Adjustment time in Trinidad and Tobago

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.

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.

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.

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.

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.

The President, ‘scraps’ and concessions

It was a week of ‘scraps’ for President Jagdeo, if we count his inexplicable meeting last Monday at State House with the scrap metal dealers, who come under Prime Minister Sam Hinds’ portfolio. There were, however, two others, one involving the country and the other specifically the private sector. At the GBTI Business Forum 2008 on Monday, the President cast aside the expressed hope by the bank’s CEO that the forum rise above the controversy of the net benefits/loss from the CARICOM/EU Economic Partnership Agreement (EPA) and address its opportunities and offerings. The President chose instead to engage in what many in the audience saw as a barely disguised and inappropriately timed attack on the EPA, the Caribbean Regional Negotiating Machinery (CRNM), some of his own regional counterparts and the European Union.

But it was the launch of the new newspaper the Guyana Times where the President really bared his knuckles as he associated leading businessman and entrepreneur Yesu Persaud with ‘ignorance’ and suggested that the entrepreneur and leading private sector spokesperson for scores of years attend a seminar on the tax laws of the country. Mr. Persaud, speaking in his capacity as a private sector representative at the launch had dared to suggest that the concessions which the government had granted to Queens Atlantic Investment, the parent company of the Guyana Times Incorporated be extended to “all Guyanese.” A more transparent and equal treatment for investors has for years been the concern of domestic operators, and indeed the PPP in opposition, as they witnessed foreigners being granted sweetheart deals that effectively doomed local operators as second class in the scheme of things – the wood sector being the most obvious example.

Mr. Persaud was perhaps referring to ongoing concerns that concessions had been offered to the five new businesses of the investor group, instead of some only. The President who admits to being a close personal friend of the investors took umbrage at the call and announced that he had asked Mr Winston Brassington of the Privatisation Unit to hold a seminar on the tax laws, leaving the audience to wonder why not the GRA?

President Jagdeo explained that the concessions were in respect of the pioneering projects of the investors, the antibiotic plant and the textile mill. The problem which many share with Mr. Persaud is that the piecemeal information on the deals has had to be forced out of the government and its spokespersons while the group has remained conspicuously silent, obviously confident that the government would deal with it as a PR exercise and not a disposal of state resources in which all are interested. Perhaps the Guyana Times, which calls itself the Beacon of Truth, would show its editorial independence and commitment to truth and the people of a country that makes it all possible for its investors, to run its own story on what many may consider a steal of a deal.

The truth
All this of course could have been avoided if the government had complied with section 37 of the Investment Act 2004 that requires it to publish in the Gazette information regarding the fiscal incentives granted under section 2 of the Income Tax (In Aid of Industry) Act Cap 81:02. Only then would the nation be able to decide the real truth and how the agreement limits the concessions to the President’s “pioneer” industries.

The President was at pains to justify the as yet undisclosed concessions as having been granted under the authority of Cap 81:02. In fact, the act gives discretionary powers to the minister to grant concessions under two circumstances set out in section 2 as follows:

(a) the activity demonstrably creates new employment in one of the following regions –

(i) Region 1: Barima – Waini

(ii) Region 8: Cuyuni – Mazaruni

(iii) Region 9: Upper Takatu – Upper Essequibo

(iv) Region 10: Upper Demerara – Upper Berbice

(b) the activity is new economic activity in one of the following fields –

(i) Non-traditional agro processing (excluding sugar refining, rice milling and chicken farming);

(ii) Information and communications technology (excluding retail and distribution);

(iii) Petroleum exploration, extraction, or refining;

(iv) Mineral exploration, extraction, or refining;

(v) Tourist hotels or eco-tourist hotels.

But the President should have informed himself that the authority for such concessions seems to be limited by section 6 of the Financial Administration and Audit Act (FAAA) which stipulates as follows:

(1A) Except as provided in subsection (1C) [dealing with the duty of the Minister of Finance to make subsidiary legislation to waive any tax payable due to the taxpayer’s inability to pay such tax because of natural disaster, disability or mental incapacity etc.], no remission, concession, or waiver is valid unless the remission is expressly provided for in a tax Act or subsidiary legislation;

(1B) No remission, concession, or waiver of tax by Order or other subsidiary legislation is valid unless the Act under which the subsidiary legislation is made expressly permits the Minister to provide such a remission, concession, or waiver.

