In the staff report of the recent Article IV mission to T&T, the International Monetary Fund (IMF) stated that this country's "immediate priority is to support an economic recovery." In view of the "very weak economic activity," the IMF argued in favour of a moderate fiscal stimulus which, it stated, was "unlikely to jeopardise fiscal sustainability." Moreover, given the moribund activity of the economy, the IMF staff recommended four policies: _ Accelerating the implementation of the budget, particularly on capital spending; _ Appointing critical public enterprise boards with the authority to approve new projects; _ Rapidly resolving the 2008 to 2010 public sector wage negotiations; and _ Paying contractor arrears after their verification and shortening delays of pending VAT refunds. The Ministry of Finance, according to the IMF, "recognised that activity was weaker than expected when the 2010/11 budget was finalised in September and agreed with these recommendations..." In terms of accelerating capital expenditure, Works and Transport Minister Jack Warner announced last week that the Government intends to spend $750 million repairing roads and treating with related infrastructure issues throughout the country. Mr Warner also announced the expenditure of $519 million for the extension of the interchange at the intersection of the Uriah Butler and Churchill Roosevelt highways.
And on Tuesday, Mr Dookeran himself signed agreements with the Inter-American Development Bank aimed at providing support for the Government's public sector investment programme. One is unsure whether these measures, along with several announcements by the Minister of Housing of residential developments throughout the country, constitute an acceleration of capital expenditure programme. The Government also agreed to appoint critical public enterprise boards as a means of pushing capital expenditure and reviving the economy. Given the fact that the board of the Urban Development Corporation (Udecott) was only appointed last week and the board of the National Insurance Board was appointed in December, this does not appear to have been treated as an "immediate priority." The IMF also enjoined the Ministry of Finance to "rapidly" resolve the public sector wage negotiations. In delivering the 2011 budget, Mr Dookeran said the following: "Mr Speaker, public servants' terms of employment have remained unsettled for 2008, 2009 and 2010. This affects some 83,000 persons employed in the Civil and Teaching Services and the Protective Services and Statutory Authorities, as well as daily rated employees of the Central Government and Municipal Corporations. "This is another part of the previous Administration's legacy of neglect which the People's Partnership must deal with. It is our intention to settle this matter as quickly as possible. We expect to settle this issue by the end of 2010. This is a challenging task, made even more difficult by the strained finances we have inherited." The negotiations between the Government and the union rep- resenting the 33,000 public service officers seem to be bogged down and there remains a vast gulf between what the union is demanding and what the Government is prepared to offer.
Negotiations have just commenced with the police and it does not appear as though a formal offer has been made to the country's teachers. Interestingly enough, the IMF staff report indicates that the Government spent $6.934 billion on public sector wages and salaries in the 2010 fiscal year and that this increases to $7.625 billion in the current (2011) fiscal year. That's an increase of ten per cent. Does that ten per cent increase in the allocation for wages and salaries in the 2011 budget automatically translate into a ten per cent increase in the compensation for public servants? Probably not as the negotiation between the Public Services Association and the Government is for a collective agreement that has already passed (2008 to 2010), which means the fight is now for backpay and incremental increas- es. Also if the headline wage settlement goes up, the allowances are likely to go up as well which adds to the cost of the overall settlement. As the man holding the purse strings, Mr Dookeran is directly responsible for providing the negotiating mandate to the Chief Personnel Officer, who negotiates with public servants on behalf of the State. Finally, have contractors been paid their arrears and has the delay in pending VAT refunds been shortened? It's unclear. So, is the Minister of Finance promoting or undermining the economic recovery? I would say that, on balance, the record is a mixed one; that he has failed in "rapidly resolving" the public sector negotiations; has been partly successful in accelerating capital expenditure; has been, along with his Cabinet colleagues, too slow in appointing critical public sector boards and there are big question marks over the number of contractors who have received their arrears and the extent to which the lag-time on VAT refunds has been shortened.
Clearly, the non-payment of the contractors, the failure to settle public servants and the absence of a mutually satisfactory settlement on the Clico matter are all factors that undermine private sector confidence in the management of the economy, as the IMF staff report admits. On the issue of Clico, the IMF staff report on T&T contains some interesting information which deserves to be made public. According to the IMF staff report: The additional cost of the Clico intervention in the 2011 budget is estimated to be $11.9 billion (8.6 per cent of GDP). It is unclear from the document whether the IMF assumes that $11.9 billion will be spent by the Government on the Clico policyholders in 2011 or if it is simply a means of accounting in 2011 for expenditure over the next 20 years. _ As a result of the Clico line item, the total financing requirement for the 2011 budget, according to the IMF will reach 12.2 per cent of GDP and the gross public debt will increase to 49.1 per cent of GDP. _ "The mission indicated that there is a strong case for providing more favourable terms to credit unions, given that a large number of small account holders could be affected and potential spillovers in the current environment." This liquidity window for the credit unions (along with trade unions and educational institutions) amounts to $830 million; The Government's plan for treating with the policyholders of Clico and British American, as it relates to those investors with sums of more than $75,000, envisages a restructuring of the amounts over a 20-year period, with no interest. This is a discount in net present value terms of about 40 per cent. _ On the issue of inflation, the IMF team indicated that the official inflation data may be overstating food inflation by as much as 50 per cent. The Central Statistical Office, with assistance from the IMF, is updating the methodology for calculating the rate of inflation to remove the upward bias in food price inflation