Who’s left now? – conclusion

The death of socialism
Business Page last week suggested that amidst the cataclysmic dislocation to have rocked the capitalist world first manifested in the housing market in the United States, the response of the governments in the developed market economies is leading to a fundamental rethink of the role of ideology, and in the context of Guyana, raised the question playing on the word ‘left.’ Spreading like wildfire across industries and continents, the dislocation has made it obvious that the crisis goes far beyond the US or its housing market. It has raised troubling questions about the strengths and weaknesses of capitalism and the possibility of the revival of the socialist model of economic development which appeared to have been abandoned after the fall of the Soviet Union in December 1991.

So fundamental and vast is the problem facing the market economies that not even one trillion dollars has been able to calm the waters with the latest potential casualty being the car industry in the US, with the loss of over 2.5 million jobs directly and indirectly if the Big Three – Ford, Chrysler and General Motors – were to collapse. No longer is there any question of whether the state should get directly involved in the economy but only the extent of that involvement. For close to 20 years the world had this illusion that capitalism had solved the cycle of boom and bust, that regulation was the curse and deregulation and the market were a panacea for all the ills facing economies, that wealth in the form of derivatives could be created out of nothing and that socialism was dead.

Ideology
For some, perhaps simplistically, this all boils down to ideology, itself a misunderstood word that means nothing more that a set of doctrines or beliefs that form the basis of a political, economic or other system. Contrary to popular belief the word is not synonymous with socialism but is rather any underlying set of values and ideas and can embrace market capitalism, co-operativism or even religious fundamentalism. In last week’s column I indicated that at one stage the whole of Guyana, barring a small element, had been converted to socialist ideology by Jagan and Burnham and their respective political parties.

To get an understanding of whether those parties still subscribe to that belief I wrote their respective General Secretaries for answers and clarification about their commitment to socialism, and specifically to the PPP, whether the party gives any direction to the government on the kind of political and economic agenda it should pursue. My specific question to the PNC was whether it promotes and supports a socialist agenda. For whatever reason, neither responded to my letter.

It turned out that the PNC had long ago answered that question. In a letter published in the Stabroek News on January 12, 2002, General Secretary Oscar Clarke wrote that he could “think of no political party which can claim to have reversed itself so profoundly as the PNCR. It has changed its ideology and its economics.” That was as clear as one could be on distancing itself from the socialist agenda to which Burnham had committed that party.

Unclear
The situation with the PPP is far less clear. The party’s constitution defines it as Marxist but the party as government was all too willing to pursue the IMF-inspired Economic Recovery Programme inherited from its predecessor. The late President Jagan may have been uncomfortable having to reverse himself as much as he did in embracing the West to the extent he did, but for his supporters to selectively deal with his writings and his actions to show consistency is disingenuous, if not dishonest. I will respond separately to PPP member Rajendra Rampersaud’s letter in Thursday’s Stabroek News but for now he should refer to page 22 of Poverty Cause and Cure in Developing Countries by the late Dr Jagan. Calling for a “new economic planning strategy [which is] based on an anti-imperialist, pro-democratic and pro-socialist programme,” the late President identified the following ‘cures’:

1. nationalisation of the commanding heights of the economy – foreign and comprador capitalist-owned and controlled mines, plantations, factories, banks, insurance and foreign trade;

2. an almost total centralised planning and control;

3. expansion of the public and co-operative sectors;

4. rent, price and foreign-exchange controls.

These were obviously the very antitheses of the ERP which Dr Jagan’s government pursued on taking office in 1992 and no amount of manipulation of the records could explain this as anything but an about-face which has been taken to new lengths by Jagan’s successors. In this regard the PNC is less ambivalent. It would be more sincere if those who now want to protect or embellish Jagan’s reputation would simply explain that confronted with the prevailing international and domestic reality, he and his party had no choice.

Reversal
The completeness of the reversal by the politicians is seen not only in economic polices but in the legislative agenda; the subjugation of the interest of the worker to that of the employer; a tax structure that imposes low or no taxes on passive income while taxing earned income at punitive rates; the shift from direct to indirect taxes; concessions to business at the expense of the worker; and yes, the concentration of wealth to the business and political class.

