Home' Trinidad and Tobago Guardian : November 30th 2014 Contents A24
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At their policy meeting in October,
Federal Reserve officials were blasé about
economic weakness in Asia and Europe.
According to the minutes of the meeting,
the Fed noted that growth in the US
"might be" slower than anticipated in the
next year or two if global conditions were
to deteriorate further.
Since then, Japan has fallen back into
recession. China has cut interest rates in
an attempt to counter waning growth.
And Europe, even under prodding from
the pope, has backed off only slightly
from brutal and counterproductive
austerity policies that have long
undermined its ailing economy.
The US is not immune to the malaise.
Already, global weakness has cast a pall
on otherwise upbeat economic data. The
government reported this week that the
economy grew at an annualised rate of
3.9 per cent from July through
September, up from an earlier estimate of
3.5 per cent. But business survey data
and economic statistics from October
suggest slower growth going forward---
about 2.5 per cent annualised in the
fourth quarter---as American companies
trim production, investment and hiring in
response to weakness elsewhere.
At that pace, the US is not strong
enough to pull other countries out of their
troubles. Nor is it strong enough to
withstand a prolonged global slump.
It is baffling that the Fed would dismiss
those dangers, especially in light of recent
history, in which global interdependencies
in finance, trade and politics have made it
difficult for policy makers to shield their
domestic economies from weakness and
The Fed's attitude is also puzzling given
its justifiable worry that inflation is too
low---a condition that depresses wages
and employment and, in general, reflects
Now is not the time to be sanguine.
The Fed needs to delay further reduction
in monetary stimulus until signs of
sustained recovery are clear. Congress
needs to spend more, mainly on
infrastructure, to create jobs in the near
term and lay the foundation for future
growth. The economy is still far from
healed. (New York Times)
SOUND OFF: Global weakness, America's problem
Addressing Parliament on Friday,
Finance Minister Larry Howai set out
three scenarios for the impact that lower
global oil and natural gas prices could have
on the T&T economy.
The minister said that the Government's
"expectation" was for the price of oil to
average between US$65 and US$70 a bar-
rel and for the natural gas netback price,
upon which T&T bases its gas taxes, to
remain above US$2.75 a unit.
This would mean that oil prices would
be some US$10 to US$15 a barrel below
the US$80 a barrel oil reference price used
in the 2015 budget, which used a natural
gas reference price of US$2.75 a unit.
The minister said that using a scenario
of US$65 per barrel and a $2.75-a-unit
netback for natural gas, the overall fiscal
deficit would increase by $1.372 billion, or
0.7 per cent of GDP. This would mean a
deficit of three per cent, which in the
scheme of things would not be disastrous
for the country's 2015 budget.
The danger for the T&T economy, of
course, arises because the Government's
expectations are certain not to be in line
with future realities.
If oil between US$65 and US$70 a barrel
and the natural gas netback at US$2.75 a
unit represents the mid-case scenario, Mr
Howai has an obvious responsibility to
outline the worst-case scenario to the
nation. In other words, in a scenario of
T&T enduring a sustained period of fur-
ther price collapses to US$45 a barrel and
the natural gas netback to US$1.75 a unit,
in what state would T&T's fiscal deficit
be?This worst-case scenario is not unlikely,
given the apparent fight-to-the-death
price war between the Arabian members
of OPEC and North American producers
of non-conventional oil and natural gas.
The reason the population must be
informed of the worst-case scenario is
that Mr Howai's softly, softly approach of
requiring "ministries to review their budg-
ets to determine areas where expenditure
can be suppressed to make up the short-
fall" may be meant to lull the country into
a false sense of comfort.
In other words, Mr Howai's reassuring
message on Friday about marginal, poten-
tial changes in spending may be a mis-
leading and entirely inappropriate signal at
this time, when what he should have told
his colleagues and the population is that
now is the time for serious individual and
national fiscal adjustment and belt-tight-
ening---as former prime minister Patrick
Manning did on November 30, 2008, in
an address to the nation.
Six years to the day later, the need for a
more contextually appropriate tone in the
messaging is especially important in T&T
in view of the fact that much of the pop-
ulation considers the Christmas season to
be a time for belt-slackening.
This was clearly demonstrated in the
country's embrace of the mimetic Black
Friday shopping frenzy, as shown by the
scenes witnessed locally two days ago,
which will no doubt also be reflected in
T&T's online shopping statistics.
Unfortunately for the Government,
today's imperative of a more cautious
approach to spending on a national scale
comes as the country is about to celebrate
its last Christmas before a general election.
The clear message to the Government,
then, is that it needs to bear in mind the
country's long-term economic well-being
and not just its own re-election hopes.
This is particularly true as greater finan-
cial prudence at this time may, in fact,
pay greater political dividends for the
party in power among intelligent voters
than this trifling spending review.
Howai must face crude realities
The reason the population must be informed of the worst-case scenario is that Mr Howai's softly, softly
approach of requiring "ministries to review their budgets to determine areas where expenditure can be
suppressed to make up the shortfall" may be meant to lull the country into a false sense of comfort.
KNOW YOUR RIGHTS
Pupils of the Sangre Grande Government Primary School wave the European Union flag when representatives from the UN visited the school on
Thursday. The Delegation of the European Union celebrated Universal Children's Day and the 25th anniversary of the UN Rights of the Child Convention.
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