The President and the Minister of Finance, who like the group have been silent on the issue, must now consider whether they were properly advised of the relevant provisions of the law including the limitations under the FAAA, and that section 2 of Cap 81:02 does not recognise the “pioneer industries” referred to by the President.

The Finance Minister Dr. Ashni Singh has an obligation to the nation to indicate whether any cabinet paper submitted under his name recommending the concessions quantified the cost to the country of the concessions granted to the investors. If there was no such paper it would be a serious indictment of the President, the Minister and the entire cabinet.

And the rent
While much attention has been paid to the tax holidays and the government boasts how attractive a deal it won with annual rental of $50 million dollars per year, the government has been careful to avoid the real value of this rent.

Remember that there is a 99 year lease and there is nothing to indicate that there is a rent escalation clause providing for periodic increases in rent based on inflation and other economic factors. This then is how the figures look if we place a time value on the rent the country will earn from this deal and assuming discount rates of 10% and 5%, with the former being the more likely:

Discounted at 10% 5%
by the 10th year $21M $32M
by the 15th year $13M $25M
by the 20th year $8M $20M
by the 25th year $5M $16M
by the 50th year $0.5M $4.6M
by the 75th year $43K $1.4M
by the 99th year $4K $0.4M

In other words, by the half-way stage of the agreement, using a discount factor of 10%, the amount of the rent expressed in today’s dollars will be $39,043 per month! Assuming the unlikely scenario that a discount factor of 5% is justifiable, the monthly rental at the same point would be a princely sum of $381,516.

Now look further down the road to the end of the lease period and see that the rent using a 10% discount factor would be, in today’s prices, $365.85 per month! So just what is this about an option to buy for US$3.5 million in three years time?

Do those who tout the benefits of the deal really believe that the investors are so ‘ignorant’ as to choose to spend US$3.5 million dollars when they are the beneficiary of the giveaway of a century minus one year?

The dilemma we now face is what happens if the government has granted concessions that are not ‘valid,’ as they would appear not to be under the FAAA. Would the taxpayers have to bear for 99 years, the burden of government’s decision?

The President had earlier announced that he left the meeting when the matter was being discussed by cabinet. Perhaps he should have stayed and advised his colleagues about the state of the laws and the limits of their powers.

He may have saved his friends and colleagues from possible embarrassment and the taxpayers of the country the waste of resources.

Still, I hope I am invited to the Privatisation Unit’s Tax Seminar to which I recommend that the members of the cabinet, the President’s advisers and investor friends be invited as well.

A sea change in the Caribbean – Arthur goes


In a dramatic message, one of Barbados’ most successful prime ministers and perhaps a driving force behind the Caribbean Single Market and Economy (CSME), was told unequivocally by voters this week – time for a change. Despite an enviable record of achievement over the last thirteen years, Prime Minister Owen Arthur’s Barbados Labour Party lost overwhelmingly to the Democratic Labour Party in what Guyanese journalist Dr Rickey Singh referred to as the mother of all elections.

A television journalist who comes from Arthur’s constituency on a post-elections panel discussion broadcast across the Caribbean was visibly emotional as she expressed a mixture of shock and disappointment at the loss of a Prime Minister who had won respect and admiration from his fellow Barbadians, the Caribbean people and their leaders and the international community as a straight-talking, competent leader.

Arthur championed not only the case for his country but the cause of CARICOM, and came to the defence of Guyanese after some popular anti-Guyanese rhetoric from that country’s press. His government’s loss at the polls – he himself won his constituency by a margin of two to one – at the very least will impact on the progress of the CSME and it places a huge responsibility and opportunity on the other regional leaders to keep the momentum going.


Perhaps it was his years in Jamaica where as an economist and a committed Caribbean nationalist, he worked in Economic Planning with the Michael Manley government and as Director of the Jamaica Bauxite Institute in the late eighties before returning to Barbados where he practised his trade as an economist, later turning his attention to politics. At home he is credited with having saved the Barbados dollar from devaluation against the wishes of many, including the international financial institutions and critics. They argued that with Barbados inflation running above the rate in the US, it was foolhardy to retain theoretical parity with the US dollar. It was that act of courage, defiance and the national pride in the ‘strength’ of the Barbados dollar (US$1 = B$2) that won him such admiration from his people. Equally importantly he ensured that the economy did not falter in the wake of 9/11 when the fear of flying gripped Americans and threatened the tourism sector – one of the pillars of the country’s economy. His defence of the Barbados dollar might have appeared like grass-roots economics, but the economy performed so well that unemployment reduced from over 20% in 1994 to 7% in 2007.