Billions are spent annually on tax concessions to employers in exchange for their undertaking to provide employment, as though they do so for some philanthropic or altruistic reasons. The number of gas guzzling 4×4’s that are on the road, the majority with concessions, on a per capita basis is one of the highest in the world. But this practice is not only for the businesspersons. It seems that one of the first acts of a parliamentarian after taking the oath of office is to apply for duty-free concessions valued at millions of dollars to purchase a vehicle. At the exclusive community of the political elite in Pradoville the concentration of duty-free vehicles must easily be the highest in the country, with a one-car family being a rarity. These apparently trivial statistics are a measure by which it can be seen how far our society has been transformed. They are never issues that are ventilated.

Intellectual failure
It was suggested to me that one of the failures of socialism was its inability to respond at an intellectual level to the case made by Reagan and Thatcher for the market, and another was the fear of survival of socialist countries following the collapse of the Soviet Union. There is some merit in those suggestions but why have the economists and leaders of political parties not argued for an economic system, without label if necessary, that does not leave the market in charge or one that does not see the role of the government as being a mere facilitator?

Other than Cuba there are only two countries that have embraced state participation in the economy and those are right here in our region – Venezuela and Bolivia. Meanwhile we in Guyana proudly boast of how successful we have been in nationalising state entities which at the end of the day make us as a country poorer. The problem will come when we have exhausted debt write-off, when there is nothing else to privatize and when there is no further windfall revenue from VAT. For all his faults, when Burnham departed the scene, Guyana was owned and controlled by Guyanese. Now we have no control or influence over resources which have passed into foreign hands often with a bunch of goodies to go with them. To reverse that will not be easy, although we saw, as victims, some of that when CDC pulled out of GPL and Reynolds out of bauxite, leaving us to carry the can and the cost. Paradoxically, that is how it is happening in the developed world as well, as more and more businesses take public money in exchange for ceding some control to the government.

Agnosticism
It seems that Guyana’s policy response to the global economic crisis is to wait, see and hope it does not affect us. That is a naïve approach as we already see prices for our main commodities falling and we may soon see a number of Guyanese from the Caribbean returning as the construction job market dries up. In fact this seems an ideal time for a serious re-think of first the kind of society we would like to have, and second the formulation of the economic model that will take us there. That model will inform the investment policy, the regional and proportional development of the economy, the regulatory systems, taxation and the redistribution of wealth, planning and development and the provision of social services. There is no agnosticism in terms of ideology. A political party that seeks the support of the voters and the opportunity to govern has a duty, and ought to have the courage, to tell the public where they stand on fundamental issues.

The shenanigans of Wall Street, fascination with Fortune’s list of the richest this and richest that, greed and power at any cost have corrupted values and ideas. No longer do governments and parties think they need to believe in anything, once they can build a road here and create a few jobs there.

Conclusion
When a more objective judgment is made, the gains from IMF and neo-liberal policies are far from the impressive successes they seem to be. The benefits of free market liberalisation depend on who you are, your party affiliation and how much money or assets you had to begin with. There is no universal solution to begin with so rather than try to answer the question ‘Who is left now?’ I would prefer to see our political and intellectual leaders take the opportunity of the global meltdown to redefine their vision of our country and formulate a plan for taking us there.

Faced with real choices on issues and ideas I believe that our voters would be better disposed to renounce racial cleavages and start concentrating on ideas and policies. At the moment, the choice seems to be between persons of similar ideological persuasion distinguished only by their race.

Who’s left now?

Introduction
The crisis facing the world economy is leading to a fundamental rethink of the role of ideology and the place of the ‘market’ in economic development. Some twenty years ago there was triumphalism in the West following the fall of the Berlin Wall and the demise of the Soviet Union. With the announcement and celebration of communism’s death mainly by those in the West, the practitioners, politicians and academics who had at one time extolled the virtues of socialism and the egalitarian society and equal opportunities which it would bring to all individuals all went into retreat.

Now it seems that capitalism as practised by those who were the celebrants at the death of communism are experiencing their own travails which offer a rare moment of satisfaction to the tiny minority which is still skeptical of the claims made by capitalism’s chief sponsors. Among this group is Joseph Stiglitz, known for his Nobel Prize in Economics and former Senior Vice President and Chief Economist of the World Bank. In his book Globalization and Its Discontents (2002) in which he not only critiqued globalisation but also argued that developing economies are, in fact, not developing at all, Stiglitz was particularly harsh on the IMF for imposing on those economies and countries, in exchange for loans and other assistance, economic policies “that conform to textbook economics but which do not make sense for those countries.”

