Rapporteur’s Report
Conference on the Economy 2007
Conference Room, School of Education, UWI, St. Augustine
12 – 13th April, 2007
Prepared by: Cécile Pemberton
Table of Contents
WELCOME ..................................................................................................................... 2
FEATURE ADDRESS: .................................................................................................... 2
SESSION 1: THE TRINIDAD AND TOBAGO: MACROECONOMIC PERSPECTIVES
AND CONTEXT .............................................................................................................. 3
SESSION 2: FISCAL MANAGEMENT & SESSION 3: & FINANCIAL SECTOR
DEVELOPMENT IN TRINDAD & TOBAGO ............................................................... 10
SESSION 4: ECONOMIC INFRASTRUCTURE............................................................ 16
SESSION 5: GOVERNANCE OF NATURAL RESOURCES: ACCOUNTING FOR
RESOURCES ................................................................................................................ 20
SESSION 6: SOCIAL SECTOR ISSUES ........................................................................ 27
SESSION 7: ST. AUGUSTINE ASSOCIATION OF GRADUATES OF ECONOMICS
(STAGE) FORUM ......................................................................................................... 31
SESSION 8: ‘MR. DIVIDER, RUN SOMETHING’: BUDGET CONSIDERATIONS
2007/2008 ....................................................................................................................... 35
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Day 1
WELCOME
Dr. Marlene Attzs
Dr. Attzs gave the initial welcome to the first annual Conference on the Economy (COTE). She
stated that the Department of Economics’ primary objective in hosting the COTE was to place
issues that it deemed important on the public agenda and to engage in a process of dialog on
these issues.
Prof. Dennis Pantin, Head, Department of Economics
Prof. Pantin listed the objective of the COTE as threefold – to have a public discourse among the
members of the Department of Economics (DOE), the wider community of economists and the
society as a whole. He proposed that as an annual event, COTE would lead to the discourse
evolving into a platform for projections and prescriptions for the economy. He also noted that
the DOE had begun work on its strategic plan and concluded by welcoming the participants and
attendees.
Dr. Hamid Ghany, Dean, Faculty of Social Sciences
Dr. Ghany began his welcome by commending the scholarship and public service contributions
of past and present members of the DOE, as well as the research products of the Department’s
three specialized units. He also congratulated the Department on taking the initiative to host the
COTE.
FEATURE ADDRESS:
“Caribbean Economic Thought and The Challenges of Transformation – Retrospect and
Prospect” – Dr. Trevor Farrell
Dr. Farrell commenced by dedicating his address to the memory of the late Lloyd Best. He
asserted that, with the exception of Arthur Lewis’ contributions, the past six decades of
Caribbean economic thought have had a profound disconnect with economic policy in the region.
He separated Caribbean thinkers into broad schools and categorized their main unprecedented
ideas as addressing one or more of the following:
(1) the conceptualization of a ‘Caribbean’ as a region comprised of states with a shared
culture and language,
(2) the form of insertion of the said Caribbean into the international economy and
(3) the eclecticism of economic thought.
In assessing the economic progress of the region, Dr. Farrell dismissed the recent success of the
Trinidad and Tobago economy as largely “froth” derived from oil and gas revenues. He stated
that there are dual realities in the still commodity-based economy – sound macroeconomic
fundamentals coupled with declining competitiveness and troubling social decay. He continued
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that Jamaica, Suriname and Guyana were still mired with poverty; Barbadian prosperity was
belied by its fragility; and that the Eastern Caribbean states, though service driven, had varying
levels of economic success. Further, Dr. Farrell suggested that transformation of these
economies would be quite challenging as global changes over the past fifty years have modified
the drivers of economies and actually widened the gap between the Caribbean and the advanced
nations. Asian economies, in contrast, have outperformed the Caribbean and narrowed this gap.
Dr. Farrell did not hold Caribbean economic thinkers solely responsible for the lag in regional
economic development. Rather, he surmised from his experience that other more important
factors were at play. One such was that Caribbean culture was “profoundly unscientific” in
approaching both the surrounding environments and the understanding of systems. He also
pointed to the lack of understanding of organizations (particularly as repositories of knowledge)
and of institutions and institution-building. Finally, he said that Caribbean societies lack a
system for training an elite cadre of persons who would be equipped for and charged with
leadership above and beyond their personal interest.
