While fiscal and monetary policies should be in balance, the major challenge for this Govt is reconciling its market-oriented goals with its prominent role in a small economy that distorts conventional market-economy theories.

Apparently, Prime Minister Patrick Manning has finally found religion, again.

Professor Dennis Pantin noted in a recent column that the PM, in his speech to the nation, touched on three important issues:

(1) the need for tripartite discussions involving the Government, businesses and labour.

(2) That fiscal adjustment must be borne equitably and,

(3) that there must be sustained support for regional economies.

To the list, I would add a fourth; his new-found support for small- and medium-sized businesses (SMEs).

Minister of State in the Ministry of Housing Tina Gronlund Nunez reiterated the PM words in a more recent speech by stating that “small business development will save T&T from the worst of an impending economic crunch.”

The PM has yet to fill in the blanks by laying out a specific coherent and comprehensive programme as to how his good intentions will be accomplished. He does not have much time left to “show us the money.”

For some time, a number of political observers and economists have been advocating for the diversification of our economy to lessen our almost total dependence on revenues from oil and gas. However, given the daily pressures of satisfying a largely under-educated, unproductive and impoverished population, an electorate that is almost evenly split between the PNM and opposition parties, a conservative risk-averse business community and the PM’s own populist tendencies, lessening the Government’s role in the economy could be viewed by some as political unilateral disarmament.

That would be the shortsighted view.

With his newly revised vision, the PM is on to something here. The declines in oil and gas prices are expected to continue with oil prices predicted to stabilise at about US$40 to 50/barrel. The needs to significantly downsize government expenditures, lower inflationary pressures, encourage and support economic diversification and, at the same time, avoid a recession are paramount to the nation’s survival.

This should be a call to arms that would require the support of the nation, including, most importantly, the opposition political parties. If the Government fails in this venture no one will be left unscathed; the alternative would be too awful to contemplate.

However, the Government’s programme must be strategic, limited in scope, highly focused, and accompanied by constant communication with the public about what is being done and why.

What needs to be done

1. The Government must prioritise its list of projects and programmes that it wishes to accomplish within the timeframe left before the next election. All projects that are revenue generators and that deal strategically with the nation’s infrastructure should be given highest priority, including replacing the Grand Stand at the Savannah for obvious reasons related to our greatest festival and important revenue generator—Carnival.

2. Calls for a drastic reduction in government expenditures must be resisted as such a move in response to declining oil revenues could plunge the nation into a deep recession.

The experiences of the last economic recession that lasted almost a generation should be instructive: the IMF-mandated fiscal policies of balancing the budget, massive layoffs of public servants and the substantial reduction in public debt with little or no risks assumed by creditors resulted in an unnecessarily deep and prolonged recession that wasted an entire generation and is substantially to blame for much of the decline in our institutions, high crime rates and general public discourse.

Most importantly, an economic slow down would be inimical to entrepreneurship and economic diversification as few would want to start a new venture during a recession.

Ignore calls to increase taxes for individuals and corporations. There is a misguided belief that lowering taxes helps to promote inflation. Personal income and corporate taxes paid to the Government are revenues that reflect the production of goods, services and workers’ productivity in the economy.

Inflation is solely a monetary phenomenon caused by too much money chasing too few goods and services or, the high costs of producing goods and services pushing prices ever upward.

While fiscal and monetary policies should be in balance, the major challenge for this Government is reconciling its market-oriented goals with its prominent role in a small economy that distorts conventional market-economy theories.

3. Legislation: any honest attempt to promote and assist SME’s must begin with the elimination of unnecessary legal impediments that frustrate would-be entrepreneurs. This would include; facilitating the ability of local SME’s to compete for government business that now favour only large local and multinational corporations, the elimination of burdensome taxes on startup companies such as stamp-duty on commercial mortgage loans, minimising the ability of local banks to charge numerous usurious fees on loans to consumers and businesses and, the establishment of a small claims court that is essential to the proper and effective functioning of SME’s that cannot afford high legal fees and lengthy court battles to settle minor claims.

4. Use current oil and gas revenues to hedge against major declines in oil and gas prices and revenues by investing a portion of our revenue stabilisation fund in green companies. The world financial economic meltdown has presented the US and developed countries with an opportunity to significantly reduce their dependence on expensive and scarce fossil fuels and, to develop cleaner or green energy resources. Oil and gas prices will come under constant pressure as the return to fossil fuels is not a viable option for most no matter how inexpensive they become. There are many companies in the developed countries that are at the forefront of clean energy development which are experiencing difficulties with obtaining financing in the current environment.

Cash rich oil producing nations are the obvious alternative sources for such financing for the emerging new green companies. There are major advantages to getting in on the ground floor of these companies and negotiating favourable terms in exchange for financing. A broad range of such companies in an investment portfolio would mitigate investment risks.

5. A policy of lower interest rates for business loans and higher rates for consumer borrowings co-ordinated with the help of Central Bank policies to encourage and promote savings and investments in the economy.

6. Encourage publicly traded companies to buy back common stock which would help to stabilise equity prices during an economic downturn and provide much needed funds for reinvestment in new enterprises at a time of fiscal restraint. This last, accompanied by lower interest rates would buoy stock market activity and provide much needed liquidity to the system, which in a declining economy, could be disastrous.

In an emerging market-economy with its contradictions, conflicts and competing interest in a competitive fast-paced world economic environment, the calls for small thinking, risk aversion, and protections for special interests and old-line businesses that have heretofore benefitted from legal, economic and social impediments to competition will be loud and contentious. It would take a strong and brave government to keep its eyes on the prize. The payoff would be the nation’s very survival and undying gratitude. It is the change we need!

Ian D Quan-Soon

Via e-mail