ChrisRam.net

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.

Introduction
It was like a baptism of heat for new Minister of Finance Karen Nunez-Tesheira of the twin island state of Trinidad and Tobago as she presented the first budget of the re-elected Patrick Manning government and more personally, her first since her surprise appointment as the country’s first female Minister of Finance.

Surprising because despite being the holder of an Executive Masters of Business Administration from the Arthur Lok Jack School of Business of the University of the West Indies, Nunez-Tesheira is better known as an attorney at law who has spent more than twenty years at the Hugh Wooding Law School as Senior Tutor and writer of two recommended books on the syllabus of the school.

Indeed as she announced measures inherited from or incomplete from earlier years she was teased with perhaps the most damaging accusation against an academic – plagiarism. Uncomfortably for the Minister, one opposition front bencher closely followed her speech, shouting out the page and paragraph number if she repeated something which was in the previous speech.

For Budget 2008-09 it was all about billions of TT dollars which at today’s rate of exchange is approximately US$1 = TT $6.24. The budget was presented against rapid developments in the financial sector in the US − the bail-out of Bear Stearns a few months ago, more recently of mortgage giants Fannie Mae and Freddie Mac and insurance titan American International Group and public disquiet at a call by the Bush administration for US$700 billion to buy what is now being referred to as toxic mortgage loans. The Minister had earlier said in a statement issued by her ministry that it was difficult to anticipate exactly how the ongoing turbulence in financial markets would impact T&T but that the country’s central bank was examining the developments on the economy of T&T.

In that statement the Minister indicated that the Governor of the central bank had informed her that the bank has no holdings of paper issued by any of these institutions and that the very small proportion of the bank’s foreign assets managed by US institutions are “ring-fenced” and were not on the balance sheets of these institutions.

The PNM government has however announced a number of measures to amend various acts, including the Financial Institutions Act and the Securities Act to strengthen the regulatory framework.

Budget highlights
Total revenue is estimated at $49.465B of which $20B (40%) is expected to come from the energy sector with the remaining coming from other taxes on income and Value-Added Tax.

Total expenditure net of capital repayments and Sinking Funds is projected at $49.445B giving a surplus of $19.5M. As a percentage of total expenditure, education receives some 14.4%, infrastructure 13.3%, health 8.78%, security 9.6%, agriculture 4.5% and housing 3.3%.

External reserves have increased to US$8.5B or the equivalent of eleven months of import cover while the Heritage and Stabilisation Fund has some US$2.4B representing 10.2 % of GDP and higher than the level of the country’s external debt which stands at 6% of GDP.

The growth in the economy was 3.5 % which − despite the substantial increases in energy prices – saw the non-energy sector growing faster than the energy sector.

Inflation has taken a hit with commodity food prices and headline inflation rate having risen to 11.9% over the twelve months to August 2008 which makes the sustainable inflation rate of 6 % a formidable challenge.

Increases for senior citizens, those on public assistance and disability and retired public servants.

Other positive features by the Minister include free access to textbooks and other school material, free meals and transportation for students, 2% mortgage interest rate for low income earners, no VAT on all basic food items, one of the lowest rates of personal income tax “anywhere in the world” (25% after an allowance of US$10,000 per annum).

Developed country status
As would be expected, the Minister was upbeat about the medium-term prospects for the country that aims to achieve developed nation status by 2020. The Minister was not bashful in announcing that her government was putting in place special arrangements to bring benefits to the country beyond the tax take and added that they propose to increase the government’s ownership of assets in the natural gas market.

One of the measures attracting the most comment is the announcement of an increase in tax on premium unleaded gasoline which the Minister controversially predicts “will affect the high end of the market.” This measure will require those affected to pay $4 a litre for premium unleaded gasoline — an increase of $1 or 33 per cent, a move which some see not as a revenue matter but one to ease the traffic congestion that sees jams in the morning, at noon and nights and choking entry and exit points not only in Port of Spain but in the other major urban areas such as San Fernando and Chaguanas.

The government’s long-term plan is the reintroduction of a rail system involving two express train lines covering 105 kilometres while more immediately the government-owned Public Transport Service Corporation is expanding and modernizing its fleet of vehicles to 400 while the Coastal Water Taxi Service project will, beginning in phases from December 2008, connect by boat the principal cities cutting travel time from 2 hours to 45 minutes in the Port of Spain-San Fernando link.