Dr. Farrell listed the basic prescriptions for the local economy as economic diversification
(centred on the axial industries of hydrocarbons, tourism, entertainment and financial services)
and increased international competitiveness. His caveat was that these recommendations were
not new, original or unknown, but rather had not been implemented because the foundations for
them were nonexistent. He provided the example of a hypothetical export manufacturer as
support of his argument and demonstrated that competitiveness is not about Total Factor
Productivity but rather investment, technology and excellence, inter alia.
According to Dr. Farrell, excellence in particular, was about conception, artistry, mastery,
consistency and execution, not a lack of capital or natural resources. Excellence, or the lack
thereof, often has to do with people, training, education, mentorship, support systems and values.
Creation of competitive entrepreneurship therefore requires the aforementioned as well as
nurturing indigenous institutions. He cited the Royal Bank of Trinidad and Tobago and Republic
Bank Limited as instrumental to the development of Port-of-Spain as a regional financial hub
and highlighted the imminent sale of the former as an instance where an indigenous institution
was not being recognized as instrumental to the further development of the local economy.
Dr. Farrell concluded the address by likening universities to a society’s “bone marrow” in that
they supply key human resources to the wider economy. Hence, the domestic educational
system as a whole needs to be reconceived in order to better serve the society.
SESSION 1: THE TRINIDAD AND TOBAGO: MACROECONOMIC PERSPECTIVES
AND CONTEXT
Chair: Prof. Norman Girvan
Discussion of feature address:
Norman Girvan: disagreed that the legacy of Lloyd Best is virtually nil and stated that Best’s
legacy is that he taught the importance of independent thought and indigenous theorizing about
the Caribbean condition. He also felt that Dr. Farrell underemphasized the importance of
Caribbean economic thought of the New World group and the Dependency school, among
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others, as the localisation policies of the 1970’s led to the development of the indigenous
financial centre which Dr. Farrell praised. Finally, Prof. Girvan conceded that he did agree with
most of Dr. Farrell’s conclusions, but expressed doubt that an elite, if trained, would remain in
the region unless they possessed a strong self of their [Caribbean] selves.
Shelton Nicholls: disagreed that Lewis’ theorizing did not treat with organisations. He cited
Lewis’ The Theory of Economic Growth as discussing the role of people and organisations in
economic development. He invited Dr. Farrell’s thoughts on this piece of this work.
Dennis Pantin: congratulated Dr. Farrell on raising one of the fundamental underlying
objectives of the conference – that academics must focus the impact of their work on the larger
society. Whilst admitting that there are disagreements on the details, Prof. Pantin also agreed
with Dr. Farrell’s conclusion that the most fundamental and innovative elements of Caribbean
economic theory do not impact on policy. However, he departed from Dr. Farrell’s assertions on
why that was the case. Prof. Pantin felt that there are guiding institutions, namely the
governance system, which preclude innovative thought from permeating prevailing policy much
in the same way that Adam Smith identified the institution of the state as preventing
transformation from the feudal to the bourgeoisie capitalist state. Thus, the gap can only be
filled by a responsible elite who pursue governance reform.
Ronald De Four, Dept of Electrical Engineering: agreed as an inventor and patent holder, he
found that there is no organisational framework to take innovation forward. He lamented that
there is no mechanism for the marketing or protection of patents.
Ronald Ramkissoon: suggested that in the process of institutional reform and creation, there is
need for recognition of other social science disciplines to chart the way forward.
David Abdulah: questioned if there was a focus on social institutions in addition to the
economic in Dr. Farrell’s work in light of growing atomisation of societies. He also wondered
what the role of the state would be in the creation and reform of institutions, given that
localization was itself a state policy.
Trevor Farrell: replied that the suggestion that Lloyd Best’s legacy could be null is a paradox as
he was an extremely fertile thinker and as such some of his ideas were and remain extremely
powerful. Dr. Farrell recalled Best’s idea to send university students to the working world after
the first year of university so that upon return to their schooling students would have a greater
appreciation of their curricular material. Dr. Farrell wondered rhetorically why this idea did not
‘find traction’ in some form, despite its obvious merit, as he implied it might have in other
societies where the ideas of intellectuals wind their way through neural networks and often make
impact. In the Caribbean context, he contrasted, whilst some intellectuals do move from
academia into policy development and thus carry their ideas with them, the mechanism for
discrete transfer from one sphere to the other is unclear.
