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Why Imbert must stand firm for the sake of our future economic development

“Thanks to State intervention in almost every sector of the economy over the years, we have developed and enjoyed a comfortable standard of living subsidised by the State… That has provided real opportunities for many as well as lifted large segments of the population out of poverty.

“However, it has also resulted in the mis-allocation of both private and public sector resources. We simply cannot afford for that to continue.

“[…] If Minister Imbert resists the temptation to loosen the purse strings once again, and says a consistent no to returning to the old level of subsidies, to increased State intervention/participation in the economy and to devaluation, decisions by individuals and businesses on how to allocate their resources will be determined more and more by strictly economic criteria…”

Economist Warren Thompson takes a different view from the five experts who criticised the Finance Minister’s handling of the economy and so incurred his wrath:

Photo: Minister of Finance Colm Imbert, .
(Courtesy Annalisa Caruth/Wired868)

In presenting his Mid-year Budget Review last week, Finance Minister Colm Imbert had this to say:

We are not out of the woods yet but, after the sacrifices and prudent fiscal management of the last 2½ years, our economy is turning around.”

This statement has set the cat among the metaphorical pigeons, the experts and commentators latching on to it like leeches. I cannot for the life of me understand why. It seems to me that no previous finance minister has come under more intense scrutiny than the current one. Despite the close supervision—or perhaps because of it?—he has adopted an approach full of common sense and managed the economy prudently.

Let us take a closer look at just what he has been able to do. We can properly begin with government expenditure.

Expenditure has been reduced from TT$59.9bn in fiscal 2015 to $TT50.5bn in the current financial year.  That represents a reduction of approximately TT$10bn, achieved largely through reducing transfers and subsidies and eliminating wasteful expenditure.

Secondly, Minister Imbert has been able to work with the monetary authorities to hold the exchange rate at around $TT6.78 to $US1. This is critical. The tightness of the foreign exchange (essentially $US) supply is forcing some businesses to shift their focus to export. Hadco is one example—but there are a few others—of a company that has invested heavily in re-organising its businesses to make exports the priority rather than sticking with the old import, mark up and sell paradigm.

Photo: A local farmer looks after his crop.
(Courtesy News.Co.TT)

The supermarket shelves have begun to offer evidence of an increase in the volume of locally produced foods.  Further, it is clear for all to see that, with each passing day, more and more of the Caroni two-acre agricultural plots in central Trinidad are being brought under cultivation. Firms and individuals who have made fortunes in other spheres, including transport, after buying out the remaining term of the 30-year leases granted to the ex-Caroni workers, are forming companies specifically to do agriculture.

It won’t be long before the added supply of vegetables and provisions hits the local market, taking the place of goods that are currently imported. And one hopes that it is sustainable, long-term production rather than some kind of one-off activity.

Although the hysteria of some commentators would suggest otherwise, unemployment is also a positive. Of course, there has been loss of jobs but the minister has put the unemployment rate at 5%, which is, in economic terms, full employment! As a point of comparison, during the post-oil-boom economic downturn in the late 1980s, the unemployment figure was 22%.

Is inflation a problem? At the end of 2017, the year-on-year rate was 1.3% while the average inflation rate for the period January to December 2017 was 1.9%. Hardly room for complaint there either.

Finally, oil, the real sticking point. On the international oil market, WTI benchmark prices have trended upward from about US$50 per barrel last October 2017 to around US$70 two Fridays ago (11 May).

It is important to note that some of the major players within OPEC (Saudi Arabia) and without (Russia) cannot survive for very long periods on oil prices as they were in the region of US$30-$40 per barrel.

In addition, international geopolitics involving Iran, the USA, the EU, Russia and the Syrian conflict all point to tightening supply, thus putting upward pressure on oil prices. Oilprice.com suggests prices may rise to US$100 per barrel by the second quarter of 2019.

A second important point is that the Trinidad and Tobago of the present is more a gas economy than strictly an oil economy. However, for the purpose of analysis, gas production is measured in ‘barrels of oil equivalent,’ and gas prices usually follow oil prices, so increased oil prices usually bode well for gas-based  economies. Any increase in gas production will result in an improvement in the energy sector’s financial results.

Finally, the Minister points out that with oil prices increasing, additional unbudgeted funds will have to be set aside for subsidising gasoline and fuel prices in order to keep the current gasoline prices as they are. That is because we currently import crude to refine and produce gasoline and other products.

So if oil prices remain firm and the turnaround becomes full-blown, what do we do?

We must be wise. We must continue to stabilise the economy. We must continue to be prudent and pragmatic. We must hold the exchange rate constant; we must continue to reduce the budget deficit not merely by reducing expenditure but also by raising revenue.

