Home' Trinidad and Tobago Guardian : March 24th 2016 Contents MARCH 24 • 2016 www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
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In its end-of-mission press release, Elie
Canetti, the head of the International
Monetary Fund (IMF) team that con-
ducted an Article IV consultation on
T&T earlier this month, said that this
country was "not in a crisis" because
of its "substantial financial buffers" and its
"low, albeit rising levels of public debt." The
financial buffers refer to the savings---both the
foreign reserves and the monies in the Heritage
and Stabilisation Fund (HSF)---that the country
has built up over the years.
Canetti added that despite the financial
buffers and the country s low, but rising public
debt levels, "the country has under-saved and
under-invested in its future," in recent years,
"taking into account the size of energy revenue
On this point, Canetti concluded: "As a con-
sequence, the imbalances that are now starting
to build up could lead the country to uncom-
fortable levels of debt and external financial
cushions absent further action."
Several questions arise from the judgment
formed by the IMF mission chief on the per-
formance of the T&T economy:
A. Crisis or downturn?
Canetti s conclusion is based on the fact that
T&T had an HSF balance of US$5.77 billion at
the end of June 2015 and foreign reserves of
US$9.531 billion at the end of February 2016,
which were down from US$11.316 billion at the
start of 2015.
Countries are considered to be in financial
crisis if they have exhausted their savings and,
more particularly, if they are unable to access
loans at non-usurious interest rates from the
international capital market to settle their
domestic and international financial commit-
ments as they become due.
Jamaica has been in crisis for much of its
post-Independence history, which is why that
country has been forced to endure 15 loan pro-
grammes with the IMF since its independence
in 1962, borrowing funds for 16 of the 30 years
between 1984 and 2014, according to a Reuters
report in October, 2014.
T&T was in crisis at the end of 1986, when
the administration of George Chambers was
defeated by a landslide by the coalition led by
the late ANR Robinson. In December 1986,
T&T had run down its foreign reserves and
was unable to access US-dollar loans from
international lenders to settle the principal and
interest payments on its loans, which were due,
or were coming due.
Former Finance Minister, Wendell Mottley,
in his book Trinidad and Tobago Industrial
Policy 1959 to 2008 estimates that the total
capital expenditure by this country between
1974 and 1983 in developing the infrastructure
and funding the methanol, ammonia and iron
and steel plants at Point Lisas was US$3.3 billion,
a significant percentage of which would have
T&T was forced to enter into loan agreements
with the IMF and the World Bank in 1987 to
1989 period because no international bank
would lend the country the money to repay
the Point Lisas loans, which were "bunched"
in that period.
So, in an attempt to diversify the economy
away from its dependence on oil, the T&T State
adopted the role of entrepreneur (a chapter in
Mottley s book) and undertook a massive pro-
gramme of expenditure, partly funded by debt,
to build the Point Lisas Industrial Estate and
wholly owned ammonia, urea, methanol and
iron and steel plants (what was then called
ISCOTT) as well as the highway, electricity
supply and the port at Point Lisas.
That expenditure and that debt led the coun-
try into a crisis at the end of 1986, when com-
modity prices collapsed and the interest rates
on its loans increased.
If policymakers of today do not, or cannot,
learn from the mistakes of the past, then this
country is doomed to repeat the 1986 expe-
Models of development
In my view, the main lesson from 1986 is
the issue of ownership.
