Hard times ahead
I fully endorse the call by Pope Francis for a humane capitalism. In 1999, as minister of foreign affairs, I gave a speech in Port of Spain and said, “a nation is not a market-place and human beings not mere consumers. I have had it up to my neck, at home and abroad, with talk of the market salvation for our social and economic woes and with the arid reductionist terminologies that now describe people and society. Neither nation nor individual can survive by bread alone.
“We are human beings first and our civilisation must be measured not by skyscrapers but whether all children have a future. So let’s stop parroting foolishness about a level playing field, as though all are equally endowed and we have no responsibility for the weak and disadvantaged.”
I also made it clear we need market economics for the sustained generation of wealth but we must manage the marketplace, for unregulated, it is a jungle where only the strong and vicious survive and where nations and societies are threatened with ruin.
I was prescient with that speech in 1999. Absence of regulations is at the root of the 2008 global financial crisis from which the world has not yet recovered. Today Pope Francis is again warning that unrestrained capitalism poses a threat to our very humanity, that “greed is good” has removed the ethical check and distorted the ideals which have nurtured the best of human civilisation.
We should heed the Pope even though his comments have limited application to Trinidad and Tobago. For whilst we have growing income inequality and poverty here, we have not yet graduated to a market economy. Ours cannot even be properly described as “mixed”, because it is driven by state capitalism of the most antiquated kind that dominates onshore, driving the local private sector to the periphery whilst it collects rents from the offshore multinationals in the energy sector which remains the main contributor to national revenue, a factor at the root of our present vulnerability.
Our leaders will need the Pope’s humanity to manage our challenges and therefore our prospects are very dim. For our revised projected economic growth of 1.5 per cent signals near stagnation and given external realities, things could get very bad for us in the years ahead.
We should be warned by the predicament of Barbados, about to send home 3,000 public sector workers, ten per cent of its workforce, to reduce expenditure after prolonged decline in revenue from tourism. A wage freeze will follow. Barbados, like Trinidad and Tobago, has not diversified its economy. Its pig-headed adherence to a fixed exchange rate makes and renders the economy unattractive for investment in other sectors, like manufacturing.
But even with a more realistic exchange rate, the tourists are unlikely to return soon. According to leading economists like former US treasury secretary Larry Summers and Nobel Laureate Paul Krugman, the world has entered a “permanent slump”, that there could be “no easy return to pre-crisis normality in high-income countries, that the global economy faces a future of chronically weak demand and slow economic growth”.
The view is that we are into ‘‘secular stagnation—a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between”. To support his assessment at the recent annual research conference of the IMF, Summers pointed to the US economy where, even though the financial crisis ended four years ago, there is “a new normal” of inadequate demand which will only increase when the economy is “buoyed by bubbles” which always eventually burst.
So bet your bottom dollar, “Bajan” or T&T, we are in for some real trouble, about which I have warned several times in this space. Reduced global demand will affect every country. Our main revenue earner will continue to yield reduced returns and budget deficits will be around until the IMF comes knocking.
We have been burying our heads in the sand, ignoring the shale revolution and new “traditional’’ oil and gas finds that have created a global glut in our main commodity exports. Additionally the US has already entered the LNG market and its present Treasury Secretary thinks the superpower should become an oil exporter again after 40 years!
Compounding our problem is the fact that petrochemical plants are migrating to the US whose exports in this sector will increase by 45 per cent in the next five years, reducing the price of the ammonia, methanol, urea and melamine that we produce.
European exporters have already announced job cuts and plant closures and now there is “a real fight to the death” in petrochemical markets. It all means our budget deficits will increase, the country’s debt will grow and everybody will need to adjust. But judges and parliamentarians are about to get new salaries that will cause demands for increases by everyone else and produce frightening social instability.
And let us not have the escapism that our debt to GDP ratio is the manageable 33.4 per cent. We do not know the true level of our indebtedness because the given figures account for debt of the central government only and do not include the debts of state enterprises/contingent liabilities guaranteed by the central government.
And didn’t we recently borrow US$550 million on the bond market, raising our external debt? Will we not continue to have budget deficits, borrowing to maintain our lifestyle?
The best course of action is to not wait for the IMF but cut expenditure on our terms, making adjustment less painful. But you will never see that with a general election looming. So, as in Barbados, hard times are ahead.
• Ralph Maraj is a former cabinet minister