In praise of deficits
Suddenly in demand for speaking engagements, Stiglitz, writing in the UK Guardian a few days ago, could barely contain his enthusiasm while speaking for that minority who never ceased having some connection to the Keynesian tradition. Lord Keynes who coincidentally was born the same year that Marx died, was the British economist who published in 1936, during the depths of the Great Depression, the tome The General Theory of Employment, Interest and Money in which his theory was that when the economy is slowing and businesses are reluctant to invest, the government should take up the slack, even if this means higher deficits.

Stiglitz in the Guardian noted that the acceptance of Keynesian theory even by the right in the US offered to those who were not captivated by the power of the market and capitalism, “a moment of triumph, after having been left in the wilderness, almost shunned, for more than three decades.” He posited that what the world was now experiencing was “a triumph of reason and evidence over ideology and interests,” and that some would see this as the end of market fundamentalism, comparable to the fall of the Berlin Wall.

Where have all our socialists gone?
But what happened to our socialists, or rather all of us, when at one time we all seemed to be socialists and the UF of Peter d’Aguiar a mere anomalous nuisance? If we are to take our constitution seriously – and why should we not given that is “the supreme law of Guyana” – Guyana is a state in transition to socialism. The constitution of the ruling Peoples’ Progressive Party, which I could not find on the party’s website, is even more emphatic about the party’s ideology – it is a Marxist party. In his seminal autobiographical work, The West on Trial, the late President and founder of the party, Dr. Cheddi Jagan wore proudly his allegiance to socialism, while blaming the British-US axis of all forms of plots and misdeeds. In fact Dr. Jagan, in the Wynn-Parry Commission into the Black Friday (February 16, 1962) disturbances said he was a communist.

Burnham, who initially came to power on an anti-socialist platform which he shared with D’Aguiar, went on a nationalisation campaign that at one time saw the state controlling some 80% of the economy.

While Burnham surrounded himself with some of the most doctrinaire left-wingers in Guyana including Ranji Chandisingh, Vincent Teekah, Elvin McDavid and Henry Jeffrey, his own commitment and that of his party, the PNC, to the socialist ideology appeared to be based on political control and nothing else. He had hardly been buried when his successor Desmond Hoyte reversed most of the socialist policies and embarked on the wholesale disposal of the country’s assets and resources for which the country received little in return.

The grand retreat
When Jagan returned to power in 1992, entirely out of character he continued those policies lock, stock and barrel, maintaining with the IMF a relationship of obsequiousness while embracing an amorphous and undefined New International Economic Order that had first been raised in 1948 in Cuba. Jagan never explained to his constituents or the country his about-turn on socialism, the IMF and the West, leaving it to others to speculate whether it was due to political expediency or his own conversion.

Whatever it was, his government pursued the same free market economics and model prescribed by the IMF and accepted by Hoyte.

Even before the death of Dr Jagan, economic policy and management of the PPP government was controlled by now President Bharrat Jagdeo who had been a member of the government from its first day in office in 1992. Jagdeo’s policies, on VAT, privatisation, price controls, food production and wages, have been entirely pro-IMF and he never for one moment betrayed his own Russian training. In effect then the policies of successive governments from 1988 to the present have been a renunciation of socialism.

The WPA too had been wedded to the socialist ideal and openly supported the Bishop regime in Grenada and the Cuban revolution. A major influence on the economic philosophy of that party was no doubt its one-time leader, economist Clive Thomas, arguably the best economist this country has ever produced. The TUF remains on paper a capitalist party but its leader sees no contradiction in being often placed in the role of spokesperson for the PPP.

Joining the clubs
For the political parties that were in government, the retreat from their ideological roots was no doubt shaped by developments in a world in which not to have the IMF stamp of approval or to be excluded from the WTO was like being an outcast. Market fundamentals reigned supreme and quietly everyone ceased being a socialist. Indeed, it would be difficult to find any leading member of the PPP – and here I distinguish it from the government – who would publicly describe themselves as a socialist. The PNC under Robert Corbin has lost not only its ideology but direction too, the WPA is peripheral as a force in politics in Guyana while the AFC is, so far as it can be labelled, very pro-market.

Cost and benefits
This column is not setting out as a value judgment on the economic model or policies which we followed at the behest of the IMF.

