Economic issues facing TT

Finance Minister Colm Imbert recently hinted that he was looking at prioritising the use of foreign exchange (forex). When one considers our relatively small US$ reserves (about US$14.86 billion — US$9.40 billion in official reserves of roughly ten months import cover plus US$5.46 billion in the Heritage and Stabilisation Fund), our high propensity for imported goods and services and collapse of oil and gas prices (loss of 90 per cent of revenues over the last two years), the availability and the purposes for which forex is used become a national concern and the Government ought to intervene in the distribution of forex in the country’s interest.

The alternatives of devaluation and letting the free market determine the exchange rate (free floating the TT dollar) will fuel inflation, increase the cost of living and perhaps send signals of economic instability and further erode waning confidence in the economy. We have some forex buffer, so let’s be prudent in using it.

The problem, however, with letting the Government, rather than the free market, allocate the use of forex or for that matter any scarce commodity, good or service is that there is bound to be dissatisfaction about the priority in the allocation.

For instance, I don’t understand why the minister should give priority to manufacturers. I am not in any way minimising the contribution of the manufacturing sector to our economy, but aren’t manufacturers who export earning their forex? Why, therefore, give them preference? Maybe I am missing something here.

I am raising the matter of the availability of adequate forex in the context of yet another call, this time from the CEO of the Unicomer Group, parent company of Courts, to address not only this issue, but also the availability of properties to expand.

Instead of telling his TT audience what a good corporate citizen Courts is and how its business is a net benefit to our country, he chose to bellyache.

As far as diversification is concerned, there is the vague, vacuous and interminable discussion by some economists and commentators that “we” should diversify our economy.

The economic imperative for TT is diversification; no doubt about that. But who exactly is the “we” that is being referred to? Is the “we” the Government, individual citizens or businesses? Some countries, which we are told we should emulate, such as South Korea, Taiwan and Singapore, were considered poor only a few decades ago, but have economies today that are thriving.

Contrary to popular myth, their success isn’t due to a sophisticated combination of governmental wisdom and economic planning, supplemented by loans and foreign aid from advanced countries.

It’s due to individual self-interest and to government policies that allow people to engage in economic activities for the purpose of bettering their condition.

This is perhaps the fundamental lesson to be learned from countries that have successfully diversified and developed their economies.

In terms of government debt and budget deficit, there is much alarmist talk characterised by disciplinary myopia implying that the debt and deficit are harmful. Of course there are legitimate concerns: the public debt as a percentage of GDP should not rise for a prolonged period and interest payments on the debt remain a small percentage of GDP.

Critics also contend that borrowed funds are being channelled into hand-to-mouth consumption through government salaries, subsidies and transfer payments rather than used to augment the economy’s productive capacity. But one must be cognizant of the fact that fiscal policy is created in the political arena which complicates its use in stabilising the economy.

Government spending is somebody’s income.

Cutting spending means hurting someone, which politicians are hesitant to do, especially if those affected are the politicians’ constituents and supporters.

The deficit could also be cut by raising taxes, but that means less private spending and angry taxpayers — not an easy political solution.

My hope is that commentators be more incisive in their commentaries so that citizens can be more accurately informed and become more interested in the economic issues facing the country.

Bhagiratty Boodhan Avocat