Home' Trinidad and Tobago Guardian : April 14th 2016 Contents BG6 NEWS
BUSINESS GUARDIAN www.guardian.co.tt APRIL 14 • 2016
"Good economics has to deal with the con-
ditions under which people live."
This quote, attributed to Nobel
laureate Amartya Sen, has been
the inspiration for Karl
Theodore s professional life.
Prof---as he is affectionately
referred to by colleagues---has
had a career distinguished by decades of eco-
nomic research with rigorous application to
the Caribbean context.
Known for his calm demeanour, calculated
speech and trademark beard---perhaps an ode
to Karl Marx---Prof Theodore is motivated by
what he perceives as the economic realities
facing T&T. As the director of the health eco-
nomics unit at the University of The West
Indies, St Augustine, and member of the Eco-
nomic Development Advisory Board, he sits
in a unique position of policy influence at a
time of adjustment in T&T.
In an exclusive, wide-ranging interview with
the Business Guardian, Theodore examines
where the country s economy is today, the
role of public finance and why it can no longer
be "business as usual."
Where we are today
The economic landscape in T&T today,
according to Theodore, is a reflection of factors
within and outside of the country s control.
"There are three critical questions that each
of us need to ask ourselves. First, what brought
us to the situation we are in today? Second,
what are we likely to see happening given the
situation we are in? And, finally, what should
we do about it?
"If we examine these questions we will see
there are two sets of causes that have brought
us to this point, causes beyond our control
and causes linked to the choices that collec-
tively we have made.
"The causes beyond our control will include
the decline in both the price and output of
our energy commodities, particularly oil and
gas. The choices cause is our tradition of
behaving as if oil prices will never fall and, as
a result, linking our day-to-day living with
the flow of revenue from the energy sector
products. So, where we are today is really a
combination of all these factors."
1980's déjà vu?
Theodore believes the conditions that existed
in the 1980s are likely taking root in T&T at
this time with a few notable differences.
"During the events of the last significant
downturn in the economy (1982-1992) we saw
a 25 per cent decline in fiscal revenue and a
doubling of the unemployment rate in five
years, from 11 per cent in 1982 to 22 per cent
in 1987. Since the collapse in revenue this time
is certainly greater than 25 per cent, we should
expect a doubling of the unemployment rate
Focusing on the unemployment situation,
he said: "While the measured unemployment
rate today is roughly five per cent, my sense
is that there is at least 2.5 to 3 per cent disguised
unemployment---where part of the labour force
is working in a redundant manner and worker
productivity is essentially zero---putting the
effective rate of unemployment today closer
to 7.5 per cent. If this doubles in the next five
years, this will take us close to 15 per cent."
Theodore was quick to point out, however,
that his outlook is not cast in stone.
"All economic projections are conditional.
When we say we are heading for 15 per cent
unemployment, the assumption is that we
will follow an adjustment similar to the last
recession. If we move more quickly to get
growth and revenue generation restarted we
could avoid reaching the forecast 15 per cent
Noting that the Heritage and Stabilisation
Fund provided an economic buffer of sorts,
Theodore said the quantum and mechanism
of the fund will only offer muted results.
"To concentrate on stabilisation or correcting
the fiscal deficit alone will be a mistake."
Can we afford our
Theodore s solid assessment is that T&T s
lifestyle choices are economically unsustain-
"If you know you re in a situation where
certain things might happen, like a drop in
energy revenue, then you take certain precau-
tions so that if it happens it s not going to hit
you very hard. We decided to look at these
energy revenues as income that was supposed
to give us all the nice things that we wanted
now. It means then that we linked our current
lifestyle with the flow of those revenues. This
is obviously not sustainable because any fall
in those revenues places you in an extremely
"No one likes to be told they are living above
their means, and certainly I am not saying
that, as a nation, we should be denied nice
things but, as a nation, our expenditure patterns
cannot be sustained at this level given the
inherent vulnerabilities associated with an
Role of public finance
Both on the expenditure and revenue side,
T&T s fiscal policy is at a major crossroads,
"The Government has told us they plan to
introduce a general accounting office. Given
the high levels of expenditure across several
ministries and state enterprises, we need some
sort of institution to monitor whether we, as
a society, are getting value for our money. We
need an institution to tell us if we are spending
what we should, or spending too much, and
the areas where our spending is producing
results or not producing results. If this is what
the general accounting office will do, I am
totally in support of it.
"On the revenue side, the implementation
of a revenue authority is a foregone conclusion.
Everywhere in the world where revenue author-
ities have been implemented, fiscal revenue
not only grew, but the entire system of col-
lection improved tremendously. Revenue
authorities have been a plus where ever they
have been established. The systems we have
now are riddled with inefficiencies that both
a general accounting office and revenue author-
ity are designed to eliminate."
Given the structure of the domestic econ-
omy, Theodore believes applying economic
theory on devaluation is not a straight-forward
"In theory, devaluation is supposed to make
your exports cheaper and your imports more
expensive. However, the bulk of our exports
come from the energy sector with commodity
prices out of our control and as such, a deval-
uation of the currency would not necessarily
"One has to remember as well that in the
non-energy sector, much of what we export
also has a high import content. So again, what
needs to take place now is that we need to
create higher value-added products for export
and create, as Lloyd Best used to say, a greater
internal dynamic that fosters import displace-
Referring to economist Arthur Lewis,
Theodore said: "Lewis always maintained that
the way to earn higher income from your
exports is by having a high skill content in
your products. Therefore, the quality of the
labour embedded in the products you are
exporting has to be at a high level to drive
growing levels of foreign exchange earnings."
Economic diversification always seems to
capture national attention in a time of declining
oil and gas earnings. Theodore said for diver-
sification to be achieved, the main precondition
must be a shifting on the national psyche.
"In the context of T&T, diversification is
first and foremost a mental and psychological
imperative," he explained. "The country as a
whole, not just government, but labour, busi-
nesses and households as well, has to make
up its mind to give up its traditional depend-
ence on energy revenues. This will mean,
among other things, looking at our natural
resources in a different way."
Theodore believes T&T has potential for
successful economic diversification.
"We need to get more focused on getting
a foothold in the nearby 500 million Latin
American market and on developing the niche
markets we have been talking about for so
long. We also have a few cultural products
which we can put on the front burner and we
also have an International Financial Centre
which could be a potential game changer in
Adjustment will take time
Untangling the knots of T&T s economic
reality will not happen overnight.
"It will be unlikely that any of the effects
we want will be seen in under two years and,
in most cases, we may be talking about four
to five years. The obvious complication here
will be the elections that will become due
most likely before the major effects aimed at
Political will is required, he said.
"Hopefully, the Government and the Oppo-
sition will agree on some basics about the
adjustments necessary so the losses that might
be incurred by policy discontinuity will not
---Reporting by Andre Worrell
Theodore on T&T's economy:
It can't be business as usual
first and foremost
a mental and
country, as a
whole, has to make
up its mind to give
up its traditional
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