During that time the standard of living and the quality of life in Barbados have improved continuously and that country tops all the other Caribbean countries in the United Nations Human Development Index. For a small country with not a great amount of natural resources Barbados annoys its critics with the efficiency with which it operates, and significantly successive governments have managed to cultivate among Barbadians a consensus on national values and aspirations.


The substantial progress made with the CSME is no doubt part of former Prime Minister Arthur’s legacy – removing restrictions on the movement of people, businesses and capital around the Caribbean. It is not the fault of Mr Arthur or President Jagdeo or indeed that hobby-horse Caricom that some of the region’s businesspersons are still reluctant to capitalize on the opportunities offered by the single market. The Trinidad business community has had no such reservations, and their operations are now evident across the region in several sectors, including finance and banking, (Republic Bank and RBTT), manufacturing and distribution (Trinidad Cement, Carib Beer, soft drinks, biscuits) and hospitality (Christian Mouttet and Issa Nicholas).

In the professions and services sector, there are a growing number of accountants and lawyers straddling borders, as are advertising agencies, architects and other service providers, and the Caribbean showed how it could perform as a unit in the hosting of Cricket World Cup 2007.


Perhaps the most important regional achievement of Mr Arthur, however, was to persuade his country and its legal profession to join the Caribbean Court of Justice, making it only the second country along with Guyana to make the regional court its highest court. The significance of that situation is underlined given that Barbados is perhaps the most pro-British member of Caricom and not many would have bet against cutting the ties with the Privy Council. Jamaica whose own Gleaner in 1901 (yes, 1901) had called for a regional court to replace the Privy Council, St Lucia under Dr Kenny Anthony and St Vincent under Dr Ralph Gonsalves are all yet to make that crucial commitment to the Caribbean and its jurisprudence.

The new man

Ironically, having campaigned on a platform for change, the new Prime Minister, David Thompson, may demonstrate a change of emphasis but hardly one of direction. Barbadians are notoriously conservative, and even when socialism was the wave of the Caribbean, that country regarded its socialists as a mere fringe element.

It is early days yet, and Mr Thompson will have to do some stocktaking before he can take any action.

He will be more fortunate than many politicians in other countries in that he is likely to find cash in the treasury, investors at the door and the expectations of a people who have placed their trust in him over a popular leader with an enviable record. It is hard to believe that Thompson’s party gave themselves more than a modest chance in the elections, and they may therefore have to do some quick thinking and planning before taking office on Monday.

Thompson has however signalled as his immediate priority the cost of living, an issue which challenges every Caribbean leader and which not too long ago brought his predecessor to Guyana along with counterparts from other countries with the objective of exploring ways to cut the cost of living. Very little has since been heard of that initiative and Thompson gave no hint whether he would pursue that option.

With an eye on the social conditions of his people Thompson has identified affordable housing and the improvement of health care and health facilities as some of his more immediate priorities.

It may therefore be some time before he turns his attention to Caricom affairs.

Brief honeymoon

His honeymoon may not be a bed of roses as the consequence of the slowdown in the US and other economies from which most of the country’s tourists come will pose quite a challenge. His party’s manifesto contained a pledge to cut taxes and further reduce unemployment and there is the expectation among Barbadians that these would be done within the first hundred days.

The towering image of Arthur overshadowed Thompson at home and most certainly in the region, whose writers must now be hunting for biographical information on the new leader and evidence of his views and commitment on regional issues.

Thompson does, however, have some political pedigree and he must know that Barbados and its economy have some synergy with the region which provides both visitors to and investments in his country.

Relationships, however, are a mutual affair and the more seasoned leaders would need to extend to Thompson the same kind of respect they accorded his predecessor. They will need to give him the space to find his place at his own pace and resist the temptation to tell him how to do his job.

With Arthur no longer at the head table, there is a huge responsibility and opportunity for President Jagdeo the other economist, who has responsibility in Caricom for agriculture with its implications for the cost of living. That should enable him to strike a resonating chord with Thompson.

At the time of writing, the main Trinidad newspapers had not shown any great interest in the Barbados elections, with neither of the major papers giving any front-page coverage to the results in its next day issue.

It is true that the results would have come in close to midnight, on Tuesday night, but are we serious when the region’s top selling newspapers use reports by the BBC and the Associated Press as their coverage?

Did our regional newspapers not consider the Barbados elections important or significant enough to send their reporters to cover the elections?