Dr. Farrell: thanked Dr. Nicholls for his corrections concerning Lewis’ theories.
[in response to David Abdulah] Dr. Farrell confirmed that social institutions ought to be
included. One of his primary concerns was that the family as an institution was in jeopardy. He
said that there are aging populations throughout most of the Caribbean and increasing family
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nuclearization, but no correspondent increase in social services. In addition, there is endemic
male failure in the society, related to marginalisation of the male and the concurrent decline in
fatherhood, which has profound social and economic implications in the future.
[in response to Dennis Pantin] – declared that the role of the state is partially a function of who
Permanent Secretaries are and how they have been trained. Dr. Farrell felt that people become
Permanent Secretaries by reverse osmosis rather than by being tooled appropriately. He
concluded that the role of the state is the construction of the responsible elite, perhaps through
institutions such as exist in France to train civil servants.
Recent Trends in the Trinidad and Tobago - Dr. Shelton Nicholls, Deputy Governor,
Central Bank of Trinidad and Tobago
Dr. Nicholls gave a review of the Trinidad and Tobago economy which began with commentary
on the output market. He showed that the local economy has sustained economic growth for
approximately thirteen years, with the energy sector dominating economic activity. Total growth
in the economy was 12% with energy as the most significant driver, while non-energy sector
output increased due to activity in construction and quarrying; education and cultural services;
and finance, insurance and real estate.
Dr. Nicholls went on to discuss the labour market and posited that the country is experiencing its
first period of sustained labour shortages. Most new jobs are in the services sector, although
their exact nature is subject to debate.
On the topic of inflation, Dr. Nicholls said that supply-side bottlenecks and buoyant demand
against the context of rapid growth put severe inflationary pressure on the economy. Thus,
headline inflation trended upward since December 2004, peaking at approximately 10% in 2006,
subsequent to which there has been a downward trend. Dr. Nicholls stated that an important
question to examine, was what is the sustainable level of inflation that a rapidly growing
economy could tolerate. Highly buoyant economic conditions have generated fiscal surpluses –
$TT 4.7 billion in fiscal year 2005/2006 (4.1% of GDP), but the non-oil fiscal deficit continued
to grow and impacted negatively on liquidity and thus created inflationary pressure. Dr. Nicholls
also highlighted the rules for injections, withdrawals and the governance of the Heritage and
Stabilization Fund Act passed in March 2007.
He also showed that the trade sector has benefited from energy sector performance in that export
volumes and reserve holdings are very strong. However, on the capital side of the balance-ofpayments, there is an outflow of capital to other islands through bond placements, private
investment abroad and the foreign reserve position of commercial banks.
Dr. Nicholls noted that financial markets, such as the market for mutual funds and the stock
market, also experienced tremendous growth, particularly in the long run. In terms of reform for
the sector, significant improvement and progress has been made. Most of the work has been
completed, including drafting of legislation. A real-time gross settlement system, online auction
for government securities and electronic stock trading have also come on stream. Improvements
to the Financial Institutions Act will also allow for sharing of information among regulators and
provide better controls and reporting.
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Dr. Nicholls also made observations on monetary policy. He explained that the Central Bank
had moved away from direct monetary policy instruments which were now ineffective, to more
market-based instruments such as setting overnight repurchase rates. Monetary policy has been
tightened significantly to deal with excess liquidity. He concluded that while growth prospects
for the economy remain strong because of energy prospects, the key challenge will be to manage
inflation and inflationary expectations through management of the pace of economic expansion
and diversification of the economy away from the energy sector.
Trinidad and Tobago – The Case for Onshore Transformation – Dr. Eric St. Cyr, Research
Fellow, Lloyd Best Institute of the West Indies
Dr. St Cyr’s main thesis was that the transformation the economy of Trinidad and Tobago is yet
to take place. He gave a brief history of local economic policy, highlighting the ill-advised
approach of using the surplus from the offshore sector to reinforce its own expansion and secure
the generation of foreign exchange. Thus, in the boom years the fiscal and foreign exchange
bottlenecks previously experienced were broken. The fallout from the subsequent severe decline
in oil prices all but erased the success of previous effort. However, from 1994 onward, there was
a tremendous increase in Foreign Direct Investment to exploit natural gas resources.
Dr. St. Cyr concluded that the Plantation Economy Model is not really understood because it
gives a framework along historical lines through which such trends can be analysed. Trinidad
and Tobago, he posited, has simply switched from sugar as its staple crop to oil and finally gas.
