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Mariano sweats under inflation probe

By SEAN DOUGLAS Friday, March 14 2008

click on pic to zoom in
Minister in the Ministry of Finance Mariano Browne....
Minister in the Ministry of Finance Mariano Browne....

MINISTER in the Ministry of Finance Mariano Browne denied that removing the $2 billion gasoline-subsidy would aggravate inflation which currently stands at ten percent. Browne was answering reporters’ questions at yesterday’s post-Cabinet news conference at Whitehall which became heated.

Considering that hiking gasoline-prices would raise the price of practically all goods and services, which must be transported, Newsday asked Browne, “Isn’t it an act of madness to remove the gas subsidy when inflation is around ten percent”.

He said subsidies created something known as “disequilibrium incentives” in the marketplace, whereby cheap gasoline would encourage traffic-jams rather than carpooling. Newsday asked the question again, wouldn’t a gasoline price-hike push up prices. He denied this.

“Let us reverse that proposition. Inflation is a concern we all have at this stage and we are already saying the price of food has started to rise and the gas-subsidy has not been removed. So removal of the gas-subsidy is not the issue in this particular fashion. There are other things that are taking place in the economy”.

This reporter then retorted that cutting the subsidy was simply adding fuel to the inflationary fire.

Browne replied: “The economy is approximately $136 billion, the non-oil economy is approximately $76 billion. The fuel-subsidy is approximately $2 billion and that is differential in terms of how it is spread across. Therefore we are talking ‘two’ as a percentage of ‘76’ – it is a little on the low side”.

Newsday replied that the effect of a fuel-hike would be much greater, saying, “But it is a cumulative spiral, if everybody puts up their price by $5 per day...” Browne cut in by saying: “The price-rises would bear no relation to the percentage-removal of the gas-subsidy”.

Newsday retorted that the inflationary effect would in fact be a magnified figure much greater than the proportionate rise in the gasoline-hike, because everybody in the country would each be raising their price to match the fuel-hike.

Browne then talked about agriculture and subsidies saying: “Government has over the last two or three years directed a number of subsidies towards the agricultural sector. Those subsidies are in position and there are substantial subsidies for the purchase of rolling-stock of vehicles. At the same token markets send signals.”“If the price of food is rising it’s a good signal to the farmer that we need more food and need to grow more and become more productive, and that’s how economies operate. In this particular signal we need more food and it is clear the two issues in this part of the century are water and food,” Browne said.

“All newspaper reports are that demand has started to outstrip production of food and that being the case there is a clear incentive for more resources to be devoted to the production of food. Those incentives are clearly in position, the market is sending that signal and the Government has tried to support that by ensuring there are adequate subsidies to address that”.

Newsday told Browne that he had not answered the question and when this reporter tried to press the matter, I was cut off by moderator, Minister of Information Neil Parsanlal. Browne shot to Newsday: “I can’t help it if you don’t understand economics. I think you need to understand and read a little bit more about economics so you can understand what I said to you”.

At this stage, mysteriously, the microphone set up for this reporter went dead. In the meantime, Browne continued with his statements, fielding questions from other reporters.

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