
As the country gradually comes face-to-face with its economic circumstances at the start of 2016, it is apparent that the State is no longer in a position to play the role of prime mover in the economy. We are entering a period of debate and discussion about the way forward without the presence of any clear road map or guiding philosophy.
The Prime Minister laid out the dynamics of the problems facing the country with the downturn in energy revenues which started a year ago. We know from the Estimates of Expenditure for 2016 that were laid in the Parliament when the 2016 budget was presented that in fiscal 2015 there was a decrease in expenditure from the original projection of $60.1 billion down to $55.6 billion at the end of fiscal 2015. That was a reduction of $4.5 billion.
That is the trend that needs to continue going into 2016. It is quite possible that a seven per cent reduction might be too small to address what the economy is going to face. The original $63 billion budget cannot stay at that level.
What is the political philosophy that will inform the economic choices that are going to be made? Is the Economic Advisory Board prepared to advise the Government to shrink the size of the State through a market-driven approach that will involve privatisation and divestment or is the population going to be taxed to their eyeballs to maintain a state structure that can no longer be fully financed?
Political choices have to be made that revolve around political philosophy that informs taxation policies, investment policies and diversification policies. For example, there is a raging debate in the public domain about the ownership of this country’s foreign reserves.
In the Old Year’s Day edition of the Business Guardian, Business Editor, Anthony Wilson, argued that after the foreign reserves of the country are sold to commercial banks they cease to be part of the national patrimony and, therefore, it is difficult to make a case for their disclosure by the Central Bank. In making his case, Wilson argued thus:
“According to a Republic Bank statement issued on December 7, between January 2013 and December 2015, the Central Bank sold US$5.75 billion to the banking system, which would be authorised dealers of foreign exchange. Between January 2013 and December 2015, the banking system purchased at least US$21.401 billion from the Central Bank and the public of T&T. Of the US$24.401 billion purchased by the banking system, only 26 per cent (some US$5.575 billion) came from the Central Bank with 74 per cent coming from the public.”
This is valuable information supplied by Wilson. It confirms that there is the comingling of the free market in foreign exchange with the State’s intervention into the foreign exchange market. If this were a free market governed by the laws of supply and demand with trading only between commercial banks and the public the foreign exchange rate would be much higher than it is today. The intervention of the State, through the Central Bank, does make a difference.
Once the State is involved in transacting business in the foreign exchange marketplace, there will always be a debate about how far the accountability will go. When prime ministers and finance ministers want to know, in the public interest, where the money has gone, it is the Central Bank that will tell them. Getting those answers without any transparent specifics will tell us nothing.
The upshot of all of this is to make the point about the deeper philosophical issue of the role of the State in the economy. We are back to the debate about the State being the prime mover or being a facilitator. The last time our economic fortunes were down, we had this debate. The gas boom just after the turn of the millennium saw a return of many state enterprises and a rekindling of the thinking of state control of the economy.
If the private sector is to play a meaningful role in the burden of adjustment that is required, then privatisation and divestment must be put on the table for discussion. Labour already has the upper hand in this debate as the JTUM very cleverly negotiated a Memorandum of Understanding with the PNM before the general election which ensures that they will have the edge over the private sector in any tripartite discussion.
The private sector has to work out how they can be competitive in any such discussion. The only leverage they can bring to the table is in the domain of privatisation and divestment. The JTUM MOU is also a powerful negotiating tool that has more political bite than economic bark. If the unions fall out with the Government politically, the economic solutions will be very difficult to implement against the backdrop of local government elections in November, THA elections in January 2017, and not to forget six election petitions and judicial review matters pertaining to the legality of the last general elections that will be heard this year.
Therein lies the politics of the economic choices.