Last week Thurs­day, for­mer Cen­tral Bank Gov­er­nor Ewart Williams de­liv­ered a ma­jor speech at the sixth an­nu­al Con­fer­ence on the Econ­o­my at the St Au­gus­tine cam­pus of the Uni­ver­si­ty of the West In­dies in which he looked back at the way T&T had man­aged its de­vel­op­ment in the 50 Years since In­de­pen­dence.

Williams con­clud­ed there had been sev­er­al missed op­por­tu­ni­ties to trans­form the econ­o­my away from its de­pen­dence on en­er­gy rev­enues and ar­gued there were im­por­tant lessons for the coun­try to learn from its eco­nom­ic his­to­ry.

Let me con­fess that while ho­n­oured and hum­bled by the in­vi­ta­tion, I ac­cept­ed with some ini­tial trep­i­da­tion, recog­nis­ing the amount of prepara­to­ry work in­volved and some­what re­luc­tant to in­ter­rupt the hon­ey­moon of my re­tire­ment.

I must con­fess though that, once I start­ed, I found the process of re­trac­ing our post-in­de­pen­dence eco­nom­ic his­to­ry rather fas­ci­nat­ing.

First of all, there was a cer­tain nos­tal­gia for the ex­cite­ment and the im­pas­sioned eco­nom­ic de­bate of the post-in­de­pen­dence pe­ri­od; sec­ond­ly, the look back (and the ma­tu­ri­ty that comes with age) gave me a bet­ter ap­pre­ci­a­tion of the com­plex­i­ty of our ear­ly eco­nom­ic chal­lenges and of our many suc­cess­es over that pe­ri­od.

There was al­so, how­ev­er, a feel­ing of pro­found dis­ap­point­ment at our fail­ure to find the holy grail; to re­solve the fun­da­men­tal prob­lem of eco­nom­ic trans­for­ma­tion; a prob­lem that was iden­ti­fied since oil took over from sug­ar in the 1950s and one that has been the main fo­cus of our pol­i­cy-mak­ers, since 1969 when the first com­pre­hen­sive De­vel­op­ment Plan was launched.

The pol­i­cy­mak­ers at the time (all very com­pe­tent peo­ple; the likes of William De­mas, Frank Ram­per­sad, and sev­er­al oth­ers) cor­rect­ly iden­ti­fied the prob­lem as one of util­is­ing the rents from the off­shore econ­o­my to build a vi­brant, in­ter­na­tion­al­ly com­pet­i­tive on­shore econ­o­my.

Notwith­stand­ing their con­sid­er­able ef­forts, our post-in­de­pen­dence eco­nom­ic his­to­ry is a trail of booms and busts, trig­gered by the va­garies of our en­er­gy sec­tor, for the most part, re­flect­ing com­mod­i­ty price volatil­i­ty.

As most of you know all too well, in our dual econ­o­my, eco­nom­ic booms are cre­at­ed when in­creas­es in gov­ern­ment rev­enue from the en­er­gy sec­tor prompt a cor­re­spond­ing rise in gov­ern­ment spend­ing on in­fra­struc­tur­al works, on make-work schemes, and on var­i­ous wel­fare pro­grammes. Gov­ern­ment spend­ing gives pur­chas­ing pow­er to house­holds, which cre­ates eco­nom­ic and busi­ness op­por­tu­ni­ties for the pri­vate sec­tor. The re­sponse of the pri­vate sec­tor is there­fore cru­cial to the type of eco­nom­ic spill-off that en­sue.

En­er­gy sec­tor rev­enues

Over the past five decades, buoy­ant en­er­gy sec­tor rev­enues have fi­nanced im­prove­ments in eco­nom­ic and so­cial in­fra­struc­ture, fa­cil­i­tat­ed the ex­pan­sion of em­ploy­ment, and led to sig­nif­i­cant in­creas­es in per­son­al in­comes and im­prove­ments in so­cial wel­fare.

Our eco­nom­ic base has been broad­ened, large­ly by the down­stream ex­ten­sion of the en­er­gy sec­tor, and by an ex­pan­sion of the non-trad­able ser­vices sec­tor. Fa­cil­i­tat­ed by re­gion­al trad­ing arrange­ments which pro­vide con­sid­er­able mar­ket pro­tec­tion from in­ter­na­tion­al com­peti­tors, a rudi­men­ta­ry man­u­fac­tur­ing sec­tor has al­so emerged.

Notwith­stand­ing these very im­por­tant gains, the fact that eco­nom­ic trans­for­ma­tion con­tin­ues to be our most press­ing goal, sug­gests that the sto­ry of our last 50 years is, in some sense, a sto­ry of "op­por­tu­ni­ties wast­ed."

Lat­er on, I will al­so ar­gue that we may be com­ing to the point where the im­pulse from the en­er­gy sec­tor could be get­ting pro­gres­sive­ly weak­er. In these cir­cum­stances, with­out the ben­e­fit of a com­pet­i­tive non-en­er­gy trad­able sec­tor, our medi­um-term eco­nom­ic sus­tain­abil­i­ty and our cur­rent stan­dard of liv­ing could be un­der threat.

