Now that some of the developed countries are coming to grips with the Covid-19 pandemic via vaccination, the world economy is beginning to show some activity. Some commodities are increasing in price and the massive spending the US has put in place to revive its economy, as in other places, is creating the fear of economic revival with inflation. Commentators in T&T, in recognition of the global recovery and the continuing vaccination of our population, are looking forward to the revival of the local economy. But they are wondering how is it going to be accomplished given the many who are without jobs, companies that have shut their doors and others in need of financial help.
One commentator is calling for government funding of both the private sector firms and their employees. This is akin to the Friedman-Bernanke “helicopter money”, falling freely as if it were from the sky, to stimulate the economic recovery.
One columnist acknowledged that business revival and economic viability serve the social good; jobs are provided as consumer demand develops, hence businesses are in need of help from the Government to procure debt or equity, as the traditional entrepreneurs transform into import substitution and exports; public/private partnerships are seen as an option.
Unfortunately, this Government is claiming it is out of financial resources and all that is left is for it to increase its debt—at near 90 per cent of GDP at present—while it still has a good international credit rating.
What is being ignored is that before Covid-19 our economy was already in a prolonged recession due to our inability to earn foreign exchange from the energy and petrochemical sectors—due to our declining gas production, high gas upstream prices and low global petroleum product prices. Hence, there were budget deficits even before the pandemic, with a decrease in foreign exchange reserves that escalated into the use of the Heritage and Stabilisation Fund (HSF) under the twin impact of the recession and the pandemic.
When we emerge from the pandemic the recession will still be with us (though the oil price has improved a bit). Together with some banks and financial houses refusing to give loans to develop petroleum assets, we see the US is restricting drilling in the Arctic, and even oil majors themselves are backing away from further investment in the industry.
BP, the major operator in T&T, is talking about cutting back on investment in the industry (it is also supplying T&TEC with solar energy), though it has not specifically said it will reduce its activity in petroleum locally. However, as the hard hit petroleum industry emerges from the pandemic it is expected that capital expenditure will increase some.
Whether we use debt, our reserves or encourage the business sector to use the liquidity in the local banking system, our fundamental problem is to reconstruct the local economy so that it creates new competitive exports that earn the foreign exchange to pay for at least the necessary imports.
Though we talk about import substitution it is clear that we just cannot produce locally all that we need to survive.
Recently I saw panellists at a virtual conference of the World Economic Forum calling for such economic development to be driven by the private sector with Government playing a supporting role of providing a facilitating environment.
Indeed, Chile was made out to be the showpiece of the market, building its globally competitive economy. However, a recent article debunked this view by demonstrating the deep involvement of its government in the major sectors of the economy.
For many decades my articles have expounded the view for such government involvement, moreso taking the lead in the reconstruction of the economy via what is called in the literature a variant of the Triple Helix.
In so doing one of the very important factors in the creation and sustaining the Helix will be financing, especially since the related companies’ global advantages will be innovation that has to be funded through research and development. Yet we see our local conglomerates in this crisis expanding their investments by, for example, acquiring local existing drug distribution/retail companies, an energy equipment and service company and even investment in a Mode 3 company in renewable energy in the Dominican Republic; none of these contributed to the creation of an export sector that also provides local jobs.
Still, it is very interesting to note a comment by the chairman of the HSF, Ewart Williams, on the use of that fund. To date the fund stands on its own with legislation as to its use. Williams is suggesting that it becomes a fiscal asset, an earning resource that can also be utilised to build the economy. Hence the HSF can fund the new economy, the exporting resource.
As I have also recommended, as has Dr Terrence Farrell (when he was chairman of the EADB), the fund (or its returns) can be used to reconstruct the economy, a proposal which the Government has rejected.
—Mary King is an economist