Nor does it suggest that there were not pluses and benefits from that relationship, however imbalanced. Perhaps both the post-Burnham PNC and the PPP needed an external force to bring investments and financial discipline to the country.

Many of the concessions and debt write-offs the country enjoyed were made possible by our allegiance to the IMF.

If the rules of accounting applied to the government, those write-offs would have been brought into its accounts as revenue, and it is partly those concessions that have made possible the substantial increases in expenditure on social services.

What is often not recognised or admitted, however, is that some of the debt write-off we have received had nothing to do with the IMF or the government, but rather stemmed from the fact that we were among a group of poor countries identified for such concessions.

Those policies have also had their cost. The resources of the country are now under external control and ownership. These foreign companies receive generous tax and other concessions under agreements which in many cases have not been subject to parliamentary approval or made available to the public. And in this regard the Asian wood giant Barama is an instructive example.

That company has reported losses for every one of twenty years while having enjoyed some of the most generous tax and other concessions imaginable. It is not only that those concessions have been costly to the revenue of the country, but they have made our domestic producers uncompetitive. With the various bauxite deals with RUSAL and BOSAI not available to the public, where is the political or public pressure to ensure that the deals are equitable and in the national interest?

One of the criticisms that can be made of the IMF-led policies is that while the national statistics may appear impressive and some Guyanese have seen marked improvements in their standards of living and a few have even reaped immense benefits, a large number of Guyanese still prefer to take their chances elsewhere. The figures show that tens of thousands of Guyanese have chosen to migrate legally or otherwise to seek jobs in just about any country they can enter. In the process, remittances have become one of our largest foreign currency earners and a major factor in any economic analysis. Public sector wages, and indeed wages in segments of the private sector as well, are cruelly low, made worse by a tax system that favours the self-employed and the shareholder over the wage earner.

Time to rethink
The crisis facing the market-oriented economies is causing a major rethink of some of the most sacred tenets of free markets and financial liberalisation. Primed as we are on the daily feed on US television we are aware of the embarrassing manner in which leaders of the US private sector trek to Congress begging for help. Make no mistake, the position in Europe and Asia is no different. When the turmoil is over and the dust has settled, the financial system, the housing and mortgage industry and the auto industry which have been responsible for much of the growth in many of the countries will have ended up in state ownership. While we privatise, they nationalise. That is not only a reversal over what took place for the greater part of the last twenty years, but a total contradiction of the free market. During all of this, the IMF seems to have gone into self-imposed silence.

Even after Guyana ceased being an IMF supervised country some two years ago, the government continued to follow the policies which the IMF imposed on us for so long that we seemed not to know there was an alternative or option. We are fortunate that we are not as vulnerable as some of the other Caricom countries, which because of a higher level of financial integration and tourism in particular, are already feeling the effects of the global storm. But make no mistake – we are not immune. Trinidad and Antigua are cutting back on construction and that will affect us directly. How do we reabsorb those Guyanese workers who may be forced to return home? For us the effects may be less immediate and also less harsh. But affect us it will.

Next week, we will look to see if there is anyone ‘left’ to help shape our response to the new reality brought about by the turbulence.

Response to a Crises

Introduction
Today’s column looks at some of the ironies and contradictions in the response to what started as a domestic crisis in the mortgage sector in the US and the prospects for the developing countries arising out of the Obama victory. The effect of the crisis has been wide, deep and pervasive and demanded action.

On November 15, 2008, the Group of Twenty (G20) held an initial meeting in Washington to try and arrive at a common position and to seek solutions to the daunting challenges facing the world as a result of the cataclysmic turmoil that has shaken the belief in the way the capitalist system works. The meeting had been called by US President George W Bush, once considered the most powerful man in the world but whose performance during the entire period has been embarrassingly unconvincing and whose public pronouncements almost invariably coincided with further deterioration of the stock market. Bush’s obvious discomfort and lack of understanding of the problem did not instil any confidence in the US or world markets and his advisers thankfully and sensibly had stopped his effete television appearances which had been a regular occurrence when the crisis unfolded in September.

