Home' Trinidad and Tobago Guardian : July 10th 2014 Contents JULY 2014 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
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What does a deficit budget mean? What
is the significance of four years of
increasing budget deficits mean? How
can we discover the total national debt
accumulated after all these years of
budget deficits since the present gov-
ernment came to power, when all we are told is that the deficit
is "a small percentage of GDP". And why, when mentioning
deficits, aren t we assured that all the guarantees of debts of
state-owned enterprises are included in national debt ?
Why do we have a budget deficit at all?
As has been pointed out before by Guardian s chief editor,
business, Anthony Wilson, successive years of budget deficits
seem to be doing nothing to stimulate the economy. The state
of the economy is considered depressed since the 2008 inter-
national financial meltdown. Economists and financial gurus
pontificate that such stimulus spending will cause the economy
to mysteriously accelerate and take off.
I am not an economist or financial guru, but I m very con-
cerned that we are being conned year after year by a government
hell bent on staying in power at any cost. The recent obscenity
of the pensions and salaries debate gives a clear indication that
these MPs, ministers, and senators are in it for the love of
personal money and we can t expect the national economy to
be steered in any direction other than that which personally
benefits the sitting members. As for the government in power,
they have put the excesses of the Panday years into the shadows.
We thought that a $1.2 billion airport building was bad then!
How on earth can anyone justify an extra $3.8 billion taking
the budget up to $63 billion?
First, let me say that stating debt in terms of gross domestic
product (GDP), without ever stating what GDP actually is,
results in rather useless information. It is done in order to avoid
stating what the debt has built up to over the years. The occa-
sional remark that we have retired some debt over the year
does not help. We need to know what the total national debt
is and how and when it will be repaid. The fact that other
countries have greater debt-to-GDP ratios does not help, or
the fact that these other countries still borrow. It is quite
obvious that countries like United Kingdom, the United States,
and Europe have accumulated debt so large, it can never be
repaid and they have to borrow or print money in order to pay
the interest. Do we want to be like them?
Then consider borrowing money to stimulate the economy.
How is the economy stimulated by spending $7 billion on a
highway to Point Fortin, or building an Aquatic Centre in Couva
or Tobago? Consider the cost of these versus the recurrent
maintenance budget created and any imaginary income that
results. It is clear that these flows of state funds (our funds!)
are all one way, and apart from some contractors getting rich
(if they get paid), the effect on the economy is negative.
The PNM government was thrown out for excessive spending
on glamour projects, but was replaced by a government that
has increased budgeted expenditure every year and borrowings
way above the levels set by PNM budgets. And while they
increase spending and borrowing, they forego obvious sources
of revenue, like land and building tax and removing fuel subsidies,
then maintain Cepep, URP, the criminal-ridden LIfeSport,
hampers,and numerous other giveaways.
And what about our ability to repay national debt, or, in
other words, our revenue expectations? Well, this, too, is
negative. We as a nation are totally dependent on the revenues
from oil and gas sales.
This is not just the 45 per cent or so of revenues that gov-
ernment claims is raised by oil taxes, but all the jobs, salaries,
services, contracts, etc, that relate to the hydrocarbon industry.
And then all the businesses, like shops, restaurants, house
rentals, etc, that feed off these salaries. If oil or gas prices, or
volumes collapse our economy collapses with them.
Our oil and gas production is collapsing. This is because we
have built more gas plants than our reserves can support. We
have been essentially on a plateau rate of gas production since
2007. Our proven reserves have been declining since somewhere
around 2003, despite several discoveries since then. We just
produce gas faster than additional reserves can be found or
proven and brought to market.
The Ministry of Energy keeps putting out stories about
offshore maintenance being the problem, but the resumption
of full production keeps being delayed. During this prolonged
delay the producing reserves continue to decline so whenever
the maintenance is complete we never get back to where we
were. We can give out all the deep water leases we like and
sound our trumpets and produce all the glossy Web sites
featuring Energy Minister Kevin Ramnarine visiting offshore
sites, but I m afraid the gas decline is setting in and will stay
So we are now in a position where recurrent spending is
rising, capital spending is on waste-of-time projects (like the
Galeota and La Brea ports), revenues are falling, GDP is falling,
national debt is going up into space and ability to repay existing
debt is fast disappearing.
At the same time, the Government is still talking nonsense
about more foreign direct investment in more gas consuming
projects and fantasy parks at Piarco.
I don t call this good governance.
Most economics textbooks start off with the basic economic
problem -- that there are limited resources but unlimited
demands for resources. In other words, there is a need for a
system of allocating the scarce resources to persons truly in
need of them. The two dominant approaches to this, of course,
are Capitalism -- allowing enterprises and free markets to
allocate resources according to Adam Smith and others -- and
Communism -- allowing central planning or the allocation of
resources based on perceived needs, espoused by Karl Marx
Of predatory lending and other injustices
Growing up, I couldn t help but agree with the principles
of capitalism that businesses succeeding or failing led to
resources being put towards the needs or demands of consumers
in the most efficient way -- as if by an invisible hand.
On seeing the reality in the business world, however, the
shady side of capitalism and its imperfections became very
A simple act of a bank giving a loan to a consumer seems
harmless enough. However, a loan is a simple mathematical
equation made complex by bankers never providing amortisation
schedules which actually agree to the balance of the loan at
any point in time. The banks point to the fine print and say
that the reason for this is that their system that amortises the
loan uses different parameters from the system that produces
the amortisation -- which is usually a Microsoft excel template.
The problem, however, is that loan amortisations are an exact
science and any duplicity comes close to being the perpetration
of a fraud.
As another example, I have complained in the past about
the practice by many insurance and financial institutions of
allocating client funds to a suspense account and not providing
statements. Surely, any institution with fiduciary responsibilities
owes it to their customers to do better than that. Yet, up to
last month I was told that a particular bank account opened
did not provide statements.
So while Dr. Morgan Job argues for capitalism and trade
unions argue against it, what we really need are advocates of
measures to curb the effects of market imperfections such as
those above. Michael Moore s Capitalism -- a love story - goes
into detail about predatory lending and other injustices.
In our small economy, it is important that we construct
laws relevant to our reality to deal with situations such as
insider trading and anti-competitive behavior rather than a
"copy and paste" approach, which leads to excessive admin-
istrative burdens which have a dampening effect. There are
so many options which have the potential to transform our
economy in a positive way by stimulating entrepreneurship
and sustainable growth. Instead, we are standing by and asking
foreign firms to invest more.
The shady side of capitalism
Increasing deficit is not good governance
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