Opinion
- Editorial
William Lucie-Smith:
The nouveau riche
The nouveau riche are people who quite literally
are "newly rich'' and have very little idea
of how to manage their new wealth. As a result they
usually make a vulgar display of their wealth and
do little or nothing to provide for the future.
We must all be familiar with rags to riches stories
and how often it returns to rags again.
Great
heavyweight champions like Jack Johnson and Joe
Louis had huge entourages in their prime but ended
their lives in poverty. When it comes to vulgar
excesses the modern crop of pop stars are good examples.
The tragedy is that very often the new riches are
not accompanied by the financial expertise to provide
for the future so it is all blown and none preserved
for their old age or future generations. As George
Best, Britain's most famous and well loved footballer
said on his deathbed: "I spent most of it on
booze and women, the rest I just squandered."
The
problem is that the source of wealth is often not
sustainable (one hit record or a sports career ending
by age 40). Even Michael Jackson is now apparently
broke.
Funnily
enough volatile revenues and profligate spending
are very much the circumstances of Trinidad and
Tobago in its energy booms.
Oil
prices from 1920 to the early 1970s remained under
US$5 a barrel. In the 1970s the boom started with
prices moving above US$15 in 1978 and peaking at
US $40 in 1980. By 1985 prices were back at US$12
and after a brief recovery to US$35 in 1990 collapsed
to US$8.
Trinidad
and Tobago did not manage the wealth of the oil
boom well. Far from saving some for a rainy day
government expenditure and public debt was increased
to unsustainable levels, and when energy prices
collapsed we were forced to go to the IMF for help.
I think we are all familiar with the pay cut public
servants were forced to take, the closure of State
enterprises and the retrenchment that followed.
Our currency also declined significantly from TT$2.40
to TT$5.75 for one US dollar. There were benefits
derived from the oil boom but in retrospect the
finances should have been much better handled. Of
course who expected energy prices to suddenly collapse
and who could have been prepared for that?
Managing
a volatile economy which is dominated by volatile
energy prices is no easy task. It is impossible
to predict future prices and difficult to be sure
of reserves or future production. In order to try
to prevent a repeat of the mistakes of the 1980s
Minister Brian Kuei Tung introduced the Stabilisation
Fund into which the revenues in excess of budget
were saved. Minister Yetming continued this and
recently a significant portion of the additional
TT$4 billion supplementary budget was to be placed
in the Heritage Fund.
At present there is no formal legislation to govern
the contributions to these funds and their investment
but it is to be hoped that we are able to build
such significant savings that in future the investment
income can sustain us during any energy price weakness.
The current size of these funds are a small percentage
of the annual recurrent expenditure budget and the
investment income is not yet significant. Kuwait
started their investment office in the 1950s (investing
10 per cent of their oil revenues) and by 2001 investment
income was over 19 per cent of GDP. Nevertheless
in 2001 the IMF were cautioning them about the level
of public expenditure.
At
present there are significant concerns that in its
understandable zeal to accelerate the development
process the Government is in fact overheating the
economy and not saving sufficiently in sterilised
(foreign currency) investments.
Expenditure is not producing the desired results
because of lack of resources and this is causing
major inflation. Too much money chasing too few
goods. The resulting inflation and wage demands
are already having a disruptive impact on price
levels and the exchange rate. Some believe Government
would be better off concentrating on the essentials
and saving much more of the surplus.
Certainly,
I am one who believes we are not getting full value
for our expenditure simply because we are spending
beyond our capacity to manage and not prioritising
properly. Like the nouveau riche. Can you imagine
paying off $27 million for a blimp then trading
it in at a $15 million loss weeks later to get another
one? Is this squandering or just bad judgment? Once
again money is not the problem but have we really
learned the lessons of the past?
William
Lucie-Smith
is Trinidad and Tobago citizen, Mr. Lucie-Smith
is the recently retired Senior Partner of PricewaterhouseCoopers.
Petroleumworld not necessarily share these views.
Editor's
Note: This commentary was published by The Trinidad
Express, on Monday, June 19th 2006, Petroleumworld
reprint this article in the interest of our readers.
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Petroleumworld
05 25 06
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© 2006 William Lucie-Smith/Trinidad Express.
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