SOME commentators have publicly denounced Minister of Finance Colm Imbert (and, by extension, the Government) for the handling of the current recession, initiated by both the externalities of low petroleum product prices and the local reduction in natural gas production together with its increased upstream price.
The negative result of these circumstances has been exacerbated by the destructive impact of Covid-19 on both the local and international supply/demand value chains.
The minister has been criticised for the increase in our debt (now of the order of 80 per cent of GDP); his failure to correctly predict the income to Trinidad and Tobago, the (stabilisation) withdrawals from the Heritage and Stabilisation Fund (though the return on the international investment of this fund has restored its value); the decrease in the foreign reserves, even the failure to facilitate new drilling in the energy sector and the stubborn refusal to devalue the TT$ to curb the demand for imports (which many doubt), for foreign exchange. In a normal economic bust the traditional government response is to cut spending, so much so that there is a call now for the reduction in size of the public service and the reduction in subsidies— increase in utility rates—to reduce the resources available for discretionary consumption in the economy.
Together with the critique on the handling of the current economic recession, there have been some negative comments regarding the reconstruction/diversification of the economy. For example, the minister is blamed for not moving quickly enough to transform the economy or to put the country on the path to sustainability; the country is running out of fiscal space to make the required change to the structure of its economy; and more so, how do we develop and transform this economy and maximise its growth? The lament is also that no real fiscal policy exists that is driving economic growth and development and there has been no attempt to implement the Roadmap to Recovery report.
These criticisms make it clear that together with the alleged mishandling of the current economic problems of the recession and Covid-19, there is deep concern that the transformation/reconstruction of the economy is not getting the attention it deserves by the Government. This could give the impression that over the years there were no attempts by the Government to diversify/transform the economy. We have been unable to diversify/transform our economy for one simple reason.
Though some of us may have defined the dynamics of our present economy, no attempt really has been made to identify the constraints to its adaptation or put in place the required adaptive controls. Briefly, we have identified it as plantation where the onshore economy, as Dr Farrell reminds us, depends on, and is not completely independent of, the energy sector rents. Hence the onshore economy is about growth driven by consumption, about imports and spending of these rents and not about savings and producing wealth—so the complaints that we have saved little of the energy sector rents misunderstands the model of the onshore economy.
The reconstruction of our economy towards wealth generation and growth will depend on the integrated use of three factors; capital, labour and the third and most important, Total Productivity Factor (so called by Cobb-Douglas) or the Solow Residual. This last factor is affected by a huge variety of technological, economic and cultural inputs that include innovation, investment in more economic productive policies/visions and good leadership in particular. Indeed Prof Solow talks about the third factor as the economic growth that cannot be attributed to the accumulation of capital or labour. Indeed Prof John Foster also tells us that the players in the economy because of their history (in our case the plantation) could become rigid and unable to adapt to this new economic model.
However, Prime Minister Mia Mottley puts it best. She quoted our Peter Minshall as saying we are incapable of adapting, of being highly creative, because of our self-contempt. Ms Mottley on her part says it is a lack of cultural confidence (to try a moon-shot?) ingrained in our psyche because of our colonial plantation history. Still, she sees it is possible for us to change, to change and become disruptive innovative as Prof Anthony Clayton recommends.
• Mary King is an economist