He cautioned that if we continue to allow multinational corporations to exploit local natural
resources, we will continue to experience a seesaw effect in our economic affairs.
Dr. St. Cyr stressed that in the past Trinidad and Tobago was primarily externally-driven, which
though not an evil in itself, led to massive vulnerability to external shocks. Thus, he
recommended that the strategy ought to be shifted from the offshore to the expansion of the
onshore sector. He added that the investments necessary to develop the offshore sector will
come on their own and questioned why we should be putting more of our surpluses in that
direction. According to Dr. St. Cyr, if human resource is what that activates the system, then a
way must be found to tap into the majority of the population not employed in the services sector.
Dr. St. Cyr felt that the role that economics as a discipline was intended to and can do has been
overplayed. It must not be overemphasized or given a role that it does not deserve in the
formation of national policy. The policy thrust of the current administration is toward
development of the offshore sector which serves important functions such as foreign exchange
generation and restoration of fiscal balance, but does not absorb excess labour. Thus, the
ingenuity of the population is locked-up onshore and must be exploited. As such, to begin this
process, successful and efficient local firms that can generate their own foreign exchange must
be studied.
Fiscal Policy – Dr. Dhanayshar Mahabir, Lecturer, Department of Economics
Dr. Mahabir began by saying that economies are structurally different, though there are some
universal truths which can be applied to all economies. He stated that economies are similar
when it comes to the management of scarce resources, for example. In scarce environments
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fiscal discipline is imposed. In the local context, the shortage is in foreign exchange. Thus, to
conserve it there must be parsimony at the level of state spending so that there is a one-to-one
relationship between the balance-of-payments and the fiscal balance. He noted that fiscal
discipline can also be externally imposed if a country wishes to access multilateral financing.
In contrast, in an environment of abundance there is a lack of fiscal discipline. Some symptoms
of this are a reduced urgency in revenue collection and tax compliance, lack of attention to
setting the optimal tax rates for revenue and incentive purposes, little attention to absorptive
capacity and a precipitous decline in living standards for the poor especially due to inflationary
bias. Thus, he concluded, inflation invokes difficult social and economic consequences.
The economic consequences include an overvalued exchange rate, an appreciation of the real
effective exchange rate, a decline in market share and competitiveness and a surrender of exportproducing activities in favour of locally-consumed good and services, characterized as the
development of Dutch Disease. An increase in the government wage bill is often correspondent
with the latter.
Dr. Mahabir indicated that economic abundance produces ill-discipline because fiscal policy is
as much political as it is economic. He cited Buchanan, whose public choice theory stated that
self-interest is primary, even for those in public service. Logically then, a political
establishment’s ultimate goal is re-election. The implications of this motivation are that the time
horizon for a government is short-term, it is interested in maximising votes, it operates at the
behest of lobbyists and financiers and bureaucracy is ultimately in its best interest.
Dr. Mahabir suggested that economic policy supersedes party politics and supplied the pursuit of
structural adjustment by different administrations as an example. He emphasized the need for a
proper framework of planning as the long-term context from which to analyse annual national
budgets, which would require:

an independent planning institute,

development plans for agriculture, transportation, decentralisation, energy,
industrialization of the non-energy sector and the public service,

an independent Central Bank, with inflation targets and a determination of the noninflationary level of fiscal spending for government,

an independent project and implementation unit within the Ministry of Works and

a Ministry of Maintenance to maintain the state’s capital stock.
Discussion
Kelvin Sargeant: [to Dr. St. Cyr]: asked for comment on how the plantation economy affected
policy; and [to Dr. Mahabir] suggested that the Vision 2020 strategic plan encapsulated some of
the issues he raised.
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Roy Thomas: wondered if the DOE were in a position to independently compose its own 5-year
economic plan and observe the response, if any, to it. He also said that, in the public sphere
there is almost no discussion of the impact of drugs on distorting the economy.
David Abdulah, FITUN: felt that the spending of surpluses is not simply about quantum, but
about direction. He maintained that the last boom had, at minimum, brought new productive
capacity in form of Pt. Lisas, et al, as opposed to the current boom which has not been used to
create such capacity or for transformation. He continued that Vision 2020 was hoped to lead to a
planning process but instead seemed to be unconnected to the work coming from the subcommittees.