In my re­main­ing re­marks, I will briefly trace the evo­lu­tion of the T&T econ­o­my since In­de­pen­dence, af­ter which I will seek to draw some ma­jor lessons that should in­form pol­i­cy­mak­ing go­ing for­ward.

Post-In­de­pen­dence jour­ney

Dur­ing the 1950s, oil be­gan to dis­place agri­cul­ture as the prime mover of the econ­o­my. By the time of our In­de­pen­dence in 1962, the dom­i­nance of oil in the econ­o­my was fair­ly well es­tab­lished.

Per­haps a con­ve­nient start­ing point for our post-in­de­pen­dence eco­nom­ic jour­ney, is 1973, when the Trinidad and To­ba­go econ­o­my ex­pe­ri­enced a dra­mat­ic rise in the price of oil along with a con­sid­er­able in­crease in out­put from new ma­rine fields. In the pe­ri­od 1974-82, gov­ern­ment rev­enue rose more than ten-fold to an an­nu­al av­er­age around $4 bil­lion, com­pared with a mere $300 mil­lion a year, in the pre­vi­ous decade 1964-73. Of course, gov­ern­ment ex­pen­di­ture rose in step to about $4.5 bil­lion a year.

Dri­ven by the surge in con­struc­tion ac­tiv­i­ty in the non-en­er­gy sec­tor, re­al gross do­mes­tic prod­uct (GDP) growth av­er­aged about six per cent over the ten year pe­ri­od, about twice the growth rate reg­is­tered in the pe­ri­od 1967-73.

The Er­ic Williams gov­ern­ment which had come to of­fice in 1956 had launched two five-year De­vel­op­ment Plans (1958-62 and 1964-68), which were es­sen­tial­ly pub­lic sec­tor in­vest­ment pro­grammes. Its Five-Year De­vel­op­ment Plan (1968-73) went a bit fur­ther in ar­tic­u­lat­ing a de­vel­op­ment pol­i­cy.

Along with the fo­cus on in­fra­struc­tur­al de­vel­op­ment – roads, wa­ter, elec­tric­i­ty etc - it en­vis­aged a marked shift to gov­ern­ment in­volve­ment in com­mer­cial ac­tiv­i­ties. With the sharp in­crease in en­er­gy sec­tor rev­enues af­ter 1973, the Gov­ern­ment ini­ti­at­ed "a move to take con­trol of the com­mand­ing heights of the econ­o­my".

The strat­e­gy in­volved a de­ci­sion to ful­ly ex­ploit the coun­try's con­sid­er­able gas re­serves (much of which was pre­vi­ous­ly flared) through joint- ven­ture in­vest­ments in a whole range of down­stream in­dus­tries: methanol, fer­tilis­er, petro­chem­i­cals, steel and alu­minum. These in­dus­tries, the sup­port­ing in­fra­struc­ture (a ma­jor port, pow­er fa­cil­i­ties, a net­work of gas pipelines) along with the as­so­ci­at­ed pol­i­cy frame­work; came to be known as the Point Lisas Mod­el.

Prof Ken Julien on the Point Lisas Mod­el

Prof Ken Julien, one of the ar­chi­tects of the Point Lisas mod­el, sought to cap­ture what he calls, "the bold­ness of the jour­ney" when in de­liv­er­ing the "Nine­teenth Dr Er­ic Williams Memo­r­i­al Lec­ture", he re­mind­ed us that:

"Trinidad and To­ba­go had less than one per cent of the nat­ur­al gas re­serves of the world;

We had nev­er pro­duced a sin­gle kilo­gramme of steel;

No new har­bour or port fa­cil­i­ties had been cre­at­ed since colo­nial times;

Our peak de­mand for elec­tric­i­ty was 300 megawatts, the de­mand of the steel plant was 180 megawatts, more than half the peak de­mand of the whole coun­try;

Methanol was a for­eign word;

A sin­gle 16-inch gas pipeline ex­ist­ed be­tween Pe­nal and Port-of-Spain. There was no nat­ur­al gas off­shore or cross coun­try lines;

In short, he was re­mind­ing us that the chal­lenges to mon­e­tise our nat­ur­al gas were for­mi­da­ble and in­clud­ed a skep­ti­cal na­tion­al com­mu­ni­ty that did not his­tor­i­cal­ly iden­ti­fy with the en­er­gy sec­tor."

Prof Julien re­called (and I quote):

"Many peo­ple tried to per­suade us that the sim­plest and eas­i­est thing to do would have been to sit back, ex­port our oil, ex­port our gas, do noth­ing else and just re­ceive the rev­enues de­rived from such ex­ports and lead a life of lux­u­ry, at least, for some lim­it­ed pe­ri­od."

"In­stead, we took the more dif­fi­cult road, ac­cept­ing the chal­lenge of en­ter­ing the world of steel, alu­minum, methanol, fer­tilis­er and petro­chem­i­cals. We ac­cept­ed the chal­lenge of us­ing our hy­dro­car­bon re­sources in a very def­i­nite in­dus­tri­al­i­sa­tion process."

