Finance Minister Colm Imbert said yesterday that the Trinidad and Tobago government was being urged to adopt a structural adjustment programme more than two decades after the oil-rich twin island republic ended a similar programme with the Washington-based International Monetary Fund (IMF).
“Indeed, 25 years after we got ourselves out of an IMF programme, we were advised to embrace the same old sterile measures from 1990, focused on contraction without due consideration of the short- and long-term adverse effects on our citizens,” Imbert told a Development Bank of Latin America (CAF) seminar at the Hilton Trinidad and Conference Centre.
Imbert, speaking on the theme, “Restructuring a Commodity Dependent Economy for Growth Without External Intervention” said the adverse effects of the IMF’s structural adjustment programme created the necessity for a wide-ranging programme of economic and financial reform in Trinidad and Tobago.
“For the most part, monetary policy was conducted within the framework of a stabilisation programme, whose main focus was on restricting domestic demand and restoring external balance. However, the decline in government expenditure and in real wages, created considerable social and economic pressure especially among the most vulnerable income groups in the society.”
Imbert said this period of economic austerity also had a profound impact on the fortunes of some non-bank financial institutions and the Central Bank suspended the operations of three such institutions which ran into financial difficulties.
The finance minister said that by 1991, the economy began to respond to the stabilisation measures and to show signs of a recovery.
“For the next ten years, from 1991 to 2001, there was slow growth, followed by a tripling of our GDP (gross domestic product) between 2001 and 2008 as both our energy and non-energy sectors took off, as commodity prices skyrocketed.”
But Imbert said that in 2015, when the present Keith Rowley administration came to power, oil prices were again dropping “like a stone, gas production was on the decline and gas prices were depressed, sending our economy into turmoil”.
Imbert said over the years, several missions from the IMF had conducted their own in-depth review of the local economy whose reports were shared with major stakeholder groups.
The finance minister said the country also benefited from a visit by an IMF technical team that came here soon after 2015 and that many of the proposals from the various interest groups, organisations and experts had a common theme including implementing a property tax system; expanding the tax base; increasing tax collection as well as increasing personal income tax and corporate tax.
But he said Trinidad and Tobago would not implement the measures as had been recommended by the IMF, noting that “blind adherence to this severe model of structural adjustment at the expense of our human capital was not a road that we wished to travel again.
“While understanding the lessons of the past, we focused on our future, and carefully reviewed all of these proposals. Some, but not all of them, were found to be appropriate, fair and equitable, and were included in our first fiscal consolidation packages in 2016 and 2017.”
But Imbert said the economy was in an even more perilous state than was initially envisaged, adding “although our economy was basically flat over the 2010-2015 period, with just a two per cent overall increase in real GDP over that period, the previous government had grown government expenditure to unsustainable levels, from $46 billion in 2010…to $63 billion in 2014”.
But Imbert insisted despite this economic situation “we chose not to return to the IMF for financial assistance”.
“We had had enough of that. We chose a different path. We immediately embarked on reducing government expenditure to what we felt were manageable levels, from $63 billion, to $52 billion in the first year, and eventually down to $50 billion by 2018. It may sound facetious, but we were able to do this by cutting out waste, mismanagement and inflated costs, also known as corruption.”
Imbert said the new government also chose not to reduce the size of the public service and to pay public sector salaries on time, despite being faced with a huge backpay bill of almost $6 billion.
“We did increase some taxes, notably taxes on wealthy corporations, such as banks, and taxes on imported motor cars, and we increased the royalty rate on oil and natural gas.
“We also decided that it was time to reduce the fuel subsidy, which had reached as high as US$1 billion per year, a sum that we could no longer afford as a country…”.
Imbert said consistent with the Government’s fiscal and monetary policy, and against advice from the IMF and local pundits, “we also resisted the temptation to drastically devalue the Trinidad and Tobago dollar”.