By contrast, Gordon Brown, the embattled British Prime Minister heading for defeat at the next UK elections, has come out − at the international level at least − smelling like a rose for his decisive response to the situation. On October 8 his government unveiled its plan which saw the first steps in an unprecedented scale of government intervention. The British banks received an injection of funds and government guarantees that are tantamount to nationalization, but it was this action that may have averted at least temporarily, financial Armageddon worldwide. The Brown plan seemed to be the blueprint for other countries which quickly followed suit in recognition of the extreme gravity of the world economic crisis. At the Washington summit, it was evident that everyone realised that coordinated effort was needed and that these economic powerhouses, if they could still be called that, had to work together to reform the financial system which had become inextricably intertwined as a result of globalisation.

Revival of socialism
But despite the critical and unusual steps that have been taken in various countries to stabilise the situation and provide support to the global economy, much more is needed. The financial markets are in a crisis of confidence and unless some assurance is received that there are matching reforms in addition to the support measures, the wild swings in the stock markets of the world will continue. The G20 leaders in their statement issued after their meeting acknowledged that reform of the financial system is a priority and must be so far reaching as to insulate the world financial system from a recurrence of these calamitous proportions in future. This is no easy task since the coordinated response that these reforms require will necessitate subjugation of self-interest for the common international good. Many critics will decry this as the revival of socialism but that is what seems to be inevitable if the world as we know it is to survive and hopefully achieve some semblance of prosperity going forward.

The alternative of retaining capitalism in the mould of Thatcherite-Reaganite economics in which the market is supreme, is too frightening to consider. Even the right-wing voices in the Republican Party in the US have been muted, perhaps an admission that those who want to hold on to outdated philosophies and beliefs do not truly appreciate the magnitude of what has occurred. One recalls that only days before the implosion in the US market, defeated Republican candidate John McCain had said that the US economy was “fundamentally strong.” Cruelly for him, the speed of the unravelling was as dramatic as it was mind boggling.

The collapse of three of the top financial houses in the US that were the public face of capitalism, adjustments in the European Union that could cost hundreds of billions of euros, the easing of credit arrangements in China all demonstrate a realisation that it is no longer business as usual. Indeed there probably have been more pro-socialism articles published within the past three months than in the past three years. Seventy-five years after his landmark work, renowned economist John Maynard Keynes must be gratified that the policies he recommended to avoid a slump are now accepted wholesale for introduction at the international level.

Questioning the US bail-out plan
Not lost in all this is the irony of the headlining role US Treasury Secretary Henry Paulson and his 35-year-old assistant Neel Kashkari have been playing in crafting the US rescue plan.

Both men are alumni of Goldman Sachs, another one of those once highly regarded US financial institutions that benefited tremendously from the financial engineering that has dominated and perhaps bears responsibility for the crisis, and which itself is now under threat. Paulson is former chairman and Kashkari is his protégé and more irony here, has immigrant roots in one of the emerging world economic powers, India. The latter has significant responsibility for oversight of the much publicized US$700 billion bailout that was supposed to be the silver bullet solution but which has not had even close to the desired effect. With President-elect Obama having taken effective charge of the public debate on crisis resolution and the Bush administration coming to an end in about seven weeks’ time, it is hard to see how much these men can achieve.

Indeed even before its implementation, the US bailout is now being questioned as the typical American approach to a crisis: throw tons of money at it and it will go away. This emphasises the stark reality that traditional prescriptions will no longer be effective and that while the preservation of market principles may be a laudable objective, French President Nicolas “L’Americain” Sarkozy’s assertion that laissez-faire is dead, does not represent irrational pessimism at all. What is clearly evident is that the days of reckless abandon in financial and economic dealings must come to an end and that the requirement for asset values to be based on realistic underlying worth can no longer be panned as antediluvian esoterica.

Obama for change
Obama started his incredible campaign for the presidency of the US perhaps to the left of the liberal wing of the Democratic Party, but he is pragmatic and was quite willing to shift positions in response to changed circumstances. So far he has been concentrating on putting his team together rather than pre-empting and second-guessing the incumbent. He campaigned on a slogan of ‘Change’ but the striking feature of his economic team has been described by the Economist as “centrism,” comprising real economists, many of whom served the Bill Clinton presidency of 1992-2000, another irony of sorts. The team is studded with economics PhDs, such as Larry Summers, Tim Geithner and Peter Orszag, all of whom would be top of any class. Thankfully, Obama is an intellectual heavyweight in his own right and he will certainly be able to arbitrate any competing views these stars may offer.

