Letter: An economy in recession
In Trinidad and Tobago there are growing adverse comments about the increasing unemployment, the decreasing GDP, the increasing country debt, the increased interest rates on government bonds, the fall in reserves, the drawdown from the Heritage and Stabilisation Fund (HSF), the use of the Central Bank overdraft, the sale of assets and the lack of attempts by the government to diversify the economy.
In short the government is seen as being incompetent; it appears to have no plan to take us out of the current recession. Some are even saying that the government is awaiting the entry of the IMF to tell them what to do, if they have not done so already.
All of the above are complaints about the effects of a series of conditions over which we, the Trinidad and Tobago government, have absolutely no short term control.
Our economy is a small open plantation economy that depends for its very survival on the earnings of foreign exchange to fund the imports, products and services which we are incapable of producing for ourselves and which form the foundation of the on-shore economic activity – an import, markup and sell distribution economy.
When the earnings of foreign exchange drop, as now because of low gas and oil prices and exacerbated by the decreasing production of both, we cannot produce new exports in the short term, i.e. we cannot earn new foreign exchange, nor can we replace substantially imports by local production.
Hence the only option we have, the government has, is to contract the economy; by government actions that reduce aggregate demand in the country while the on-shore economy itself, as is also the offshore sector, sheds the load of employed and unused resources. This will hurt. So this economic contraction rate can at best be moderated by the reduction of our reserves, use of the savings in the HSF, foreign and local borrowing, and sale of assets since government’s income is also severely reduced.
These actions do not do not solve the problem that caused the recession; they simply ease us into the full impact of the recession – unemployment, reduction in GDP (economic activity), reduction in ability to import, reduction in government’s ability to maintain subsidies.
Still, our reserves stand at some ten months of imports (cf. Barbados with just weeks of import cover) and our debt/GDP ratio, although increasing, is not life threatening. Our exchange rate has been marginally devalued but it is not under tremendous pressure.
There is no short term remedy to counteract the recession though some get satisfaction by blaming the government for having no plan to get us back to the good times (the opposition is having a field day). The only short term remedy which is outside of our control is for the gas and oil prices to increase globally and the local increase in production of both – the latter, if it happens, would be a medium term occurrence.
The long term solution is economic diversification which will have no economic impact for some ten years. Blame could indeed be put on past regimes, particularly on our private sector, since little effective attempts were made in the years gone by to diversify. Be that as it may. Today we need to grin and bear it, hoping that the Trini God intervenes in oil and gas pricing and we find more petroleum.
Mary K King
Trinidad and Tobago