Guyanese and Colombians
Aided by increased revenues from the export of oil, LNG and petrochemicals, unemployment has fallen to a historic low of less than 5 % and the construction industry is now using increasing numbers of nationals from non-Caricom countries including Colombia and as far away as Nigeria. Guyanese would therefore feel justifiably aggrieved that so many of our hugely productive nationals are turned away by immigration officials when they try to enter the country. I understand that part of the reason for the difference is that many of the Guyanese try to do it on their own while others are brought in mainly by international contractors.

Apart from its willingness to remain involved in the economy the government also plays a leading role in the housing sector though some critics see the not too thinly disguised hand of politics involved. Many of the schemes are located in marginal seats (T&T has the constituency system), and the distribution pattern can shift the electoral balance significantly in favour of the ruling party even as the opposition continues to founder for any strategic line of challenge on the Government’s Achilles Heel such the markedly arrogant and autocratic style of the Prime Minister, corruption, crime, weak governance and failure to deal with inflation.

Crime and inflation
In fact with Trinidad and Tobago challenging its sister countries for the title of crime capital of the Caribbean, it remains a mystery why more attention was not spent on measures to address the out of control crime situation in the country. Deputy leader of the main opposition party Kamla Persad-Bissessar’s comment that “the programmes the government has put in place will continue to overheat the economy” was shared by some of the TV commentators in the hours after the presentation of the budget. Not many people would agree with her that the country was heading for a meltdown.

While the Minister announced that the government was trying to deal with increased food prices by treating agriculture as a priority sector and therefore dealing with high food prices from the supply side, Persad-Bissessar lamented that the low allocation to agriculture hardly reflected this priority status.

As a part-time visitor to the country, my observation is that T&T’s economic challenge is how to tame the inflation tiger with the depreciation of the TT dollar in line with the US dollar against non-US dollar currencies adding cost pressures to inflation fueled by sharply escalating food prices. Bank governor Ewart Williams has advised that the only way to reverse food price inflation on a sustainable basis is by increasing domestic agricultural supply and containing demand. There is an obvious contradiction between this objective and the government’s policy of buying political and public support by increasing the amount of money pumped annually into the economy.

Agriculture
Last year, as Finance Minister, Partick Manning announced an agricultural policy following a two-day national food consultation that fourteen agriculture initiatives, involving the conversion of sugar lands to food crops, were earmarked to be implemented at a total cost of $1.2 billion.

Minister in the Finance Ministry Chartered Accountant Mariano Brown has told the public that only four of these have come to fruition, attributing the blame to the private sector for not taking up the challenge. That those have not succeeded in making a dent in prices obviously raises the question as to the prospects for success of the initiative in the light of more money being put into the economy by the government. Another initiative which may be instructive for us is the bulk purchase by the National Flour Mills of staple products in non-traditional international markets and selling those items at cheaper prices locally. This was abandoned after NFM racked up huge losses.

Rating and comparison
Despite the challenges the country received a good review by the International Monetary Fund which last year described its economic performance as “remarkable in a regional context and in comparison to other energy producing economies.” More recently, the country’s credit rating has been raised making it more attractive to investors who seem unmindful of the crime situation that plagues T&T.

I have consciously avoided any comparisons or contrasts between Guyana and Trinidad where there are both similarities and differences, but for me some do stand out. The first is the willingness of the government in Trinidad to engage in the economy while in Guyana we are prepared to leave it to the private sector that has but one motive only. The second is the take of revenue that comes from natural resources.

In Trinidad it is 40% while in Guyana, as a result of a range of tax incentives our share is negligible, if not negative in economic terms. We tax the salaried and the poor in the form of income tax and VAT at punitive rates, while those are considerably less in Trinidad. The Audit Office in Trinidad has already published its report on the 2007 Accounts of the Government while in Guyana the 2006 has only just been released with warts galore.

