growth in exports and helps to engender economic recovery.
Of course! In large diversified economies. But not in these parts, no sirree!
And I want to ask this: is there any guarantee that devaluation would lead to a reduction in the price of our non-oil exports? Is there any empirical evidence to suggest that the [devaluation-driven] inflationary pressures on imported inputs added to domestic inflation as the very devaluation works its way through the system would not lead to higher prices of non-oil exports, thus negating the desired effect of devaluation?
So, sensibly, I think, Papa Colm has opted for stability. It’s a wise choice, both in economic and in political terms. One remembers the downturn of the late 1980s and the social disaster that ensued on ANR Robinson’s imposition of IMF/World Bank conditionalities. There were massive cuts in social sector expenditure and unemployment rose above 20%! In terms of today’s labour market, the 22% of that period translates into some 136,000 people.
Can anyone imagine 136,000 people out of work in the guava season that Trinidad and Tobago is already experiencing in 2016? Brudder man, man will bite off your ears, throw some kuchela and slight pepper and eat it like doubles. Normal!
These book theorists mad or what?
The post-oil boom 1980s also saw large numbers of people leaving—fleeing?—this country. It spawned the concept of ‘barrel children’, a whole generation of young people with the surname ‘Foster’, all left in the care of grandparents, uncles, aunts, nennens and even neighbours.
But times have changed and, with tougher US immigration policies in place, migration now is not the easy option it was then.
Stability and restored confidence in the economy are critical to any chance at recovery! Without them, no plan would work.
So I think Papa Colm has done the wise thing by ignoring the experts. Our economic fundamentals are still good; import cover is still 11 months or thereabouts, unemployment is still under 5% and there is still excess liquidity in the system. That means that there is still enough of a buffer in the system for the necessary adjustment to be gradual and, by extension, relatively painless.
Papa Colm has adopted a practical and common sense approach to the critical task of saving us from ourselves. My considered view is that it will work, particularly if the private sector responds positively to the Minister’s call to play its part in the recovery effort.