To use Prime Minister Dr Keith Rowley cautionary phrase of “not wanting to get ahead of ourselves,” Trinidad and Tobago citizens must avoid a build-up of expectations of earning significant foreign exchange from processing and selling Venezuelan gas. Nonetheless, we must learn from our past experiences with what is known in economic jargon as the “Dutch Disease.”
It’s a virus that takes hold of a country which receives a boom in revenue from its energy resources. Its distracting effect is to remove all focus on other sectors of the economy. Soon enough, when the benefits of the boom dissipate, as it did on a few occasions here, the economy finds itself minus square one, as other productive sectors of the economy have not been given attention, and the foreign exchange from energy has been severely depleted.
Typical symptoms of the virus include revenue not being utilised to build manufacturing, tourism, agriculture, finance and other onshore industries. Instead, with foreign currency easily available, the economy and consumers are captured by the import sector.
What sets-in is a spiral of price increases, as demands by labour for higher salaries grow more insistent, and a drift by workers to the non-productive sectors. Along with such characteristics comes widespread increases in social welfare, as the government in office seeks to stay there, and opposition parties begin to promise “milk and honey.”
The result, foreign exchange leaks out (gushes out really) to foreign producers.
T&T went through that cycle on a few occasions in the immediate past. So notwithstanding Prime Minister Rowley’s prescient warning of not getting ahead of ourselves by salivating for the prospect of another boom, the entire country has to learn from past experiences of when the Dutch Disease infected the economy and society. No one should forget the early 1980s-1990, with the aggressive and demanding political protests which led to July 27th, 1990.
Productive sectors do not emerge overnight; they must be planned to absorb the money circulating in the system; it can be an opportunity for the financial boom to be utilised to ignite the historical ambition of diversification of the economy.
At the level of the private sector, and that includes the small and medium-sized producers, they have to begin envisioning and preparing to produce local goods and services to cope with “spendamania.” The banks and the finance houses are the ones that eventually receive savings and investments for re-investment; it’s imperative the funds are utilised to replace imports and to fund innovation.
The bank directorship has always argued that they cannot utilise the savings and investments of their clients in greenfield projects. The answer, therefore, is for the expansion of the non-bank financial sector.
Another sure responsibility of the Government will be to focus on developing the infrastructure for production. The modernisation of the public sector from its retarding bureaucratic logjam, to one which is agile and service-oriented, is a must.
Without getting ahead of ourselves Prime Minister Rowley, if the planning does not start now, we shall contract another dose of the Dutch Disease; and a vaccine has not yet been invented to stop us from getting the virus again and again.