Citizens can expect more hardship when Finance Minister Colm Imbert makes his mid-term presentation tomorrow. This from University of the West Indies economist and former government senator, Prof Patrick Watson, who says citizens should not expect Imbert to bring glad tidings in his eagerly awaited package.
Watson predicts that Trinidad and Tobago is in a dire situation and no matter what Imbert produces it is not something that would make us jump for joy.
Q: Dr Watson, what’s your wish, hope, expectation or the people’s expectation of the proposed mid-year report by the Minister of Finance?
I am not very hopeful about any good tidings and that has nothing to do with the competence of the minister, the ministry or anything like that. We are in a situation that is dire and it has largely to do with the price of oil and gas (energy sector) over which we have absolutely no control.
So I am anticipating certain adjustments and I understand it could be called a new budget…
Q: Technically, isn’t that what the man in the street would describe this presentation as?
Yes. And there may be a revision on the price of oil and gas, as we all know in recent times the price has been trending downwards and is now fluctuating somewhere within the thirties ($30s), but there is talk that we should not ignore that, it could go to the level of the twenties ($20s). So I am not…
Whatever the minister comes with, it is not going to be something that we are going to rejoice about... it is not something that is going to get us lower prices on food, lower prices on anything and it will not give us reassurance about the safety of the foreign exchange situation or anything like that. In my last discussion with you I hoped they would not touch the Heritage and Stabilisation Fund… I genuinely hope that remains intact.
Q: Dr, given your wide experience can you visualise the time when they would dip into that nest egg?
(Taking a deep inward breath) I never know what politicians can do… I am looking at what is happening and I am trying to make something of a prediction based on being pessimistic rather than optimistic because I think it is better in the circumstance…
Q: In other words you prefer to lower the expectation…?
Yes, on prices you are likely to get.. .that is only commonsense, right?
That is not rocket science so it is better in the context of where nothing is telling you that prices seem to rise in a spectacular way.
Q: Given that very little has been done by successive governments over the years with respect to diversifying the economy because of the over dependence on the energy sector, why couldn’t at least one of them realise the mistake they were making?
They all gave lip service to it eh? (Sardonic smile) but it is somewhat obvious and it is part of what the economists call the “resource curse”.
You have a source of revenue that brings in easy money to you, it is an effort to make something that would bring foreign exchange otherwise.
I’ll tell you what makes it worse; when you have this money coming in so easily there is always the tendency where that country’s own currency becomes over-valued.
Q: Break that down for us non-economists, please?
Okay. What do I mean by that?
I could purchase something in the US that is cheaper than it would be if my money were truly properly valued and as an example; the amount of money we take to buy one US dollar.
We are able to buy goods in the United States worth $1.60, or thereabout; when you are in a situation like that, diversification becomes a problem because if you diversify, the success of diversification is going to depend on you being able to export what you are selling.
Q: So if you have an overvalued dollar you are going to have grave difficulty going into a market under that condition?
Yes. Because if you are going to export and somebody could buy your goods for one US dollar but must pay the equivalent of $1.60 they are not going to buy it from you. It is also easier in that context for a retailer to simply buy a product in the US, bring it into Trinidad and Tobago and sell because there is no great effort and very commonsensical.
And to a very large extent, remember the figures released by our last governor of the Central Bank (a broad chuckle) and even quite recently a lot of millions were poured into the foreign exchange market.
Last night on the television you may have heard the Prime Minister saying he doesn’t know where it gone. And if I heard him well he said he is going to find out what has happened to this thing.
It seems to me he is suggesting that people are burying it… hoarding it and putting it elsewhere, which they are not entitled to. But mind you I am not saying that is the case I want to make that clear.
Q: So Dr Watson what is the end result of all of this if I may say, misdirected forward planning in the context of diversification which as you know is not something that materialises over night?
The end result is that all sectors of the economy, as we have seen happening here, do not earn foreign exchange except that one sector.
Now that is a bit of an exaggeration, but it is largely true to say what I have just said; the only true earner of foreign exchange in this country remains the oil sector, so anything you want to do, for example, you buy a television and sell it, and if that dollar is overvalued relative to what it can buy it is going to be a shoo-in for you.
Q: Dr I know that most of you scientists do not like to refer to spiritual connotations in your professional work, but isn’t it correct that oil has been a curse on this society based on where we are at today?
It is a curse, in fact the literature refers to it as the natural resource curse (chuckling again) and we are not the only country to suffer from it. Very few countries have avoided it; the one major exception has been Norway.
Now successive governments have a five-year term during which they must do well enough and seek re-election. Many if not all of these governments have fought to seek reelection by buying the votes and they do so based on the usage of the foreign exchange which contributes to a very large extent to hinder the diversification effort.
Q: Example?
Let’s look at CEPEP. No matter how they try to spin it, it remains an unproductive enterprise. Many of these people could be employed elsewhere, employers are not able to compete with CEPEP and the source of these people’s salary is (ultimately) the energy sector.
Q: Dr. Watson, would you recommend the removal of CEPEP as part of coming to grips with the diversification effort?
(Scratching the left side of his head and briefly staring at the ceiling) Well, I have to be very careful how I say that, eh? The only thing I could say is that I would have wished they never started it, or that it would have been implemented the way it was designed to be.
Unfortunately, CEPEP has become a profession. People who go there do it as a job but that was never meant to be so. The idea was that you would go in there learn a trade and leave for others to join and learn a lifetime skill. Not so today. So CEPEP in that sense has become a burden and it accounts now for roughly ten per cent of the employed population.