Like Guyana, the government in Trinidad is not hesitant to use the economy for political causes and we share places of dishonour with Trinidad on the Transparency International scale of corruption. We are 126 while Trinidad is 72. Trinidad and Guyana both believe in big governments and political favours are not unknown. We also share similarities of demographics and the penchant of our nationals to migrate. Do I need to go on?

Introduction
Over the strident objections of President Jagdeo the Caribbean countries and the Dominican Republic will sign the Cariforum-EC Economic Partnership Agreement (EPA) some time within the next few weeks. The record will show that Guyana stood alone in its last minute efforts to have the region pause “to scrutinise further the trade services aspects of the deal.” After an unusually strong exchange involving the leaders of Barbados, Jamaica and Guyana, Guyana is in the most isolated state it has ever been for close to forty years. During that period and not least because of the grand vision of Forbes Burnham and the efforts and impact of Sir Shridath Ramphal and a long line of talented foreign ministers, Guyana was among the leaders of not only CARICOM but the Non-Aligned Movement, the commemoration statue of which is proudly displayed at Company Path Gardens in downtown Georgetown. We were respected by the much more powerful ACP group of countries with a generation of outstanding personalities like Mrs Gandhi, Manley and Kaunda, offering hope to the hundreds of millions of their people. And let us not forget at this sombre hour that the very seeds of the Lomé Convention were sown on the lawns of the Prime Minister’s Residence in Guyana in 1972.

The first Lomé Convention (Lomé I) came into force in April 1976 and provided a hard-won framework of cooperation between the then European Community (EC) and developing countries of Africa, the Caribbean and the Pacific regions, in particular former British, Dutch, Belgian and French colonies.

Lomé had two main aspects. It provided for most ACP agricultural and mineral exports to enter the EC free of duty. Preferential access based on a quota system was agreed for products, such as sugar and beef, in competition with EC agriculture. Secondly, the EC committed ECU 3 billion for aid and investment in the ACP countries.

The fiction of free trade
It was not a perfect agreement – General Gowon of Nigeria had earlier told the Heads of the Commonwealth that “it is a fiction to speak of a free trade area between developed and developing countries,”  but for a quarter of a century Lomé remained the cornerstone of trade and aid between Europe and the developing world. It was, however, affected by major developments in the configuration of states and their economies in the European Community  necessitating changes in the economic relationships between the countries of the Europe and those of the ACP.

Another major shift in the world paradigm was the dramatic enlargement of the World Trade Organsation (WTO) which was the club from which all, rich and poor, market based and state-driven, North and South, would consider exclusion akin to being an international pariah. In theory, the WTO is strongly committed to creating a level free-trade playing field, promoting trade without discrimination and fair competition among the countries of the world through rules to prevent unfair behaviour like dumping. If there was a sign of things to come, however, the WTO provided that sign with several major violations by the rich countries in areas where they mattered most to the poor and undeveloped countries. In agriculture, textiles and clothing protectionism, subsidies and unfair practices persisted in the developed countries while the poorer countries were compelled to open their economies in a liberalisation frenzy and remove subsidies on their products.

In 2000, Lomé was finally replaced by a new trade and aid agreement known as the Cotonou Agreement, transforming the previous convention into a system of trade and cooperation pacts with individual nations. The signs were already surfacing that ACP solidarity was being weakened and with the IMF’s influence and dominance, one by one under-developed countries were picked off and brought into the fold of the capitalist world against which they had railed for decades. Even those countries that had shaped their foreign policy along socialist lines soon spent their time and measured their success by how much development assistance they received and the amount of debt write-off they obtained.

Long gestation
How did we in the region and Guyana fare? No question that we should have been better prepared to avoid the embarrassing contretemps earlier this week in Barbados over the EPA. As long ago as 1997, even before Cotonou, CARICOM had set up its Caribbean Regional Negotiating Machinery (RNM) to handle the post-Lomé trade negotiations not only with Europe but with other countries as well. The RNM was initially headed by Sir Shridath who had presciently noted that “we have to be prepared in our minds for a world in which our markets will be open increasingly to competition and not only at the level of goods but also of investment and services.” I am not sure whether President Jagdeo, then Finance Minister was listening, but it is more than passing strange that these are some of the very issues (as well as government procurement) that are now being objected to by him as President and as a leader of CARICOM.

