|
Central
Bank Governor Ewart Williams, right, chats with Energy Minister
Conrad Enill at yesterday’s T&T Petroleum Conference
at the Hilton Trinidad & Conference Centre, St Ann’s.
Photo: David Wears
BY
ASHA JAVEED
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:
n Rising inflation,
n An appreciaton of the real exchange rate,
n A shift from goods-producing to service-producing sectors
which contribute less to growth and sustainability and
n 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.
|