This means we must all be prepared to pay the damn property tax as well! We must continue to build economic capacity and improve economic infrastructure through the use of capital expenditure.

I am confident that the Minister is already well aware of all of that. And I am confident that it is already clear to him that the State can no longer postpone a decision about its role and function in the economy. But the Minister is a politician and so he will carefully choose the best moment to break this underwhelming news to the population.

Photo: Foreign exchange availability may continue to be a problem but the government should resist the urge to go the devaluation route.

Thanks to State intervention in almost every sector of the economy over the years, we have developed and enjoyed a comfortable standard of living subsidised by the State which has intervened and or participated directly in education, housing, finance, transport, agriculture and industry, to mention only those.

That has provided real opportunities for many as well as lifted large segments of the population out of poverty. However, it has also resulted in the mis-allocation of both private and public sector resources. We simply cannot afford for that to continue.

Does a family of four really need to have four vehicles? Does a single mother really need to buy a pair of brand name sneakers for her three-year-old? Can the import/mark up/sell sector continue along that road in the face of a consistently tightening foreign exchange supply and a more discriminatory consumer?

If Minister Imbert resists the temptation to loosen the purse strings once again, and says a consistent no to returning to the old level of subsidies, to increased State intervention/participation in the economy and to devaluation, decisions by individuals and businesses on how to allocate their resources will be determined more and more by strictly economic criteria.

Individuals and businesses will have no choice but to weigh the economic costs and benefits of their choices to spend, save or invest. Resources will then become relatively scarce indeed!

Photo: Having fun after the showers. Or is the Finance Minister simply calling something else rain?

So far, thanks to the Minister’s steadfastness and single-mindedness of purpose, we have begun to see an albeit small change in attitudes and consumer and business behaviour. Like him, we need to stand firm, we need to allow the change to take root. Confidence in the economy will gradually be restored as the truth begins to slap the naysayers in the face.

And when, in a few months’ time, Minister Imbert presents his 2018-19 budget, perhaps he will more lustily sing Johnny Nash’s “The rain has gone” instead of having to switch, as his critics would have us believe, to the Platters’ “The Great Pretender.”

About Warren Thompson

Warren Thompson is a Tobagonian by birth, a life-long student of cricket by preference and an economist by profession. His formal training came at QRC, The UWI and the University of Wales but the assets/skills of which this father of three girls is proudest come from the School of Hard Knocks.

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  1. Its easy to be an armchair economist or social commentator who is not menrally constrained but the harsh realities of the opportunity costs faced by a government and the realities of what it takes to get a stalled economy moving again. The fact is that there are things that can work…. large infrastructure projects as stimuli and things that look good on paper but have negligible impact. Given the cards available the Minister of Finance has more than done a good job.

  2. Less money is being spent to develop human resource and more on infrastructure which is subject to stealing. Hundreds of millions is being found for highways and red house repairs. Unnecessary stadiums and overpasses where money passing. However, funds to stimulate regional corporations and thus small contractors and community development (for eg) isn’t “available”.

    • Do you force human resources to be developed? How many billions over the years were spent on GATE, NESC,MYLAT, MYPART etc. Those who were interested made use of it. Some of it was wasted as – using GATE as an example – students were subsidized to do courses that they wanted to and not what would’ve been beneficial to the state. That’s why we now have everyone with a degree working as an OJT cashing in a grocery. Where are the skilled tradesmen to do construction or to repair vehicles etc? The human resource is being developed but we must understand that the means to do so has been reduced so the level of development will reduce. I will say cotrarywise that we need to focus some of our limited resources towards sports and the arts. In this we can take a page from Jamaica’s book.

  3. Government has proven to be the worst managers of our money. More taxes means more money for them to squander and steal. When 1% is filthy rich and 99% struggling how could a Min of Finance be doing a good job.

  4. I really hate it when I hear people try to bring up the “diversification of the economy.” It is usually because they have absolutely no idea what that means and, hiw to go about doing it. When Patos was actually on a path to do this they cuss, groan and stamp feet saying … “No smelter!”, “Only tall buildings in Town!” Etc., etc., etc. Further, when they talk about the deficit, again, they usually have no clue about what they are saying. Between 2010 and 2014 we saw the highest price of Oil, EVER! Did we see any effort to reduce the deficit then? Any effort to develop meaningful revenue generating streams? No. We saw them borrow to the absolute maximum and more for us to get some box drain. And, now, we want a miracle to occur in 2.5 years. Absolute and abject madness! I am no fan of Imbert’s tone at times but, we cannot ignore the signs that things are stabilising. I only partially agree with the piece however. There needs to be some stimulation. If the tightening of the Forex is having an impact on exports lile in the 80s, I believe that to be a good thing. But, there needs to be considerable care taken not to allow the gains to be eroded as elections approach. The biggest fear should be whether the population are mature enough to recognise the strenghthening and stabilisation and, help keep the momentum positive by returning them to Power. Otherwise, I believe we will be lost.

