Opinion
- Editorial- Commentary
Ronald Sanders
:
Caribbean lessons from 2008
According to our Government, the current global economic problems came like a thief in the night and up to Budget day in September 2008 there were no indications that such trouble was at hand. Michael Harris in his Express column, "Actions speak louder than words" (November 24) says:
"This is of course blatantly untrue. By the end of September 2008 crude oil prices had plummeted from their high of US$146/bbl in July to US$$90/bbl, a drop of some 36 per cent.
In fact as early as September 5, 2008, the UN Conference on Trade and Development (UNCTAD) had issued a report which stated inter alia "the global economy is tottering on the brink of recession. The downturn is due to the financial crises in the US, to the bursting of the housing bubble in the US and other economies, soaring commodity prices, increasing monetary policies in a number of countries and stock market volatility."
But surely even earlier the global economy was reacting to a fundamental constraint on the supply of oil and given its inelasticity of demand in a growing world economy, with increasing demand from India and China, we were set for rapid increases in energy prices. With the move towards alternative energy - particularly ethanol that drove up food prices - and increases in prices of other commodities (copper, steel, petrochemicals etc) it was only a matter of time before something spectacular happened.
The world's largest user of energy, the US, began to destroy its energy demand, followed by the rest of the world, fuelling oil price decay. The GDP growth of the developed world began to lag behind that of the emerging economies. The coup de grace came with the collapse of the international financial system because of the greed of Wall Street and its worldwide cohorts in an unregulated financial environment. All of this while our Government slumbered, expecting the energy sector revenues to keep on flowing even with the rapid climb down of oil from US$147/bbl and natural gas from US$13/mmBtu.
Somewhat belatedly we hear the Prime Minister's call to arms - we will fight the recession. However, a Minister of Finance (as did the Minister of Health) claims that the developed world as a whole is not technically in a recession (there is no outbreak of dengue!), and the emerging economies (India, China, Brazil) are growing above the world's average of two per cent.
Note that the emerging economies continue to grow given their large internal markets. In our one-horse economy what we have been successful in doing is encouraging foreign investment to exploit our petroleum resources, so that the Government can benefit from the rents.
Minister Mariano Browne recognised the characteristics of this kind of economy and told us our GDP growth depends explicitly on Government spending. This has resulted in the Dutch disease, the decay of agriculture and manufacturing, increases in non-tradable goods and services and increased expenditure on the social and support services. Our unemployment rate was made to look good via URP and CEPEP (which the PM wants to expand in his fight against recession).
However, this high non-energy deficit spending coupled with high food import prices drove headline inflation to the current 15.4 per cent - the major problem in our economy, according to the Central Bank Governor. The main thrust of the Government's fight against the recession is to judiciously adjust spending in concert with reduced revenues from the energy sector - all the while hoping that foreign investors will find more gas, install new plants and build us a plastics complex. But these need new investment which will be difficult in the current global credit squeeze.
The developed countries are trying to increase their spending and bail out financial and business institutions. We were already spending too much and this cut in Government revenues may just be the godsend that the Central Bank was calling for, except that there will be no surplus to save.
Yet there is a lot we can do and the PM referred to this at the recent small business seminar. We have to build the on-shore economy to provide good jobs for the population. However, the PM trotted out the old faithful options - marine, food and beverages etc., not appreciating that a generally educated population cannot create competitive businesses in this knowledge-driven global economy.
The Government - given the understandably risk-averse private sector - has to build a national innovation system which will need much more than the TT$20 million promised to small manufacturing enterprises and the loan guarantees of the Small Business Development Corporation. Otherwise our only hope is to find more gas, export it and its products to the rest of the world as demand recovers and spend, spend, spend, to mimic "development'' in this wealth-driven economy.
Sir Ronald Sanders is
a former Caribbean diplomat, now corporate executive, publishes widely on small states in the global community.
Petroleumworld does not necessarily share these views.
This
commentary was originally published by Trinidad Express, Tuesday, December 30th 2008 . Petroleumworld
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News 12/31/08
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