Arguing that it is unlikely that we would be afraid of banks and insurance companies entering our small markets, one  cynic suggested that President Jagdeo’s main objection to any EPA with a services component was in relation to government procurement which as we have seen over the past several weeks is treated as a closed shop by his government. Would an EU pharmaceutical company with a right to bid to supply drugs to the government have sat back as idly and watched the government break the law to help its friends? I doubt it. At the very least therefore President Jagdeo needs to tell the nation exactly what his concerns are, not in politically charged language but in a way the people and the private sector and civil society in particular can understand. He needs to tell us whether the support we receive from the EU as a body and the United Kingdom will come to an end and what might now be the opportunities in the EPA for our own services sector.

The lone national voice
The EPA has been on the table for several years and although President Jagdeo now claims that he has always been opposed to the deal which he will now have to sign “involuntarily” as he puts it, there is nothing in the communiqué coming out of the December 2007 meeting of CARICOM heads at which the decision to sign was made, indicating that he was opposed to signing. His major public rumbling on the EPA was voiced in an exchange with Carl Greenidge of Guyana and the RNM at the GBTI Business Forum 2008 (see Business Page of June 8, 2008, ‘President, scraps and concessions’) but any further discussion had to wait until the Carifesta party was over.

Professor Clive Thomas had for months in his Sunday Stabroek column laid out a compelling case against several features of the EPA but no one in the government took any notice and it was left to a few letter writers to join whatever little debate there has been on this issue which we are now told would affect our country’s very future. A scheduled two days “consultation” that comprised mainly speeches but little information and lasting less than one day was attended by representatives from the private sector and civil society, who clearly knew little or nothing about the EPA on which they were being consulted. The seriousness of the consultation was surely compromised by the PSC which the day before had met with the President and announced their support for his stand. It was no surprise, therefore, that  they along with civil society felt comfortable enough to give Jagdeo the mandate to tell the regional heads that Guyana would only be prepared to sign a “goods only EPA.” The problem for the President was that his mandate was too narrowly defined and it was success or failure – no win-win.

But more ludicrously he could not sign a goods-only agreement simply because none was on the table and the President must have known that.

Neglect
The years of neglect by the government of the reports coming out of the RNM whose head had ministerial rather than ambassadorial rank, the government’s abandonment of diplomacy as a main tool of regional and international negotiations and its failure to have meaningful consultations both at home and abroad now leave us in perhaps the weakest state we have been in since independence.

Machismo may make good domestic politics but our stance would have caused us some loss of face and respect among colleagues and donors. Whatever may be our views and prejudices, the EU representative did not deserve the discourtesies he received at the consultation, not only because he is a guest of our country but also because the EU is still a big donor to Guyana as successive Budget speeches would testify.

Instead of boasting about standing tall we need to take a serious look – if that is not being too optimistic − at whether our policies and actions are developmental in nature. While abusing the EU our country and economy continue to depend on rice, rum and sugar sales to that region. Our forestry and bauxite resources are exploited by foreigners in uneven investment arrangements and little returns to the country, not even with development assistance from the source countries. We have abandoned the National Development Strategy that embraced increased trade with our South American neighbours and have downgraded our diplomatic efforts to boost trade. Only this week the President announced that he is replacing one of the country’s last career diplomats with another pastured minister of the government in what could and should be our largest trading partner, Brazil. The President pleaded with his regional counterparts to wait until a meeting of the ACP Group of States in Ghana before making a final decision, but undermines the seriousness of that plea by his decision to send a junior minister to that meeting because he has a speaking engagement in China.

Let the consultations begin
If the EPA will be as disastrous for Guyana as President Jagdeo asserts with such passion and certainty, then he needs to tell the nation what steps we can and should take to counter those eventualities. Clearly our relations with CARICOM need to be reviewed and rebuilt and if, as both Jagdeo and Ramphal fear, the CSME is in further jeopardy (there is sufficient and justified uncertainty about the commitment of many of its members), then as a regional country we have to contribute to reducing that danger even as we seek to widen our trade relations with non-EU countries.

A useful framework for ascertaining the views of Guyanese and incorporating such measures would be a new Development Strategy based on the earlier version that is accumulating dust on the shelves. Let the (real) consultations begin.