Ronald Ramkissoon: did not agree that the Plantation Economy Model is not understood. In
turn, he indicated that it was important to investigate why the suggestions of economists are
often ignored.
Dhanayshar Mahabir: felt that a Planning Institute was necessary to create long term plans and
have them implemented. He felt that Vision 2020 was an ad hoc exercise and that the
government, was not duty bound to implement it. He also said that repetition was necessary to
prevail upon governments.
Shelton Nicholls: insisted that at the Central Bank, monetary policy is executed in an
independent way. He also said that transformation is a process which takes time. In this vein,
the nascent diversification which was being provided by the entertainment and tourism industries
needed to be studied. He cited Asia as an example of where significant market creation had
taken place and allowed for backward transformation. Dr. Nicholls also sought to clarify that a
significant amount of fiscal expenditure was being spent on education, health and welfare areas,
“not simply tall buildings”.
Gillian Marcelle – asked if the economy of Trinidad and Tobago had been lucky or dynamic
for the last 15 years. Without a clear understanding of this, she feared, there is the peril of
repetition of past cycles.
Dr. Lester Henry – asked what steps were being taking by the Central Bank to protect the
country’s reserves in the future given the declining US dollar.
Jason Hagley – asked about the paradox of Best’s intellectual fertility versus little or no
penetration of his ideas. He noted that we “need to figure where we went wrong” before new
plans and policies are drawn up.
Claude Byer, RIC – asked how the basic issue of high and rapidly rising food prices could have
eluded economic professionals. He asserted that the mechanism that causes food prices to
increase on a regular basis should be understood and studied so as to provide an answer to
consumers.
Eric St. Cyr – said that in his view, the Plantation Economy Model has not really affected
policy. One fundamental part of the model is that there are two distinct parts to the economy –
the offshore that dominates and the onshore that suffers. A change in output from each of these
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sectors could be a measure of transformation, but the statistics clearly indicate that
transformation is not taking place.
[in response to Ronald Ramkissson]: Dr. St. Cyr stated that the transcendence of the North
Atlantic has blinded us from taking our own Caribbean economic thought seriously. Unless this
school of thought disappears, it will continue to prevent a paradigm shift.
[in response to Gillian Marcelle]: He asserted that we are in the process of nation-building. We,
as a nation, are very young and in this context he felt that the country was doing very well.
Shelton Nicholls: [to Claude Byer] explained that there has been some mitigation in food prices
through activism and said that consumers need to protect their own interests through comparison
shopping.
[in response to Lester Henry] Dr. Nicholls responded that currencies depreciate and appreciate
from time to time and that the Central Bank makes tactical adjustments to portfolio benchmarks
accordingly.
[in response to Gillian Marcelle] Dr. Nicholls stated that sometimes we must not berate
ourselves, but rather continue instead to drive processes. He felt that Caribbean people lack will,
faith and belief in eventual success. Instead he suggested that criticisms and failures must be
learned from as development is a process with no instantaneous gains.
Dhanayshar Mahabir: put forward that in this part of the world, the economist must have a
public presence because the luxury of independently funded think tanks does not exist. He felt
that since the 1970’s the level of economic analysis of government policy has increased and has
also become more public.
[in response to Claude Byer]: Dr. Mahabir felt that the issue of food prices had been analysed
and the level of government spending was at fault, rather than the opportunism of retailers.
Shelton Nicholls: suggested that the DOE prepare a set of micro studies on certain non-oil
sectors such entertainment and education services. He also noted that the production boundary
can also be extended beyond national boundaries and that the potential benefits of this to the
local economy should also be on the research agenda for the DOE.
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SESSION 2: FISCAL MANAGEMENT & SESSION 3: & FINANCIAL SECTOR
DEVELOPMENT IN TRINDAD & TOBAGO1
Chair: Mrs. Anne-Marie Mohammed
Fiscal Federalism: The Tobago Experience – Selvon Hazel, Senior Consultant in the office
of the Secretary of Finance and Enterprise Development, Tobago House of Assembly
(THA).
Mr. Selvon presented a paper which traced the history of Tobago’s fiscal federalism and
identified the main fiscal policy challenges for the island as well as related conclusions. Using
the pre-1980, 1980-1996 and post-1996 eras as signposts, Mr. Hazel detailed how the fiscal
arrangement between the THA and the central government became gradually more decentralized.