What will have to wait for clarification is the role Obama and his team will play in helping the developing countries weather the international financial storm that will still be raging on Inauguration Day on January 20, 2009. For decades the countries of the developing world have been led, dragged, coaxed and cajoled by the economic mantra of the IMF and the World Bank. The irony is that following the adjustments and rescue packages proposed by the G20 countries, the economies of those countries will have more direct government intervention than all the developing countries combined.

We will have to wait too, to see whether the Obama team will seek to bring about any change to the free-market capitalism promoted by the IMF and World Bank, who for decades have been forcing countries, in exchange for aid of any kind and value, to liberalise trade barriers, deregulate financial and labour markets, privatize national industries, abolish subsidies, and reduce social and economic spending.

That would be more than a vindication for all the support and good wishes Obama receives from the people of the developing world.

Adjustment time in Trinidad and Tobago

Introduction
It has been a challenging week for Trinidad and Tobago where crime seems to dominate the headlines in the dailies. In fact, crime had to share space with news on the economy and more dramatically with natural events in which persistent and unusual rainfall caused severe flooding in several regions of the country, including its capital, leading to the death of two persons. The central bank announced that food price inflation in October increased on a year-on-year basis to 33.4 per cent, slightly below the 34.6 per cent recorded in September. Core inflation, which factors out the cost of food, increased for the first time in three months to 7.4 per cent from 6.2 per cent as consumers paid more for water, electricity, gasoline and transportation. That was not all. The IMF reported on its visit to the country and then Prime Minister Patrick Manning addressed the nation on how the government proposed responding to the revenue shortfall. Let us look at the address first.

Oil and gas run out of steam
The thrust of his address when shorn of politics and rhetoric was that in the face of an international financial crisis that shows no sign of abating, the Government of Trinidad and Tobago has moved to cut discretionary expenditure to match the fall in revenues from key sectors. These of course, form the backbone of the economy of the twin-island economy. Revenue losses are being felt in the prices of the country’s major exports − oil and petroleum products, ammonia, methanol, urea and steel. Because of the significance of those sectors to the economy, the budget makes certain assumptions about the international price − and therefore the revenue the country will receive – of those products.

In the budget presented at the end of September, the Minister of Finance used a price for oil and gas of $70 per barrel and $4/mmbtu (Million British Thermal Units) respectively based on international estimates at the time. If anyone had a clue of the falls that were likely to take place following the budget, they certainly did not mention it. Yet, by the end of October, crude oil fell significantly to US$67.81 per barrel at the end of October, losing more than 50 per cent of its value since peaking in July 2008 at US$148 per barrel. Natural gas at the US benchmark trading hub was priced at US$6.58/mm but at the end of October 2008, it was down 11 per cent since the beginning of the month and trending downwards. Between September and October this year, the price of ammonia fell from US$887.60 to $772.90 per tonne (13%); urea from US$798.75 to $573.40 per tonne (28%) and methanol, also softening, from US$411.00 per tonne to $399.00 (3%). Because the markets for these products are different, prices do not move in tandem.

Compounding a bad situation that may yet get worse, are a number of temporary plant closures and reduced output at the Point Lisas Industrial Estate, the 860 hectares, world-class facility that is the heart of the country’s petrochemical sector.

Taken together, revenue is projected to fall short by six billion dollars or US$1B for the financial year. Describing the situation as “very serious” and warranting immediate action, Prime Minister Manning in a national address earlier this week reported that his government had done a reassessment of its planned expenditure and cabinet had considered recommendations from the Minister of Finance. Out of those, according to the Prime Minister, the government was reordering its developmental priorities and deferring some projects considered essential to the realisation of developed country status. Trinidad and Tobago has targeted the year 2020 for the achievement of that status and has in place a multi-sectoral group of twenty-eight subcommittees working with a National Development Strategy Plan.

All ministries, departments and statutory authorities have been targeted for reduction of budgetary allocations including discretionary expenditure like promotion, publicity and printing; materials and supplies. Not without significance is the decision to put on hold any further consideration to buy a jet for the country’s increasingly mobile Prime Minister. But the real brunt of cutbacks are in relation to the country’s development programmes with “downward adjustments” for new projects other than those of an urgent or critical nature; for those projects for which there were no firm contractual obligations; for ongoing projects for which the pace of implementation could be reduced without legal penalties; and for ongoing projects for which some components could be deferred.

