Government needs to be careful that it is not setting a precedence in some form with "militant behaviour" being used as the avenue to ensure wage settlement outcomes are favourable.
This is the view of senior economist Dr Roger Hosein following last week's proposed 90-day strike action by the Oilfield Workers' Trade Union (OWTU) against cash-strapped Petroleum Company of T&T (Petrotrin).
Hosein said while the Government did well to avert the strike by holding discussions with the company and the union, it was his prediction that the TT dollar would slide if there continues to be a downward trend in productivity and an increase in wages across all sectors of the economy. Wage negotiations are pending for several major unionised sectors.
However, Hosein said if the downward trend in productivity and the increase in wages throughout the economy continued, then the economy's real effective exchange rate would appreciate, forcing the urgency of a nominal devaluation of the TT dollar, perhaps to somewhere in the vicinity of $TT9 to $US1
"As things stand, the real exchange rate in 2017, when compared to 2005 is about 70 per cent overvalued. The solution therefore, more and more, seems to be pointing in the direction of a depreciation of the nominal exchange rate.
"The nominal exchange rate of a US dollar is around TT$6.80 but a good indicator, reflective of the true market rate of the price of US dollar can be found in the cambio at the Piarco International Airport, where the TT dollar is currently TT$8.20 for US$1."
Hosein said it was not where policymakers would want to see the economy positioned however, if wages continued to bear no semblance to productivity, "this is where it would end."
"This is one of the mechanisms that could allow the State to use the limited foreign exchange it receives, to stretch further."
He said a recession required all hands on deck to pull in the same direction in order to return the economy to economic growth, and it was critical that the parties involved in wage negotiations work around the roundtable and prevent as far as possible the emergence of strike activity.
He said he found it useful and interesting that the State was able to build into the discussion for the payment of backpay that Petrotrin returns to profitability and that productivity increases. "This, to me, is what the State can take away from the negotiated outcome, at this point."
With the non-booming tradeable sector of the economy not doing well in recent times, he said the share of manufacturing employment in 2016 was lower by almost 10,000 workers as compared to 2005. The same argument held for export agriculture.
Hosein said a depreciated currency, while raising the cost of import into the country will eventually prompt some degree of expenditure switching, in which nationals will switch some proportion of their expenditure away from the consumption of foreign goods towards domestically-produced goods of the same.
He said that would enhance domestic economic activities and reduce, to some extent, the import bill.
"Even more, a devaluation at this point in time will also lead to an enhanced level of NBT sector exports to foreign markets, so that the foreign market can act an as avenue to help stimulate more sustainable jobs in the local economy."
"I do not think the State could can continue to ignore for much longer the possibilities that exist with a depreciated currency, in the context of the current economic situation.
?STRIKE ACTIVITY IN T&T
In the last 42 years, there were 222 major strike actions in T&T, which resulted in 3,669,702 Man Days Lost (MDL).
Moreso, of the 222 strikes, 51 were in the booming tradeable sector–oil and gas.
The economy is divided into three sectors–booming tradeable (BT); non-booming tradeable (NBT) and non-tradeable (NT).
However, Hosein's data showed the figures in the BT sector were low when compared to the figures in the NBT and NT sectors.
There were 94 strike actions in the NBT and 77 in the NT sectors.
In terms of percentage, the strike action in the BT sector accounted for 22.9 per cent, while the NBT and NT sectors accounted for 42.3 per cent and 34.6 per cent respectively.
Hosein said, "Drawing on the cumulative experience of strike incidents in these three sectors, there is no clear indication that strike activity in the BT sector leads in time (one happens after the other) major strike activity in the NBT and NT sectors of the economy."