The most striking feature of fiscal decentralisation between the Central government and the THA
was that political factors, rather economic factors, were the main drivers influencing the process.
The bases of the case for fiscal federalism were the existence of structural differences between
Tobago and Trinidad; the potential for increased allocative efficiency, as the THA is
knowledgeable about the local population and therefore more efficient in resource allocation; and
division of labour, as this frees the central government to deal with higher level functions such as
monitoring and evaluation and policy formulation.
Prior to 2000, the predictability and quantum of transfers were often a source of conflict. This
led to the activation of the Dispute Resolution Commission (DRC), which is still hampered as its
rulings are not legally binding. Other contemporary revenue challenges in Tobago include tax
evasion and avoidance; uncollected revenues; moral hazard, which discourages the THA from
tax enforcement, inter alia.
On the expenditure side, the challenges were the weak multiplier effect, particularly because the
labour structure is largely imported in certain sectors; the bias toward recurrent expenditure;
project implementation lags and procurement issues; the need for greater accountability and
better financial management systems. He also presented a variety of proposals for further
decentralization including improved tax collection mechanisms and legislature, creation of a
discrete Valuations Division and Tender Committee for Tobago and the establishment of a debt
management system.
Mr. Selvon concluded by saying that fiscal federalism is not an end in itself but a tool for overall
economic development.
Trinidad and Tobago: Financial Capital of the Region, Are We There Yet? – Mr. Kelvin
Sargeant, Chief Executive Officer, NEDCO
Mr. Sargeant commenced his presentation with a general definition of a Caribbean financial
capital as a market where regional members can access both debt and equity. He noted that other
members of the region were in need of financing but access to multilateral lending was limited
and expensive. In turn, the population of Trinidad and Tobago could enjoy increased options for
1
In the interest of time, these sessions were amalgamated.
10
investment, risk diversification and wealth generation by supplying these needs. He added that
to pursue the goal of becoming a financial centre, the country had undergone significant changes
to liberalize and innovate financial markets as well as to create a sound legal framework for
support. He listed several developments including legislative reform and the creation of
monitoring and supervisory bodies.
The empirical evidence showed that the issuance of domestic sovereign debt had increased and
other regional governments had also sourced capital on the domestic market through flotation of
bonds. The caveat is that the primary bond market remains relatively thin, while the secondary
market for corporate bonds is illiquid. In the equities market, progress was also mixed. Market
capitalization increased greatly, returns exceeded those of developed markets and electronic
trading and settlements have been introduced. However, stocks remain tightly held, there are no
new market entrants and the market contributes little to the overall economy or to new
businesses largely because private companies are reluctant to subject themselves to the scrutiny
required for stock market listing.
Sargeant’s conclusion was that the local capital market still lacks transparency and critical mass.
Thus, while the market has developed, it has not yet reached the point of being deemed the
regional financial capital. In order to achieve this, there was still need for greater connectivity
technology, harmonised laws and standards, more depth and breadth in stock listings, wider
product choice, region-wide public education and an agreement among CSME partners to
support Trinidad and Tobago as the premier financial destination in the region.
The Financial Sector and Economic Development: Myths, Realities and the Way Forward –
Dr. Ronald Ramkissoon, Economic Intelligence Unit, Republic Bank
Dr. Ramkissoon’s presentation was based on debunking six often touted propositions about the
banking system that he deemed myths. They were:

Banks only lend for consumption

Bank spreads are too high

T&T is already a regional financial centre

Banks do not lend for development

Banks do not compete

Banks do not take enough risks
Dr. Ramkissoon presented data showing that overall, banks lent more to commercial enterprises
than to consumers and also that consumer loans included financing for education and stock
market investment. He concluded from this that bank financing was not consumption-driven. He
suggested that appropriate institutions other than commercial banks be created for financing
high-risk and microbusiness loans. He also argued that wide bank spreads resulted chiefly from
the inherent risk of doing business in the Caribbean and that return-on-assets for local
commercial banks was not as high as some non-bank financial institutions.
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Dr. Ramkissoon also concurred with Mr. Sargeant’s conclusion that Trinidad and Tobago was
not yet a regional financial centre because it lacked sufficiently sophisticated personnel, legal
framework and ICT.
His stance on banks’ lending for development held that merchant banks and trust companies
were created by banks to serve this purpose and developmental finance constituted a large
portion of their portfolios. He also dismissed the notion that banks did not compete, saying that
the large advertising bill that banks footed was evidence of active competition. In addition, he
cautioned that competition can possibly drive banks to acquire excessively risky portfolios, with
potentially dire consequences.
