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ECONOMIC CRISIS: WHAT IS TO BE DONE? by David Walker

posted 26 Apr 2018, 11:17 by Gerry Kangalee   [ updated 26 Apr 2018, 11:23 ]
Image result for trinidad david walkerWe’re in an economic crisis. At least we’ve stopped the silly debate about whether we’re in a technical recession and whether the country faces a serious financial crisis. Things are bad, we all agree. But just how bad, and what ought we to be doing about it.

Listening to some of our political leaders, one would be forgiven for thinking that the problem is well understood by them and that actions have been taken to deal with its effects. We should look forward to brighter days ahead as a result of the wise leadership that will lead us out of troubled waters.

I beg to differ. Firstly, the problems we face are unlike anything we’ve encountered before, and that needs to be understood before we can have any chance of finding a successful route out of the mire. So today I want to discuss the genesis of our economic difficulties and why the path we have so far followed will not lead us out of the morass. In future columns I will discuss some of the actions I believe might achieve success. I don’t want to simply criticize. As always I propose to offer solutions.

I’ll start with what we all agree on. It is that our economy is totally dependent on revenues from the traditional energy sector. This has been the case for decades and is our greatest vulnerability. Any shocks to the buoyancy of that sector has a disproportionate impact on our economy. In simple terms we have nothing else to fall back on either for income or foreign exchange generation.

We’re told that we’ve been in this position before and that we’ve weathered the storm as a result of prudent action by our leaders. We’re told that we should therefore have confidence in their ability to lead us again out of our difficulties. They are wrong.

On each past occasion, energy prices have rebounded within a few years and have gone on to new record heights. This is what really got us out of the mire on those occasions. We did take drastic action once before that allowed us to ride out the storm until happier times, but I do not see evidence of any such measures being taken today and I certainly do not see a bright future for our energy earnings in the medium term.

Image result for energy industryThis is for two reasons that have not previously existed. Firstly, perhaps the greatest consumer of our energy products is now a major supplier. The US is now a huge producer and exporter of oil and gas, two products that they previously bought from us in large quantities. That market is not going to return. At the same time other new producers are emerging including Guyana on our doorstep. It must also be understood that many of these new entrants are producing output at lower cost than we are, adding to the demand led pressure on prices.

As if that was not enough, we have the emergence of cost efficient alternative energy sources. In other words, in addition to the growing glut in conventional energy supplies, there is the growing trend towards the use of other sources of energy meaning that increased supply meets reduced demand for oil and gas. This trend, a perfect storm for us, is predicted to accelerate in the decades ahead.

Our problem is therefore a structural one, i.e. it is not likely to go away any time soon and demands a structural response. We must reshape our economy to meet the realities that we face. Tinkering at the fringes as with no more bottled water at meetings is as extreme an example of “rearranging the deck chairs on the Titanic” as one could imagine.

Every aspect of our economic and financial management should be under review and the subject of open and informed debate. We should be constructing a Vision 2030 looking only at the economy. Ideally this should be led by our ruling politicians but sadly they do not only fail to lead the discussion, but they deny access to relevant information at every turn thereby stifling effective discussion that could yield solutions to our malaise.

Additionally it is clear that sacrifices will have to be made. Two critical aspects grab my attention. Firstly, we should not revert to “same old, same old”. Rather than a blind attack on transfers and subsidies let us look at the whole panoply of possible actions. Let us quantify the savings that could be achieved through reform of the State Enterprise and Public Utilities sectors. I would hazard a guess that the potential savings there run to more than five billion dollars per year. It would need bold and powerful leadership though.

Image result for corruption in public sectorWe should secondly address corruption and waste in all areas of the Public Sector. The prize here as well runs into billions of dollars annually. Before sending our most vulnerable workers home and before cutting help to the needy a forward thinking government would grasp these opportunities forcefully.

There will be pain and some people will be worse off. The longer we wait before taking action, the greater the pain and the greater the number of people who will suffer. This is a time for strong leadership that is prepared to act forcefully in the country’s best interests. That means tackling some powerful groups and upsetting some people with whom our leaders might otherwise be cosy. There is a political price to be paid in the short term but gain to be had in the medium.

The good news is that the economy has been so badly run that savings abound that we could and should be exploiting. Additionally, there are some obvious steps that we could be taking to diversify the economy which I will explore in a future column. My sad prognosis is that we’re in a terrible state with the risk of our condition worsening severely and very quickly if we continue on the current path.

Paradoxically, because we’ve been so badly managed, there are quick and effective fixes that can be implemented if only our leaders could show a clear understanding of the problems and a willingness to act, at all times carrying the population with them through open dialogue and a sharing of information and ideas.

David Walker - d.walker@alcindorwalker.com and www.straighttalktt.com
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