CARICOM
Trinidad and Tobago has the largest economy in CARICOM. Since 2001, the economy has grown at Asian rates of 8.3 per cent per annum, tripling in size from 55 billion dollars in 2001 to 160 billion dollars in 2008. Comparatively in CARICOM, the T&T economy is a giant among ordinary mortals. The Prime Minister recognised in his statement, however, the interdependence of the CARICOM economies which represent T&T’s second largest market for its goods and services. Amid all the cuts and belt-tightening Manning emphasized the need for the continuing availability of the CARICOM Petroleum Fund for the assistance of its partners.

Reaction to the address has been varied and while the announcements have largely been welcomed by the various private sector organizations the political opposition has been less generous calling on Manning to begin by cutting governmental excesses. But it seems that most Trinidadians are prepared to wait on the details of the cuts following a review by ministers of their respective budgets and cuts in specific programmes and projects decided by the cabinet to ensure that expenditure is kept in line with revenue.

The IMF
At the end of a mission to discuss economic and financial developments, policies, and prospects, as part of its routine annual consultation with Trinidad and Tobago, the IMF issued what may be considered a cautiously optimistic assessment of the economy with its usual caveats and warnings. The team acknowledged the impressive growth of the economy and achievements in key macro indicators including the low unemployment rate, the halving of the public debt and moving from a net debtor country to a net external creditor, and having one of the strongest credit ratings in the region.

The report notes, however, that while its large international reserves and low debt ratios make Trinidad a better place than many countries to weather the international financial crisis, it is not immune from contagion. The report notes that the country’s banking sector has entered the period of global turmoil from a position of strength, being well capitalized, liquid, and profitable, and funded mainly through domestic deposits and equity, as opposed to external borrowing. Spillovers and disruptions are not likely to be significant even with the risk of liquidity shocks transmitted through foreign parent banks. Ironically RBTT one of the country’s largest banks has only just been taken over by Royal Bank of Canada although there is no suggestion or indication that RBC is anything but strong.

Threats
The problem will come if the global slowdown becomes more acute. If that is accompanied by a more dramatic decline in energy and asset prices things could change with risks arising from exposures of large and complex financial conglomerates operating across the region. No one wants to bet on the unlikelihood of that happening but the odds must still be in the country’s favour.

If the external environment continues to deteriorate and recession bites deeply in the advanced economies there will certainly be spillovers to the tourism-dependent economies of the region, and sharply lower prices for energy products. The IMF sees the effect in sharp declines in growth of the economy to 3½ per cent in 2008 and 2 per cent in 2009. While this will dampen demand and ease price pressures, it will also see the external current account surplus declining by 13 percentage points to about 15 per cent of GDP and transform the central government balance into a deficit of about 2 per cent of GDP under current budget plans.

The mission noted the urgency to the enactment of improved financial sector legislation and the strengthening of supervisory practices and welcomed the recent passage of a new Financial Institutions Act (FIA). Trinidad and Jamaica have perhaps the most sophisticated but complex financial sectors in the region and the mission called for changes in conglomerates’ holding structures, with a clear separation of financial and non-financial activities; risk-management practices; and enforcement of prudential standards and for coordination with regional and international supervisors.

Conclusion
The Manning government is by nature very populist in its ways and the developments will no doubt come at an inopportune time for the PNM government that was busy trying to cement some form of union with the OECS countries. Manning did not indicate whether that initiative is still on the front burner, but there must now be serious doubts about the gestation of that wish.

Half year economic performance

The Guyana economy has performed reasonably well during the first half of the year according to Dr. Ashni Singh, Minister of Finance, and there is cautious optimism about the domestic economy for the rest of the year. This is according to the mid-year report presented to the National Assembly by the Minister on October 27, 2008. However, anyone with a serious interest in the economy and concerned about the several important omissions contained in the mid-year report should read the report in conjunction with the half-year report done by the Bank of Guyana and published on the bank’s website.

Driven by improved performances in agriculture, mining, engineering and construction, and services, the economy recorded a 3.8 per cent GDP growth during the first half of 2008, but still a sharp decline from the 5.8 per cent growth in the corresponding period of 2007. The Bank of Guyana – using that well-known oxymoron – reports that the manufacturing sector recorded negative growth, due partly to the high cost of inputs − fuel and imported raw materials, challenges to which the sector is no stranger.