Finally, he said that risk adoption by banks is ultimately guided by Central Bank’s rules and
regulations and that additional risks could either incur additional profits or losses. In that light,
he surmised that building appropriate institutions designed to take on higher risks was a better
alternative.
Financial Issues and Contradictions in a Booming Economy - Dr. Lester Henry
Dr. Henry began his presentation by pointing out certain salient aspects of the financial
liberalisation of the early 1990’s, notably exchange rate flotation, relaxation of local market
entry rules for foreign banks and the start of the move toward becoming a regional financial
centre.
He demonstrated that commercial banks commanded more than half of the profits in the financial
sector in 2005 and enjoyed a doubling of after-tax profitability between 2001 and 2005.
Consumer loans accounted for 30-40% of total bank lending in the same period, while sectors
that drove the economy enjoyed a lesser relative share of bank financing. He went on to show
that commercial banks have double the spreads of non-bank financial institutions and noted that
the International Monetary Fund also issued statements that the domestic bank spreads were
unusually high and were indicative of collusion or inefficiency. He added that the high cost of
capital in other countries like Jamaica and Guyana was due to relative scarcity of capital in the
market – a condition which did not hold in Trinidad and Tobago.
Dr. Henry also found that large and increasing outflows from the capital account were alarming
and noted that in earlier days, these outflows would have been deemed capital flight. He added
that the Central Bank’s obligation to provide the foreign reserves to fund these outflows, which
provide financing to the Caribbean, jeopardizes the local exchange rate. He felt that the local
exchange rate should not be compromised when the economy was demonstrating strong
fundamentals.
As a side note, Dr. Henry also stated that the imminent sale of Royal Bank to CIBC could have
positive consequences if it provided access to lower cost funds abroad, but could also stimulate
larger outward flows and initiate a trend toward further foreign acquisitions. Dr. Henry’s final
conclusions were that high cost of capital is plaguing the financial sector despite lower
international rates and that lending is too concentrated in non-productive sectors. He also
questioned the actual benefit of Trinidad and Tobago as a regional financial centre.
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Discussion
Dennis Pantin: asked Selvon Hazel if the vision he presented for Tobago’s fiscal freedom would
still include subventions from Trinidadian fiscal coffers.
[to Lester Henry]: asked if Dr. Henry could provide an elaboration on the domestic situation in
which the oil and gas industries generate abundant foreign exchange while private institutions
lend it regionally. He wondered how Trinidad and Tobago might gain from the situation and if
the Central Bank should keep ownership of the foreign exchange instead and sterilize these flows
by possibly lending them at 0% interest, while maintaining ownership to ensure their return. He
also asked if the local market was attracting foreign savings as well.
Anthony Birchwood, CCMS: felt that work on having a well integrated stock market across
Barbados, Jamaica and Trinidad and Tobago was well advanced, but this progress was ignored in
Mr. Sargeant’s presentation.
[to Ronald Ramkisson] He observed that there was a move in the 1970’s to localize banking and
of which there now seems to be a reversal. He asked what the incentive was for a foreign bank
to be a good corporate citizen and if ownership plays a large part in lending to the business sector
rather than for private consumption. He also asked why interest rate spreads are so high given
the high liquidity in the region.
Kelvin Sargeant: replied that there is harmonisation across the exchanges, but there is jockeying
for the leadership role among regional members. He agreed that there was risk exposure in
providing finance to the region, but that it was limited since most of the bonds were sovereign
and posed less risk. He also pointed out that despite lending in US currency, lending rates
tended to be in line with local rates.
Ronald Ramkissoon: [in response to Dennis Pantin] thought that those who do the lending will
definitely need to take account of how much of their porftfolio is going abroad and follow
prudent rules. He felt that since T&T does business in the region, it was not misguided to
provide financial services as well.
In relation to the composition of loans, Dr. Ramkissoon said that at one time Republic Bank
would have provided 90% of its lending to the agricultural sector, but currently lends where there
is demand as well as less risk of default. The banks also do not lend to the energy sector because
energy firms require more foreign exchange than local banks can provide and because these
firms can access capital in international markets at lower cost. He stated that commercial banks
are a part of the economy and operate based on the extant structure. He posited that they cannot
act differently and if wished to, the Central Bank’s regulations would restrict them. He also
pointed out that commercial banks also raise funds externally to fund their foreign investment.
