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Making the adjustment differently
Last Monday, Finance Minister Colm Imbert delivered a Budget presentation to the House of Representatives that demonstrated quite clearly that he was not prepared to walk the same road that was traversed by the National Alliance for Reconstruction (NAR) government during the period 1987-1991.
According to Imbert: “Madam Speaker, you may recall that as a result of an oil shock in the 1980s the then NAR government chose to address the problem of reduced revenue by downsizing the public sector and cutting public sector salaries and allowances, thus requiring the population to reduce their real incomes. The present situation is quite similar but our approach will not be the same.”
Indeed, the approach adopted by Minister Imbert in his Budget presentation was not the same even though the problems are similar.
Going to the International Monetary Fund (IMF) in 1988-90 saved the country, but cost the NAR political office at the general elections in 1991.
It is clear that this People’s National Movement (PNM) Government has no intention of going to the IMF and certainly does not want to lose the next general election.
The risk in that approach is whether it will turn the country’s economy around while keeping the PNM in power or will it wreck the economy. Who knows?
The Minister had a mix of philosophies in his Budget that were clearly different to the IMF policies of 1988-90.
On the one hand, he implemented a complete deregulation of the maxi-taxi sector, which was a pivot to the free market policies of the IMF 1998-90, while on the other hand he refused to let go of the State’s stranglehold on state enterprises that continue to drain the Treasury of precious taxpayer dollars.
This halfway approach is very risky as it seeks to keep the State in the driver’s seat of the economy thereby maintaining a high rate of transfers and subsidies to losing enterprises like WASA, T&TEC and Caribbean Airlines.
In many respects, the Minister has kicked the can down the road yet again, when he could have bitten the bullet and started the divestment/privatisation process that will reduce the burden on the Treasury.
Indeed, he showed his commitment to the state enterprise sector when he said: “We expect that with sound governance at the Board and managerial levels, the state enterprise sector will discharge its mandate in growing the productive capacity and infrastructure of our economy.”
Where is this “sound governance” suddenly going to come from?
Recent hearings held by Joint Select Committees ranging from the Port Authority to the Education Facilities Company have demonstrated serious shortcomings in the governance practices of some state enterprises.
There is a crisis of governance in the country that spans the gamut of state enterprises and reaches into the hallowed halls of the Judiciary.
It will be interesting to see where and when this “sound management” will make its grand appearance.
The NAR government used poor management practices by certain state enterprises, like the Iron and Steel Company of Trinidad and Tobago (ISCOTT), as the basis for approaching the IMF for a bailout. Forty years later, the country is still waiting for “sound management” to manifest itself in the state sector.
The free-market IMF policies saved the country in 1988-90, but they cost the then ruling party (NAR) a second term in office.
Minister Imbert’s taxation policies have not been well-received based on initial media reports, however, the risk that he is taking is that economic prosperity will come from increased taxation. That is unlikely to happen.
You cannot kill the goose that laid the golden egg and expect that there will be another source of riches to tap into.
Taxation causes reactions like forcing businesses to pass on the increased costs to their consumers, which drives up the cost of living.
However, the Minister is committed to doing his recovery plan differently.
The country is taking a gamble with this budget. Will it work?