Mariano Browne
T&T's position is a difficult one. The sharp fall in oil prices in 2014 coincided with a secular decline in oil production and a natural gas shortfall which started in 2012. As a result, energy revenues and foreign exchange earnings fell dramatically. This was a less catastrophic repeat of our 1986 experience. Two things helped to cushion the damage; the existence of substantial foreign exchange reserves and the Heritage and Stabilisation Fund. Both have allowed the country to avoid the IMF. But the foreign exchange position has declined from US$10.5 billion in September 2015 to US$7.4 (November 2018) and is projected to continue falling.
Commodity prices are inherently volatile, but the current volatility reflects longer-term strategic difficulties. First is the emergence of the US as the new volume producer and exporter of oil and natural gas. The second is the recognition that continued use of fossil fuels at present levels will be detrimental given their effect on global warming.
The country, therefore, faces two key problems. First, the short/medium term issue of economic stabilisation and growth. The second, longer-term issue, is that of economic viability and survival. In addition, there is the ongoing task of building a people and a society that understands and can adapt to the changes required to meet the demands of the 21st century. Many issues overlap and are entwined; the correlation between crime and the education system's failures for example. Leadership and competent management are required to address these weighty matters.
One has to begin somewhere, with a turnaround plan for example. The International Turnaround Management Standard (a template used to operate in difficult and crisis conditions) recognises six broad stages in the turnaround process. These are; first, crisis recognition; second, diagnosis; third, emergency procedures; fourth, the crisis stabilisation stage; fifth, the turnaround stage and finally closing the turnaround.
Each stage requires different measures, though some techniques have to be used through all stages. Early detection and action can shorten the adjustment process, but recovery depends on the intensity of the measures undertaken and the tolerance to their implementation. Typically, the crisis recognition and diagnostic review stages should be completed in the first 90 days and the emergency measures quickly implemented thereafter. The emergency measures are meant to deal with the immediate difficulties and to set the stage to address the deeper, more fundamental matters.
Using this template, where is T&T?
The UNC administration's emergency measures consisted of borrowing, extracting dividends from National Gas Company (NGC) amounting to $16 billion, using the $7.5 billion receipt from the sale of Clico Methanol and the proceeds from the First Citizens Bank (FCB) share issue to maintain unsustainable fiscal expenditures. But it also instituted fiscal measures (accelerated allowances which ended on December 31, 2017) directed at the energy sector companies which have had the beneficial impact of increased drilling activity, leading to an upturn in gas production in 2018.
Starting in 2015, the PNM administration continued the borrowing started by the UNC, sold FCB and TTNGL shares, used Clico (CLF) assets to raise $4 billion through NIF, extracted dividends from NGC and used the HSF to provide budgetary support to what still remains an unsustainable fiscal position even if expenditure has been reduced. Expenditure reduction does not count as “savings”; it simply reflects the reality that there is less to spend. After four budgets, there is no broad policy intent in any fiscal measure adopted as the concern has remained generating revenue to reduce the deficit.
In short, we are still at the emergency stage. The closure of Petrotrin is such an emergency measure and is largely defensive; to reduce the haemorrhage. In the process, the State has had to guarantee all of Petrotrin's debt ($13 billion) to prevent preemptive action by the foreign lenders, thus increasing gross public debt and the debt to GDP ratio.
Despite claims of turnaround or stabilisation, the country's position is fragile, the growth wafer thin, the energy market still volatile. Fiscal policy remains the only realistic tool for addressing the changes required to begin the stabilisation process. The strength of a country is the skill sets and capacity of its people, not money. The society is ageing at an accelerating rate, the labour participation rate is falling and productivity issues abound. We have not begun to address the changes required either to improve the education system, the ease of doing business or to dynamise the private sector. In these circumstances, any talk of a turnaround is cynical and unrealistic.
The tragedy of “Minding your business” parts 1&2 is that it misdirected the country into a retrospective blame game, which is politically saleable but leaves the country entrapped, looking backward, not forward, tethered like a goat. It made no demands of the electorate, no call to action, no direction, no requirement to perform. The projects announced had no coherent theme except that of infrastructural visibility. No business can succeed if foreign exchange remains short.
Responsible government means setting clear, time-bounded goals, persuading the electorate of their importance and enrolling them in the process and communicating the progress/success in achieving those objectives at intervals. The critical ingredients in the success of any enterprise are organisation and discipline, without which there can be no accountability or productivity improvement. All are a function of leadership and management.