The Peo­ple's Part­ner­ship in­her­it­ed a very chal­leng­ing eco­nom­ic sit­u­a­tion: The Hin­du Cred­it Union and Cli­co re­quired huge fi­nan­cial bailouts; Petrotrin's dai­ly pro­duc­tion of oil is de­clin­ing; Ude­cott has sig­nif­i­cant debt owed to con­trac­tors and the Pub­lic Ser­vices As­so­ci­a­tion labour ne­go­ti­a­tions are long over­due. These are just some of the prob­lems the Part­ner­ship faces. In 2008/2009, the Gov­ern­ment record­ed its first fis­cal deficit in sev­en years. This de­cline in gov­ern­ment rev­enue was due to the de­cline in oil prices from (US)$142 a bar­rel to (US)$35 a bar­rel dur­ing the sec­ond half of 2008, and de­cline in Petrotrin's pro­duc­tion from 110,000 bar­rels of oil per day to ap­prox­i­mate­ly 100,000 bar­rels of oil per day.

The sud­den col­lapse of en­er­gy prices re­sult­ed in the then fi­nance min­is­ter re­vis­ing the bud­get­ed oil price from (US)$$70 to (US)$$55. In 2006/2007 fis­cal year, the Gov­ern­ment re­cur­rent rev­enue and ex­pen­di­ture was $40 bil­lion and $29 bil­lion, re­spec­tive­ly. Cap­i­tal ex­pen­di­ture was ap­prox­i­mate­ly $7 bil­lion. How­ev­er, re­cur­rent ex­pen­di­ture con­tin­ued to rise dis­pute the 33 per cent de­cline in gov­ern­ment rev­enue. This re­sult­ed in a $7.4 bil­lion fis­cal deficit in 2008/2009. The for­mer min­is­ter in the Min­istry of Fi­nance, Mar­i­ano Browne, jus­ti­fied this spend­ing pat­tern as a form of fis­cal stim­u­lus to pre­vent re­ces­sion from oc­cur­ring in T&T. This bud­get deficit was al­so con­tin­ued in 2009/2010 fis­cal year, re­sult­ing in a $7.7 bil­lion fis­cal deficit. The PNM's stance was to con­tin­ue deficit fi­nanc­ing in the dif­fi­cult eco­nom­ic times and raise ad­di­tion­al rev­enue with a new regime of prop­er­ty tax­a­tion. This fis­cal pol­i­cy stance was met with sig­nif­i­cant op­po­si­tion from the UNC and the wider pop­u­la­tion as it was viewed as puni­tive.

How­ev­er, the cur­rent Peo­ple's Part­ner­ship ad­min­is­tra­tion and the Fi­nance Min­is­ter Win­ston Dook­er­an have adopt­ed the same fis­cal pol­i­cy. The 2010/2011 bud­get es­ti­mates to­tal gov­ern­ment rev­enue to be $41.283 bil­lion and to­tal ex­pen­di­ture $49.015 bil­lion, re­sult­ing in a fis­cal deficit of $7.732 bil­lion. This bud­get was based on the as­sump­tions of re­al gross do­mes­tic prod­uct growth (GDP) of 2.0 per cent, in­fla­tion of 7.0 per cent and an oil price of (US)$65 per bbl. Now af­ter six months in of­fice, the Fi­nance Min­is­ter is faced with a stag­nant econ­o­my, there is un­cer­tain­ty about eco­nom­ic re­cov­ery, there is un­cer­tain­ty about pub­lic ser­vants' fu­ture wages and its ef­fect up­on the in­fla­tion rate, Cli­co pol­i­cy­hold­ers are dis­pleased with the bailout of­fered by the Gov­ern­ment, and con­trac­tors want the mon­ey owed to them. The new Fi­nance Min­is­ter, in the face of these chal­lenges, in­tends to bor­row $8.2 bil­lion from the In­ter-Amer­i­can De­vel­op­ment Bank (IDB) to fi­nance a stim­u­lus to "jump­start" the econ­o­my.

While this plan has some in­tu­itive ap­peal, the grow­ing pub­lic debt is be­com­ing a big alarm. Gov­ern­ment ex­pen­di­tures keep in­creas­ing, but rev­enue is not grow­ing. In­creas­ing the size of the fis­cal deficit will on­ly re­sult in ex­pen­di­ture pat­terns that are not sus­tain­able. What the Gov­ern­ment needs to do is bal­ance the bud­get. In 2006/2007, the re­cur­rent ex­pen­di­ture was just $29 bil­lion. Why must re­cur­rent ex­pen­di­ture now stand in ex­cess of $37 bil­lion? This new Gov­ern­ment needs to be fis­cal­ly pru­dent. They need to re­view the econ­o­my and cut all waste­ful ex­pen­di­tures. Ac­cord­ing to the Cen­tral Bank April 2010 Mon­e­tary Pol­i­cy Re­port, un­em­ploy­ment stands at 6.7 per cent. There is more than one way to stim­u­late an econ­o­my, and bor­row­ing a loan to cre­ate a fis­cal stim­u­lus will in­crease the cur­rent pub­lic debt be­yond 50 per cent of the GDP.

The Gov­ern­ment needs to re­store con­fi­dence in the econ­o­my. This would pro­vide the pri­vate sec­tor and en­tre­pre­neurs with the im­pe­tus to in­vest in the econ­o­my, stim­u­late growth and gen­er­ate jobs. In­no­va­tion is a dri­ver of growth. The eco­nom­ic the­o­ry of cre­ative de­struc­tion, put for­ward by Joseph Schum­peter, stat­ed that in a cap­i­tal­ist so­ci­ety, long-term eco­nom­ic growth is gen­er­at­ed by the cre­ation of the new and dis­place­ment of the old. The pri­vate sec­tor, busi­ness­men and en­tre­pre­neurs, need to play an ac­tive role in the econ­o­my. Once con­fi­dence is re­stored and in­vest­ment re­sumes, T&T will be well on its way to achiev­ing growth and de­vel­op­ment.

Don Charles

Point Fortin