In its post-Independence history, T&T has
adopted several models of development:
1. The State as entrepreneur: As outlined
above, this meant the State borrowing
the money and making the equity investments
in 100-per cent-owned companies or in joint
ventures with foreign partners. This meant that
the State---which is simply a proxy the taxpay-
ers---was taking the risk of providing the equity
and borrowing large sums of money to develop
infrastructure and plants;
2. Foreign multinationals as entrepre-
neur: Large multinationals like Arcelor-
Mittal, Methanex, the Potash Corporation, BP,
Shell/BG, BHP and others invested in buying
or building plants in T&T. These companies
are driven by the profit motive and the risk and
rewards of ownership accrue to mostly foreign
shareholders, based in London, New York or
3. State as nanny: The Marxists and Trot-
skyites among us advocate a model of
state ownership of the commanding heights of
the economy (Point Lisas and Point Fortin),
not driven by the profit motive of returning
value to shareholders, but by a social motive,
in which the role of trade unions takes primacy
and workers receive double-digit wage increases,
with only lip service being paid to productiv-
ity.4. Ownership by locals: My model, as
stated on numerous occasions in this
space, is of local ownership of the commanding
heights of the economy, driven by the profit
motive with dividends and profits accruing to
local institutions and individuals and workers
encouraged to buy shares in companies so that
they share the risks and rewards of ownership.
In my view, for T&T to develop in the post-
energy future, its individuals and institutions
need to take on the responsibilities and risks
of owning much more of the plantation than
we currently do. This is not excluding foreigners
or the State (on behalf of the population) from
ownership, but simply to ensure that T&T indi-
viduals and institutions are the main owners.
And ownership needs to extend to beyond
• upstream: owning the source material
(which would mean owning an iron ore mine
in the case of ArcelorMittal);
• midstream: which would be owning the
plant and the value-adding companies and
• downstream: local ownership of the ships
that transport the product; the insurance, the
financing as well as the marketing of the pro-
duction and the marketing of the final product
and the market intelligence.
Owning the plantation is necessary but not
sufficient, as there is money to be made all
along the value chain and that money ought
to accrue to T&T individuals and institutions.
The closest that we as a nation have come
to this model of local ownership is in Lawrence
Duprey s ownership of the methanol complex
at Point Lisas.
Duprey was an example of mobilising the
T&T s savings to invest in the T&T s natural
gas. The mobilisation of T&T s savings as the
start-up capital for the diversification of the
T&T economy is absolutely necessary.
Duprey s problem was that he placed the
risk of ownership on mainly unsuspecting pol-
icyholders and not on eyes-wide-open share-
It is obviously better if the risks and rewards
of ownership accrue to willing shareholders
rather than unwilling policyholders or an inef-
ficient, nepotistic and inevitably corrupt State.
The perfect example of dysfunction in T&T
today is that we still export most of our high-
quality cocoa (raw material) to Europe and
Japan, where sugar is added to it and it is sold
back to us at exorbitant prices.
T&T needs to ask itself: why, in 2016, do we
still export our cocoa and import chocolates?
The answer, of course, is that our exchange
rate is grossly overvalued, which subsidises
imports and penalises exports.
To achieve this model, we need to diminish
the profits our corporate sector makes from
importing, marking up and selling to the local
market and, at the same time, increase the
profits from exports through adding-value to
local products and by owning the value chain.
B. Have we under-invested
in our future?
From my perusal of the 2015 Review of the
Economy document, T&T collected $100 billion
in energy taxes and royalties in the six years
between the 2010 and 2015 fiscal years (for the
period October 2009 to September 2015.)
T&T collected $15.733 billion in taxes and
royalties on the energy sector in the 2010 fiscal
year, $18.437 billion in the 2011 fiscal year,
$18.274 billion in the 2012 fiscal year, $17.150
billion in the 2013 fiscal year, $19.368 billion
in the 2014 fiscal year and $11.677 billion in
the 2015 fiscal year.
If the argument is that too much of that
$100 billion was spent on transfers and subsidies,
that is certainly correct (see Table above).
By my calculation, T&T spent $172.8 billion
on transfers and subsidies in the six-year period
under review, which would have been more
than half of the country s total expenditure,
according to the 2015 Review of the Economy.
But, in reviewing T&T s expenditure on
transfers and subsidies with a view to decreasing
it, it must be remembered that money spent
on transfers and subsidies improves the lives
of the population. Less money transferred to
the population will mean a lower standard of
living for a significant percentage of the pop-
Is T&T in crisis?
S&T percentage of
In millions of TT$
Source: 2015 Review of the Economy
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