A challenge for the private sector

Long-term economic “growth prospects are challenging as the country’s (Trinidad and Tobago) energy resources are declining,” observes the International Monetary Fund (IMF) in its report out of its Article IV consultation with the Government and other sectors of the economy. Released earlier this week, the report notes that the economy was “hard hit” by the 2009 international recession—and this is notwithstanding the fact that the then Government was certain that its management of the economy was of such high quality that the economy would get no more than a glancing blow. But notwithstanding the projections of a return to slow growth in 2011, the IMF report has more than a word of caution on the expectations and projections. “Even with the expected firming of energy prices, economic prospects over the medium term are projected to be weaker compared to the strong growth period preceding the economic crisis,” states the Fund. It adds that other factors holding back a strong return to growth include “the fragile confidence, the weak regional outlook, and global uncertainty.”

Only recently, local economist Dr Ronald Ramkissoon warned that the new norm would be for a soft economy and not an early return to the previous decade when oil and gas prices were extraordinarily high. To cope with the economic challenges up ahead, the IMF says the Government needs “to strike a balance between saving energy revenues for future generations with investing today to lay the foundations for sustained non-energy growth” into the future. In this regard, the Fund welcomed the Government’s initiatives aimed at improving the business climate to facilitate private sector “entrepreneurship and promoting diversification.” At the monetary and finance levels, the IMF says monetary policy is broadly appropriate and that it is comfortable with the policies of the Central Bank to ease the pressures on the foreign exchange market. Vitally, states the IMF, there is the need to strengthen the regulation and supervision of the financial sector, inclusive of addressing the remaining problems in the insurance sector and improving legislation dealing with failed financial institutions.

Importantly, the Fund commended the Government for its restructuring of Clico and for providing support for credit unions. Of course, several issues involved relevant to Clico remain outstanding and highly controversial with the possibility for creating some level of chaos in the financial sector. Establishing the diversification model for growth and perhaps economic development remains the outstanding challenge for economic planners and public policy makers here and everywhere in the Caribbean. It is a challenge that has not been adequately met. As has already been stated by the local authorities, the IMF says the private sector must be central to investing in the expansion and diversification of the economy. In this respect, the Fund seems pleased with incentives indicated in the last budget to stimulate the business community to play its part in growing the economy out of its stagnant state of the last two years.

The question here is whether or not the private sector has the capacity to lead the charge of growing the economy. The first requirement to meet the challenge would be the need for a transformation of the traditional risk-averse ethic of local investors. Secondly, while trading is necessary in all economies, a second requirement is the need to encourage local investors to engage in innovation in the production of goods and services so that they can be attractive and competitive on a global scale. The Government must also do its part to establish and enhance infrastructure in transportation, communication and the electronic highway. The continuing nightmare of customs and getting goods quickly through the port must engage the energy and enterprise of the government bureaucracy.