2008.11.16_Chart1
Source: Bank of Guyana Half-year report 2008

Revenue and expenditure
On central government revenue and expenditure, the mid-year report presents some interesting information. Value-added and excise taxes were budgeted to increase by 12.8% from the $36.7 billion collected in 2007 to $41.4 billion in 2008. For the half-year actual collections amounted to $17.8 billion (43% of full year) compared with the $17.1 billion collected last year. On a period by period comparison these collections represented a marginal increase in value-added tax to $11 billion from $10.2 billion, although excise tax collections declined to $6.7 billion from $7 billion.

Internal revenue collections amounted to $19 billion in the first half of 2008 compared with $17.4 billion collected last year. The bulk of such revenue comes from a handful of companies, including the commercial banks, telecommunications companies and Banks DIH, DDL and DEMTOCO. Despite the many unincorporated businesses, the self-employed category pays less than one billion dollars in taxes, or just about 15% of the taxes paid by the employed persons.

While both reports indicate significant growth in key sectors, tax revenues have not risen correspondingly and one is left to wonder whether this is a case of generous tax concessions or continued tax evasion within key sectors.

But it is in relation to expenditure that the picture is particularly interesting. And while the Minister in his report did not discuss the table which contains several errors, it must now be a matter of speculation why only 38% of the full year budget has been expended in what the table itself describes as key sectors. Particular attention is drawn to the Health,

Infrastructure and Agriculture sectors where only 41%, 27% and 33% respectively, have been spent in the first half of the year. Are we going to see a mad and irresponsible rush to spend during the second half of the year, simply because the money has been allocated?

2008.11.16_Table1

Debt
The mid-year report deals very inadequately with external debt and omits completely any information on domestic debt which has been rising alarmingly over the past several years. The Bank of Guyana Report shows the stock of government’s domestic bonded debt increasing by 7.6 per cent, while its external public and publicly guaranteed debt rose by a whopping 16.8 per cent from end-June 2007.

The outstanding stock of government domestic bonded debt, which consisted of treasury bills, debentures, bonds and the CARICOM loan, amounted to G$74,223 million, an increase of 7.6 per cent from end-June 2007 and 7 per cent from end-December 2007 balance. The increase from one year earlier reflected the expansion in the stock of outstanding government treasury bills at end-June 2007.

Over the year July 1 2007 to June 30, 2008, the stock of outstanding public and publicly guaranteed external debt rose by 18.2 per cent to US$774 million. This increase reflected disbursements of US$45 million by the Inter-American Development Bank and the delivery of US$44 million credit by the Venezuela Petrocaribe agreement.

Employment
This very critical economic and social indicator once again fails to attract the attention of the Minister and again recourse has to be had to the Bank of Guyana Report which by its own admission is not based entirely on hard data. One has to wonder why the government continues to refer to labour surveys but yet the Ministry of Finance seems unable or unwilling to deal with the issue. While indicating that preliminary data indicated that public sector employment remained relatively stable, the Bank of Guyana reports some decline due primarily to factors such as resignation and retirement of employees.

The Bank of Guyana reported that while “data on private sector employment are sparse, there are indications that the growth sectors recorded higher levels of employment.” It went on to state that the mining, distribution as well as the engineering and construction sectors seem (emphasis mine) to be associated with increased employment.

It is interesting how the Bank of Guyana and the Ministry of Finance are so sure of the performance of the various sectors of the economy but cannot establish similarly reliable numbers on employment.

Inflation
Inflation has been one of the most disputed and massaged variables in the Guyana economy. Both reports indicate a 5.8% rate of inflation but again the Bank of Guyana is more informative even if no less controversial. The Minister of Finance attributes the increase mainly to food items, identifying cereals and cereal products as the principal contributors which are unlikely to be the main concerns of the average consumer. In fact in a typical food basket done monthly by Ram & McRae, Chartered Accountants, the price increase in food items over the six month period was 10.2%, compared with the Bank of Guyana figure for the food group of approximately 9%.

Conclusion
While the date on the Minister’s report is shown as September 12, in fact it was presented to the National Assembly on October 27, repeating a pattern of wrong dating by this Minister. Despite the additional time he took in presenting his report, the Minister chose not to address the serious global economic issues that surfaced in the third quarter, nor did he treat in any serious way his duty under the law to include in the report a list of major fiscal risks for the remainder of the fiscal year, together with likely policy responses that the government proposes to take to meet the expected circumstances.