In his budget speech in September, Minister of Finance Winston Dookeran said: ". . .The country's gross domestic product (GDP) tripled from $56 billion in 2002 to $171 billion in 2008. Yet in that time the average person was no better off. Many were in fact worse off. "For the first nine months of 2009, the preliminary data for the balance of payments show an overall deficit of US$429.3 million, compared with a surplus of US$2,062 million for the same period in 2008. Exports fell by 50 per cent compared with the previous year, while imports declined by 34 per cent. Capital outflows were US$2 billion during the period January to September.
"For 2009 as a whole, the reduction in reserves at the Central Bank shows a balance of payment deficit of US$712 million. Gross reserves fell from US$9,380 million in December 2008 to about US$8,652 million in December, 2009, inclusive of a special drawing right of US$435.2 million from the IMF." Clearly a cheerless inheritance falling like a tarnished family heirloom into the lap of the new Government.
What is of immediate importance, however, is the almost unmanageable size of the public sector debt, which increased steadily from: "$50 billion or 30 per cent of GDP in 2007 to $66 billion or 49 per cent of GDP in 2009. At the end of April, 2010, the gross public sector debt stock amounted to $68.2 billion or 51.1 per cent of GDP. The country's debt stock as a per cent of GDP has now passed the 50 per cent threshold which economists use as the area of danger. "Of the total debt stock, central government debt increased stead-ily from $24.7 billion in 2007 to $38.5 billion in April 2010. External debt grew from $9.3 billion to $9.8 billion in April 2010. Approximately 70 per cent of external debt is in US dollars, indicating the currency risk exposures." Additionally, local debt for state enterprises, without government guarantee, amounted to $3.4 billion, while non-government guaranteed foreign debt amount-ed to $9 billion. These figures are not included in the total public sector debt stock.
Add this additional $12.4 billion to the public sector debt and it would surpass the original danger threshold of 51 per cent of GDP. While it is reasonable to assume that the measurement of the deficits (debts) are accurate, how reliable is the measurement of the GDP? What procedures are followed, and when last were they reviewed? It is the Government's intention "to design a new framework for the economic development of Trinidad and Tobago?" Over the last decade, more than 150,000 state-owned enterprises (SOEs) have undergone revolutionary changes in every aspect of their political and economic environments. Many enterprises have responded to the chal-lenges, entering world markets with great dynamism and becoming indistinguishable from their competitors in mature market economies.
The pace at which SOEs restructure is a fundamental determinant of economic growth, and initial public share offering (IPSOs) is strongly associated with enterprise restructuring. The economic effects are quite often very large, adding several percentage points to enterprise growth rates. IPSOs compelled enterprises to adapt their behaviour in order to survive and succeed in a new, liberalised market environment. The IPSOs will, in the short term, reduce the Government's public sector borrowing requirement (PSRB), but they must form an essential part of an incremental, long-term programme of promoting the widest possible parti- cipation by the public in the ownership of local industries.
This objective-wider public ownership-has implications not only for the scale of the programme but also for methods which will be adopted to secure such wider public participation. The objective of the exercise is to see the widest possible spread of private shareholding, so that the so-called public sector industries really do belong to the public, including in particular employee shareholding.
The reasons originally advanced for widespread SOEs were:
The improvement in industrial relations.
The promotion of full employment.
The gain in productivity from the removal of absentee ownership.
The efficient regulation of monopolies, which were in themselves considered superior to "wasteful competition."
The replacement of short-term profit maximisation by wider national and social priorities. There is no longer any need to labour the failure of the SOEs to achieve these objectives.
The SOEs, far from improving industrial relations, proved the source of the biggest threat to industrial peace, doubtless because of a combination of centralised union power and recourse to the bottomless public purse; providing immunity to bankruptcy, a consequence of the elimination of consumer choice. On full employment, while SOEs have enabled some industries to postpone job losses for a time, the resulting over-manning not only distorts economic production but has proved unsustainable, and eventual job losses consequently greater. As for short-termism versus national priorities, governments have no unique hotline into the future (see the breathtaking failure of Iscott).
The less obvious point is that governments do have more power in practice to influence the behaviour of the private sector by legislation (not least tax legislation) than they do that of the supposedly SOEs, which they perhaps only "symbolically" own. It took the Indian Government over 40 years to discover this simple truth. What is most damaging to the economic efficiency of SOEs is their inevitable "politicisation." The temptation to indulge in short-term interference in everything from prices to wages is almost irresistible. The effect on SOEs industry management is equally bad: accommodating government or placating pressure groups becomes more important than commercial results.
Finance Ministers in Trinidad have not presided, as they mistakenly believed, over the "economy." They are "running" a national racing pool. The role of the manager of a racing pool is to transfer money from losers to winners; they retain the difference. The Finance Ministers transfer money from winners (the oil and gas industries, general taxation) to losers (SOEs). They "borrow" the difference, called the public debt, on which interest must be paid. It is not an oil and gas economy; it is, de facto, a transfer economy.
Dr Errol Mathura
London