Home' Trinidad and Tobago Guardian : October 22nd 2015 Contents Are we seeing a repeat of
the 1980s recession?
OCTOBER 22 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG9
In my last article published in the
Business Guardian of October 15th,
2015, entitled "Major fallacies driving
economic decisions," I suggested that
a comparison with the 1980s may
be an interesting exercise in order to
better understand the current economic sit-
uation in Trinidad and Tobago.
Summary findings from the 1980s:
The decade of the 1980s began with oil
production of 211,000 bbls (barrels) per day
increasing to 240,000 bbls per day in 1981
and declining thereafter to 160,000 bbls per
day in 1983. Oil prices were US$37.00 per
barrel in 1980 declining thereafter to US$29.00
in 1983 reaching a low of US$14.00 in 1986.
With the commencement of the recession in
1984 the economy declined by over 20 per
cent spanning the decade.
A major implication of the events was a
drastic reduction in the country s foreign cur-
rency reserves which declined from a high
of US$3.3 billion in 1982 to a low of US$213
million by 1987, a precipitous decline of 94
per cent. Another implication was the rapid
rise in unemployment to over 22 per cent by
Data adjusted for inflation:
For comparison purposes current data
adjusted for US inflation at the rate of 4 per
cent for 30 years reduces current oil price to
US$13.87per barrel and reduces current
reserves to US$3.3 billion. Based on this com-
parison it appears that we are in a more pre-
carious position than we were in 1985.
In an advanced analysis the impact of the
gas industry would have to be factored into
the comparison and which positive impact
may very well be cancelled by the decline in
the volume of oil production which declined
from 175,000 bbls per day in 1985 to 75,000
bbls per day in 2015.
Other factors to consider:
To further develop and appreciate the peri-
od comparison several other factors must be
considered, and a few are noted below:
• The economy has become more depend-
ent on foreign exchange.
• Our propensity to import has increased
making our reliance on foreign exchange more
acute. Keep in mind that because of the high
propensity to import payments to employees
in TT$ is in fact an increase in demand on
foreign currency and should not be treated
as local expenditures.
• The wide spread use of credit cards
makes it more difficult for the Central Bank
to control the use of foreign exchange.
• With higher education and exposure
through the media, life styles and ambition
the citizens have distanced themselves from
the land and from agriculture.
• Government capital projects have
increased recurrent expenditures without a
concurrent increase in revenues. Most gov-
ernment projects are not revenue generating
and in fact adds a considerable running costs.
• Make-work programmes by the gov-
ernment is difficult to reverse.
• The economy is not diversified and per-
haps less so that three decades ago.
• Government s debt has increased beyond
its capacity to repay from recurrent revenues
and asset sales and additional borrowings are
now being undertaken to fill deficits in excess
of $20B per annum.
• With relaxed lending criteria by the com-
mercial banks and shadow banks, the quality
of their loan portfolios could deteriorate sig-
nificantly in times of increasing unemploy-
• The private sector is highly dependent
on the availability of foreign exchange and a
curtailment of supply would have a leveraged
negative effect on business, employment and
standard of living.
• Our foreign currency reserves and small
social programmes would not be adequate
to protect the vulnerable.
Major impact of the 1980s recession:
1 Collapse and down-sizing of many com-
panies, particularly in the auto industry, equip-
ment sales, construction, soft drink manu-
facturer, trading and banking. These included
McEnerny Alstons which was bought out
by the ANSA group, Trinity Motors, Polymer,
Neal and Massy, auto division and Tracmac
among others. The list also included the three
local banks NCB, Co-op Bank and Workers
Bank which were finally resolved in the 1990s.
2 Significant layoffs spiking the unemploy-
ment rate to over 22 per cent.
3 Introduction of vat.
4 Removal of Cost of Living Allowance
5 High loan and mortgage delinquency.
6 Notable migration from the country.
7 IMF involvement.
Relevance for 2015:
The decline in oil prices in the early 1980s
was significantly less precipitous than the
fall experienced in 2015. Yet still the recession
began in 1984 causing considerable damage
to the economy and the citizens at large. The
major problem was the declining reserves
which was quickly used up due to a lack of
control and planning by the then Government
on the stock of foreign exchange. Once it had
dwindled to precarious levels, the country
panicked and in came the IMF and its pro-
grammes long after adjustments ought to
The situation in 2015 is dire and requires
quick action by the Government. Listening
to the parliamentary Standing Finance Com-
mittee it appears that they are oblivious to
the current situation and leaves many citizens
very worried. We have little time to make
Strong leadership is required. While the
2016 budget has been presented and debated,
there is urgent need for the government to
present to the Country a formal and detailed
statement of affairs on the economy and out-
line some alternative for us to deal with the
A detailed plan to manage our foreign
exchange must be at the core of their overall
plan for the country.
The importance of the foreign exchange
plan cannot be overemphasized. Such a plan
would ultimately include a strategy for all
other aspects of the economy.
Time is against us. We are over forty years
late in truly diversifying the economy.
In my next article I would suggest ways to
manage our scarce foreign exchange reserves.
Ved Seereeram -- Financial consultant
E mail --firstname.lastname@example.org
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