This week, the most important business news story was not the $2 that KFC wants to levy for their condiments, nor the shenanigans surrounding the Cabinet reshuffle. The week’s critical story was the release of the IMF 2021 Article IV Consultation Report.
To reduce the Report to a sound bite, ‘our overvalued currency’, is not to do justice to examining our economic and social situation. The Report is nuanced; it is worth a read.
It forces us to consider that the nation’s state cannot be captured in a spreadsheet about GDP and foreign exchange rates. We cannot approach the matter of our economy from a purely rational perspective since life is more than numbers.
Depending on the media reports, the nation is not better equipped to understand the challenges nor is it given the requisite marching orders. We face a significant test, which we need to appreciate and gird ourselves to deal with.
There is little value in admiring the Ukrainian people’s resolve to defend their land if we do not emulate them in this time of need. The Express’ first instalment of Dr Keith Rowley’s wide-ranging interview puts the finger on the sore. We have bullets coming at us!
Essentially, the IMF Report confirms what we already should have known: we are spending more than we earn. It builds different scenarios and asks us what do we plan to do about the situation. Could we spend less? Could we gain more revenue from the non-energy sector?
The Government, called the ‘Authorities’ in the Report, has its views, but we, the people, need to understand and opine on the facts.
This crossroads is not about Dr Rowley or Mrs Kamla Persad-Bissessar. It is about us and what we wish for future generations.
The black market had already told us the news about ‘our overvalued dollar’. It is not a unique situation since one study suggests that 25% of all countries, including our Caricom neighbours, have a similar problem.
We have had external economic shocks, including Covid-19 and wildly fluctuating energy prices, that have come on the back of a pre-2015 recession. It is folly to believe that our country is insulated from the swings and twists of the global economy—not least of which are inflation, product availability and the Ukraine war. No amount of finger-pointing will obliterate the reality.
The knee-jerk response about devaluation and a sinister IMF bogeyman blocks our ability to create our future. The future is unknown, but the outcome depends on us. The more we frighten ourselves, the less able we are to be creative and nurture ideas. The worse we are about idea creation, the more difficult it becomes to imagine new possibilities.
When in a defensive mode, we focus on limiting loss since we do not wish to have what we possess taken away. In the present context, this stance is singularly unhelpful.
Since 2018, our business community has been making operating adjustments. The relentless price increases are not a thing of the recent past. They have been factoring in increases as a hedge against the uncertainty. Then there was a strong suggestion that we had begun to experience capital flight; our national accounts have shown significant unexplained leakages.
We have to walk a tightrope but throwing around loose talk about devaluation is to put the finger on the scale. This is why the IMF’s recommendation about streamlining our foreign exchange mechanisms is appropriate. Failure to implement is an open invitation to put increasing pressure on our foreign exchange reserves, leading to reduced capacity to fund needed imports.
Again, we have had stunted conversations about this distribution mechanism. It is not that we do not know what to do; we just never progress the dialogue to a conclusion.
The downside risks are now tangible and probable. A month ago, the Ukraine – Russia war was not imagined by many. Will we have enough food, and will we be able to purchase it? What happens when the gas price immobilises us?
The brutal reality is that our energy ‘trust fund’, on which we lived, is close to its expiry date—notwithstanding the Dragon Field hope. We have long depended on energy revenue to splurge and live like kings. But the decline in prices and output has been evident for almost a decade.
Therefore, we should not now depend on our foreign exchange reserves to defend our exchange rate. That is short-sighted, and the experiences of others prove it is unsustainable.
While the IMF Report congratulated the nation and the Government for handling the Covid-19 pandemic, it points to the need to manage the future. The Report was sensitive to the needs of our vulnerable population. Are we?
This situation raises crucial political questions: what is required of our economy in today’s world? How does our national economy fit into the global economy?
To which group of citizens do we owe our allegiance? What are the sacrifices we are prepared to take for the welfare of that group?
We must answer these questions as we attempt to create an environment where we can profitably export and earn sufficient funds to meet our needs. Even though we apparently lack analytical skills which can engender the proper dialogue about our choices, we must recognise the need to do this.
Our deep polarisation does not work to our benefit. Our weaknesses are now laid bare. Our political class has failed to lead us, and we are witnessing the fraying of our social and economic bonds. There can be no correction of these problems and our foreign exchange situation until the underlying causes are confronted.
We must deal with the corruption within our community and the violence that is becoming more endemic each week. Uncontrolled, these twin evils would lead to a greater concentration of wealth and the pauperisation of many.
Over the last two or three decades, we have witnessed a sharp reduction in the size of our middle class. This reduction serves to inhibit serious conversations about ourselves and our country. We are so busy with silly conversations like KFC’s $2 pricing that we do not have the room to discuss matters of grave concern.
Being distracted, we pivot to leaders who push our buttons but themselves have no workable idea about our future. Our leaders are increasingly clueless about our daily lives.
This development removes an essential social buffer and leads to discrimination in the provision of public services. The segregation of our schools is unhelpful as it deepens the chasm between those who have and the others who do not. This social divide destroys the ladder of social mobility.
We do not connect the dots from this situation to a workforce incapable of meeting the challenges of the competitive global environment. We magically expect to have a world-class workforce. It will not happen.
We must answer the question: what kind of economy we want to have, what kind of jobs we want to promote, and how much poverty we want families in relatively low-wage yet essential jobs to experience.
Will we choose to have a large precariat and the accompanying risks? The choice is ours.