  5. Warren oye. This is gibberish by any standard. Caroni 2 acre plots coming on steam ?? What percentage of the import bill is vegetables ?? Where is HADCo sourcing its raw material ?? Are they not importing them ?? Does it not occur to you that thier business arrangement with suppliers are at an end and they consolidating their distribution network, in effect exporting energy subsidies to CARICOM, their competitive advantage. IMF, MOODY’s etc continue to warn about deficits as we continue to spend more than we earn. Oil & gas price rises are being fueled by geo-politics ie Iran and Trump. The USA is the worlds largest producer of gas, shale gas. Ar present they lack infrastructure to export. This, they are building apace. At this time the USA has pressured Saudi Arabia to force down that oil price. In other words we are witnessing, ‘price volatility’. When the US comes on stream, in about 12 -18 months, any guess where prices will head ?? It my be true that inflation and employment levels have been maintained, but full employment at what cost ?? Answer increased borrowings as the Minister has admitted to borrowing to pay salaries. Really ?? What about reducing wastage, affecting efficient spending ie more bang for our buck. Where are the efforts directed to reducing reliance on oil & gas, the much touted , ‘diversification of the economy’. Daily prices in supermarket rise as business owners pay for US at 8.5 – 9.5 TT for US. Holding onto the current value is doing the ‘small man’ no favours. What I see is a balancing act, that assumes we will have huge inflows of income from Oil & Gas taxes. Those assumptions are ‘pipe dreams’. I do not see the confidence ie business or consumer confidence mentioned. Massey Stores is at present laying staff off and overall consumer spending is stagnant.

  6. Job well done , in two and a half years minister of finance has quadrupled the expenditure of the last admistration and the forecast is he is also doing the same thing for the two and a half years he has left , never put a boy to do the job of a woman

  7. I always believe engineers think outside the box. Thank God we didn’t get a banker, economist or an accountant as a min of finance..thinking outside the box is a problem for them.

  8. All citizens who earn in excess of $6,000 monthly should be required to pay Tax. It shouldn’t matter the type of business, what should matter is it will benefit all in society.

  9. Rodent? Try and keep it constructive nah. Say what you don’t like. But not personal attacks like that.

  10. Why all this hate we could have been facing the IMF ppl please think about our beautiful country and bring back the love we had many moons ago

  11. Job well done….u take ur blows and stand tall

  12. Keep up the great job you’re doing to put this country back on it’s feet again, forget the haters, traitors and vindictive ppl who cares nothing about our beautiful t&t

  13. A long overdue sobre and clinical analysis of where we currently are. Some mention should have been made of the continuing – though reduced, gas curtailment status which was revealed by the Minister. Hopefully the experts will now respond at this level, if not higher, of technical analysis..

  14. Given the cards he’s been dealt, the MoF has done is good job.

  15. Dunno if it is true but I have recently heard that some banks won’t allow access $20 through the machine if you have less than $50 in the account.

    Would my family of three buy five vehicles? Yep.

    We can see our investment and have access to it. How much interest does 25K generate in the bank per annum? How much profit would an Sunny for 25K make for the year if it works taxi 2 days per week, or a pickup by the hardware on week ends?

    Does it make sense to buy an Sunny or pick up when you are working CPEP or some public service jobs? Yep.

    Now you can afford to buy quality sneakers and clothes for your child that can be handed down to other siblings and relatives.

    Is this writer saying that the financial institutions can use my money to buy land of their choosing in other countries but I ought not to buy clothes of my choosing for my children?

    Btw, are the majority of consumers producing the oil?

    Is moving persons out of poverty into jobs not aligned with their skills being efficient?

  16. I remembered when at the end of 2015-2016 when the PNM had just taken over a reporter asked the Prime Minister, “how he feels about Minister of Works at the time Imbert, would do as a finance minister”?
    his response was, “so many who in the past claim to be economist didn’t do the job they were educated for, lets’
    she how someone who can adjust to the call can do”. So, according to the words of New York Major Koch,
    “how I’m doing”? I think Imbert is doing a great job and will continue to surpass all those claim to be fit
    in money management. Keep the good work up Minister.