The recent articles by T&T Guardian's Anthony Wilson and Mary King have touched on one of the most undervalued items in the mix of policy options available to reconfigure our ailing economy. Unfortunately, the lack of reliable information relegates the conversation to anecdotal rather than fact-based positions.
Additionally, there has been a noticeable silence of highly qualified and educated commentators who were regular contributors before the last general election.
As I see it, T&T grew over the last few years based mainly on the price of its oil and gas. In reality, the increase in income to the State accounted for an increase in economic activity in the economy that produced GDP growth and raised the standard of living and expectations among us all.
Ironically, all of this was happening while oil and gas production were declining as were many of the other locally produced goods.
Growth in GDP and wealth was generated from consumer spending, driven by government's expenditure. Agricultural and export-focused production was replaced by import-biased activities all masked by the abundant supply of foreign exchange. We were like an athlete enjoying success from steroids while our internal organs were being destroyed.
Higher government revenues increased the government's appetite for growth. Soon the expansion into all aspects of economic activity became justified under the guise of, filling the vacuum created by the risk-averse private sector.
More and more the landscape became cluttered with government-owned companies either acquired as a way to save an enterprise that, more often than not, was not viable or to circumvent the exhaustingly bureaucratic regulations that govern so much of the society.
Soon, the government became the largest investor in commercial activities in the country. The universally accepted standards that private enterprise is judged on, were no longer a consideration. Companies were being directed to engage in investments that furthered government's policy and little, if any, regard was paid to return on investment.
In fact, profit was no longer a measure of success or an imperative. This changed the established rules and role of equity in the function of companies capital. In short, government expansion into commercial enterprises soon crowded out the private sector. Capital available from buoyant energy taxes without a required return or repayment imperative made it impossible for private capital to compete.
Picture the scene of hundreds of companies dominating the economy without the need to be profitable or return capital to shareholders. These companies became easy prey to a number of competing agendas with some being highjacked by employees and others by politically driven or benefactors of the party in power.
In this insular environment, all concept of globalisation disappeared except for the ease in which we accessed foreign exchange to buy goods and services online with credit cards. Internet shopping became the new measure of the country's ability to function in the global economy.
Since our energy-tax revenues were based on US-dollar priced commodities, it was a comfortable arrangement to leave our TT dollar tied to the US dollar.
Invisible to the general population was the fact that the US dollar was gaining strength against other currencies and the growth in our local costs was not accompanied with the required growth in productivity.
In fact, government acceded to demands by all sectors, especially employees which infected the entire environment. The leverage that some groups were able to exert, resulted from the dominant role that the government carved for itself in all aspects of society.
The result of this is that the economy has become a consumption-based economy dependent on foreign exchange to be sustained or grow.
At the same time, non-energy local production–such as non energy-based manufacturing and agriculture–declined as a percentage of the country's output. The recent reduction in T&T's foreign exchange earnings requires that the economy be reconfigured:
�2 We must balance foreign exchange earned with foreign exchange consumed and government's income with expenditure. This can be achieved by bold timely initiatives to cut spending and increased concentration on export-oriented production.
�2 Increased production for exports will not be possible without competitive inputs.
�2 The unpegging of the TT dollar will reduce the cost of the local value added element of T&T-produced goods and services making it more competitive and exportable. The yield of more TT dollars for the US dollars earned will also reduce the imbalance that now exists in meeting local expenditure. A substantial portion of our sovereign debt is denominated in TT dollars and will not be affected.
�2 The arbitrage on the US/TT exchange rate will diminish. This will reduce demand for consumption expenditure and speculation while, at the same time, returning competitiveness of the productive sector setting the stage for export-led growth.
The lessons learnt in the period 1984 to the 1990s can be very instructive. We increased agricultural output and manufacturing including exports.
An adjustment to the exchange rate is not a panacea for all our economic woes but is an essential ingredient in the mix of initiatives that must be swiftly implemented. The obvious others are the removal of subsidies that distort consumption and encourage unnecessary, excessive, consumption. The reimposition of VAT on items that have caused enormous leakage when goods subject to VAT are imported under a different description, that is, exempt from VAT. We are not sufficiently informed to determine if that, or exported subsidised fuel which we have seen fleetingly in news clips, is a greater leakage of resources. Government must divest its ownership of commercial enterprises.
There is undoubtedly a need to take care of the less fortunate in the society. The new dispensation must focus on efforts to identify and treat with these on a case by case basis. We can no longer give CDAP to multimillionaires and we don't need to provide subsidised diesel to X5 owners.
The Government has been given a clear mandate by the majority to take the required steps to correct the direction that the economy is currently on. The window of opportunity is already closing. The tone must be clear in the first 100 days.
It would be a pity to lose the opportunity as happens always when we think of the effect of our actions on ourselves rather than the country and people. Be wary of measures that attempt to postpone the decisions for more appropriate timing as Greece found, it could be a Trojan horse.
Wilfred Espinet