De­spite a num­ber of chal­lenges along the way, the Point Lisas In­dus­tri­al Es­tate re­mains, (ar­guably) the ma­jor eco­nom­ic suc­cess of our post-in­de­pen­dence pe­ri­od.

I say this, ladies and gen­tle­men, notwith­stand­ing the fact that, strict­ly in an­a­lyt­i­cal terms, Point Lisas rep­re­sent­ed more of the same; a di­ver­si­fi­ca­tion of the off­shore en­er­gy sec­tor rather than a step to­wards the trans­for­ma­tion of the econ­o­my.

Oil's de­cline

Of course, what goes up, in­vari­ably comes down, and oil prices, be­gan a steady and sig­nif­i­cant de­cline start­ing in 1983. What's worse, the price de­cline co­in­cid­ed with a sec­u­lar fall in oil pro­duc­tion, which had be­gun in 1979.

Some of you may re­call that the pe­ri­od 1983-88 were years of ma­jor cri­sis as re­al gross do­mes­tic prod­uct (GDP) de­clined by five per cent a year and un­em­ploy­ment reached a peak of 22 per cent.

The pe­tro­le­um sec­tor, which had trig­gered the ear­li­er boom and the gov­ern­ment, con­struc­tion and dis­tri­b­u­tion sec­tors which had trans­mit­ted the im­pulse through­out the econ­o­my, now led the de­cline in eco­nom­ic ac­tiv­i­ty.

In the firm hope that the de­cline in in­ter­na­tion­al en­er­gy prices would have been short-lived, the Gov­ern­ment of the day tried to post­pone ad­just­ment by run­ning down sav­ings and fi­nal­ly re­sort­ing to bor­row­ing. How­ev­er, by 1988, we could not meet our ex­ter­nal debt oblig­a­tions and we need­ed to ap­proach the In­ter­na­tion­al Mon­e­tary Fund and World Bank.

This is per­haps not the time nor place to dis­cuss the mer­its of the IMF stand­by arrange­ment and the World Bank's Struc­tur­al Ad­just­ment Pro­gramme.

(More­over, I am (per­haps) not the right per­son to make a judg­ment on the im­pact of these pro­grammes since, in the in­ter­est of full dis­clo­sure, I must state that I was on the staff of the IMF at the time, and what's more, I was on an 18-month sab­bat­i­cal at­tached to our Cen­tral Bank).

Suf­fice it to say that, the ad­just­ment pro­gramme con­tained some of the stan­dard el­e­ments; ex­change rate de­pre­ci­a­tion; trade and fi­nan­cial sec­tor lib­er­al­iza­tion and com­mit­ments about re­duc­ing the size of the pub­lic sec­tor (a eu­phemism for pri­vati­sa­tion). Not sur­pris­ing­ly, the cen­tre­piece of the pro­gramme was a sharp re­duc­tion in the un­sus­tain­able fis­cal deficit.

The fis­cal ad­just­ment strat­e­gy in­clud­ed a nom­i­nal 10 per cent cut in pub­lic sec­tor salaries, which was un­der­stand­ably very un­pop­u­lar, and which more than any­thing else, un­der­mined pop­u­lar sup­port for the ad­just­ment ef­fort.

This notwith­stand­ing the pro­gramme was ef­fec­tive­ly im­ple­ment­ed and the most of the ma­jor macro eco­nom­ic tar­gets were achieved.

From my per­spec­tive, it is dif­fi­cult to ar­gue that the ad­just­ment ef­fort was not ab­solute­ly in­evitable. The coun­try's in­come had de­clined sharply; at first, as­sum­ing that the drop was tem­po­rary, we used up our sav­ings; and then we bor­rowed and when we could bor­row no more we need­ed to ad­just our liv­ing stan­dards.

Eco­nom­ic ad­just­ment

I ful­ly ac­cept that eco­nom­ic ad­just­ment is al­ways dif­fi­cult and painful, be­cause it im­plies hard­ship. More­over, in the re­al world, hard­ship is nev­er dis­trib­uted even­ly. Some groups bear a larg­er bur­den than oth­ers and, in our case, the poor and the pub­lic ser­vants bore the brunt.

One can ar­gue that a more ju­di­cious cal­i­bra­tion of the fis­cal ad­just­ment pro­gramme would have spread the bur­den more eq­ui­tably, ob­vi­at­ing the need for a wage cut. Ex-post, I am con­vinced that the wage cut was a big mis­take.

Hav­ing said that, many an­a­lysts (my­self in­clud­ed) be­lieve that the ex­change rate ad­just­ment, the ex­ter­nal debt resched­ul­ing, the trade and fi­nan­cial sec­tor lib­er­al­i­sa­tion and the fis­cal re­forms set the stage for a more com­pet­i­tive econ­o­my and es­tab­lished a po­ten­tial plat­form for a stronger trans­for­ma­tion ef­fort.

Con­tin­ued next week