T&T
suffering “Dutch Disease”
PORT SPAIN
Petroleumworldtt.com
03 02 08
Central
Bank Governor Ewart Williams yesterday admitted
that T&T is experiencing symptoms
of “Dutch Disease” as the country's
inflation jumped back to 10 per cent, a high recorded
in October 2006.
“Dutch Disease” is a situation in
which windfall revenues from natural resources
lead to an appreciation in a country’s real
exchange rate which, in turn, reduces the competitiveness
of the energy sector.
The symptoms include:
-
Rising inflation,
- An appreciaton of the real exchange rate,
- A shift from goods-producing to service-producing
sectors which contribute less to growth and sustainability
and
- A slowdown in non-energy export growth (particularly
in the manufacturing sector).
The
term “Dutch Disease” originated
from a crisis in the Netherlands in the 1960s that
resulted from discoveries of vast natural gas deposits
in the North Sea. The newfound wealth caused the
Dutch gilder to rise, making exports of all non-oil
products less competitive on the world market.
Inflation, many causes
Williams
said, “While the factors behind
the increase in inflation are many, at least two
of them could be traced back to the buoyancy of
the energy sector.”
These are:
1) “The
expansion in domestic demand in the context of
capacity constraints (reflected
in the public utilities, the transportation sector,
etc).”
2) “Sluggish
agricultural production, as farm incomes stagnate
relative to other non-farm
incomes.”
Williams
was speaking at the T&T Petroleum
Conference hosted by the South Trinidad Chamber
of Industry and Commerce (STCIC) and the Geological
Society of T&T at the Trinidad Hilton and Conference
Centre yesterday. The conference is titled “The
Future of Energy?”
Tradable/non-tradable dichotomy
Williams explained that the tradable sectors have
declined as a share of non-energy Gross Domestic
Product (GDP) while the non-tradable sectors, in
particular, construction and distribution have
increased their share of non-energy GDP.
“Another reflection of the tradable/non-tradable
dichotomy is seen in the real estate market,” he
said.
This
explosion in real estate prices is another symptom
of “Dutch Disease.”
The sluggish growth of non-energy exports is evidence
of the loss of competitiveness.
He noted that while energy exports rose from US$2.8
billion to US$10 billion between 2002 and 2007,
non-energy exports rose from US$1 billion to US$1.2
billion.
He said that as a result, fiscal policy provides
special challenges for natural resource-based economies.
“Higher
oil revenues provide these governments with the
opportunity to increase public spending
on priority economic and social goals.
However,
the fortunate governments are faced with the
trade-off between pressing developmental needs
and the limits of the country’s institutional
and absorptive capacity,” he said.
Story
by Asha Javeed from The Trinidad Guardian
The
Trinidad Guardian
Tuesday 26th February, 2008
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