Manning's BLING

Prime Minister Patrick Manning has been warned not to give in to the temptation of reckless spending to please the masses, particularly in the run up to a general elections.

He is also being urged to spend wisely — and save.

These were among the main conclusions that came during a panel discussion hosted last week by the Trinidad and Tobago Manufacturers’ Association (TTMA).

Panellists — former Central Bank governor Winston Dookeran, former finance minister Wendell Mottley, Senior Economist at Republic Bank, Dr. Ronald Ramkissoon and Managing Director of RBTT Merchant Bank Lydon Guiseppi — all agreed that most of the macro-economic indicators were good but cautioned against the bogey of overspending.

They raised concerns about continuing poverty levels, high inflation rate, not learning the major lessons of the 70s and 80s when the country experienced economic depressions and not enough savings.

Mottley, a former Finance Minister, urged government not to give in to the temptation of spending money recklessly, as was done before, and cautioned restraint.

He noted that between 1973-1983, revenues increased by 1,259 percent while expenditure kept pace rising by 1,193 percent. The big expenditure increases were wages and salaries, subsidies and transfer payments. The capital development programme increased by a modest 111 percent.

“The government knew what had to be done in the country’s interest but it was under serious pressure to maintain the spending,” said Mottley, now a visiting fellow at the Centre for Global Development, a US think tank.

In the current period, government subsidy on gasoline has moved from TT$450 million in 2000 to TT$1.66 billion in 2005 and will reach TT$2 billion at the end of the year.

Mottley predicts “riot in the place” if government moves to dampen the gasoline subsidy.

Questioning the political incentive for fiscal restraint by the Manning government particularly in the face of up-coming general elections, Mottley illustrated Jamaica as a case in point of what the Trinidad and Tobago government should not do.

“Jamaica has consistently done this. Jamaica has run properly for four years and just before election, reverse everything, mash up the place and then start from scratch all over again consistently and you see the end result,” said the former finance minister.

On Jamaica he said, “There is an edginess, a feeling of the society on the edge, out of control, where it’s every man for himself.”

On the issue of the Heritage Fund, Mottley said for the Fund “to happen”, government must see beyond its political benefit.

Mottley noted other countries have set up similar funds for the long term benefit of their populations.

Looking at the per capita investment (dividing the investment in the fund by population), he said the per capita investment of the Alberta fund in Canada was US$4,000; Alaska- US$38,500; Norway — US$32,600, Abu Dhabi — US$500,000 while the Heritage Fund in Trinidad was a mere US$695. “We are under-investing in these funds and that is of concern in management and looking forward into the future,” said Mottley of the heritage fund

Days before, Prime Minister Manning told an audience at the opening of an International Conference on Business, Banking and Finance., which included deputy managing director of the International Monetary Fund (IMF) Agustin Carstens, that his government has been saving the surplus energy income.

In the last fiscal year, he said TT achieved an overall surplus of five percent of GDP and transferred some TTB$2.5 to the energy fund. He also talked about the massive construction of buildings and roads that were taking place in the country, along with unprecedented investments in the energy sector.

TTMA’s Quesnel said while the economic picture appears quite rosy from the outside, he warned that we cannot afford to make the mistakes of the early 1970s, when high oil prices led the economic growth. Then the bottom dropped out. Negative growth peaked in 1984 when the economy contracted by nearly 11 percent.

“Are we doing anything different today than we did 20 years ago?” he asked.

Quesnel said because of the number of massive construction projects currently underway in the country, there’s high demand for imports, prompting commercial banks to ration supplies of foreign exchange.

He also lamented the rising cost of food prices. Harping on his “illusion of an affluence” theme, former Central Bank Governor Dookeran noted that poverty is rising, real income levels falling, local production of food in decline and the overall cost of doing business increasing.

Although the country’s macro financial indicators were sound, Dookeran, also political leader of the UNC, said the country was experiencing rising interest rates, persistent inflation, exchange rate realignment and a rising gap in the domestic budget deficit.

He described the government- led construction boom as “an archaic concept of development” since it was not towards building a diversified economy that will be sufficiently resilient in the downturn of energy prices or after the depletion of hydrocarbon resources.

With substantial resources at its disposal, Dookeran said the government should proceed with a well articulated economic reform programme and towards aggressively constructing a new economy. This country, he said, should be using the windfall energy income to become a globally competitive, technology-driven and diversified economy that will sustain full employment and prosperity.

Senior economist at Republic Bank, Dr. Ramkissoon noted that government’s policy to the present economic windfall was to put some into savings as well as massive expenditures in housing, roads and job creation.

“What is missing?” he asked. He said there is need for stock-taking and a cost/benefit approach to rapid expansion and to recognise that there are trade-offs,” he said. “If we spend as if there is no tomorrow, there is a cost to that and while we may have good intentions, it can back-fire on us,” he warned.

In his presentation, RBTT’s Guiseppi said there is still a lot of work to be done. What the country was experiencing with its energy wealth was nothing new or novel but that some countries such as Norway took good decisions and choices while others such as Venezuela and Nigeria did not, he said.

He also agreed with Dookeran that there was an illusion of wealth and said despite all the good sounding economic figures from the Central Bank, there were underlying difficulties.