[in response to Anthony Birchwood] The portfolios of commercial banks converge because
banks have the same objectives and lend to sectors which are doing well and able to repay. He
added that liquidity is largely comprised of short-term funds. Thus the maturity structure
precluded banks from providing long-term funds.
13
Selvon Hazel: replied that there is already provision in the Act 40 for the THA to borrow, there
simply needs to be approval from the Ministry of Finance. The authority for the establishment of
Central Tenders Board is also provided for in the same act, but some administrative problems
exist.
Lester Henry: submitted that the point is taken that Trinidad and Tobago is accepting some
measure of risk by lending to some parties such as Jamaica and Antigua. These countries pay
high premiums because no one else is willing to lend to them. He allowed that regional banks
ought to understand these countries and the risks, but did not feel confident that this precluded
default. Dr. Henry added that he had not seen any evidence in the balance-of-payments to show
the benefit of lending to these countries.
Carlene Coker, CBTT: asked what banks would require to lend to small and medium-sized
enterprises.
Earl Boodoo, CBTT: [to Lester Henry] expanded on the issue of lending to the energy sector.
He explained that risk exposure in lending for exploration, for example, is quite high and that the
Central Bank would be concerned about such behaviour. He added that the Central Bank is
working on the issue of high interest rate spreads. Dr. Boodoo also said that the Central Bank
comes into the market in a supporting role to meet the needs of consumer transactions, not to
directly support the issue of bonds. He questioned what the size of the foreign exchange market
was, what percentage of it the Central Bank was responsible for and what constraints could
reasonably be placed on the market. He also indicated what happens with exchange rates as
purely reflective of what is happening in the market. The Central Bank maintains that holding
reserves serves a national purpose. He noted that a bond market was arguably an integral part of
developing a financial centre, so that the development of the latter necessitated discussions on
the former. He submitted that if providing financial services to the region was thought to be
fruitful, than the bond market should do the same and that insufficient time had elapsed to show
the effects on the capital account.
Ronald Ramkissoon: [in response to Lester Henry] noted that there was a growth in nominal
profitability across all institutions with the economic pickup arising out of the early 1990’s. He
asserted that institutions which have greater asset bases can accept lower returns, so that ROA
comparisons ought to be among banks of equal size. In comparing spreads between banks and
other financial institutions, he indicated that the lower reserve requirements for non-banks allow
for the acceptance of lower spreads. He also pointed out that these institutions are often
subsidiaries of banks and this also allows them to accept smaller rates of return.
Dr. Ramkissoon also felt that controls on foreign investment did not prevent capital flight in
previous times and that the region could stand to grow from providing financing abroad from
which returns could accrue to the local economy.
[in response to Carlene Coker] Dr. Ramkissoon felt that small business did access some bank
financing and that there were factors other than capital shortage which could contribute to their
success. These included lack of understanding of business cash flows, marketing, etc. He also
felt there was a lack of encouragement for entrepreneurship.
14
Lester Henry: Dr. Henry first thanked Dr. Boodoo for his intervention and clarified that he also
felt there was a contradiction between developing the bond market and taking on additional risk.
[in response to Ronald Ramkissoon] Dr. Henry said that the Central Bank cut reserve
requirements across the board from 2002-2006 and bank profitability went up significantly. In
the same time period, the spreads remained the same as banks responded by lowering solely
deposit and not lending rates.
15
SESSION 4: ECONOMIC INFRASTRUCTURE
Chair: Mrs. Anne-Marie Mohammed
Issues in the Implementation of the National ICT Plan for Trinidad and Tobago – Mr.
Martin Frankin, Lecturer, Department of Economics
Mr. Franklin began by defining ICT as the integrated use of informatics, information and
communication tools and infrastructure to assist in the dissemination of knowledge. He cited
scholarly work which asserted that ICT has the potential to influence social and economic
development in a multitude of ways. Conditions for positive benefits to development include
inter alia, ICT diffusion, openness to trade, investment and innovation, continuous workforce
training and the existence of relevant policies and institutions.
Mr. Franklin described the Trinidad and Tobago National ICT (NICT) Plan which was
promulgated in 2003, as having a host of objectives concerning increased access to computers in
schools, libraries and homes and expanded internet access to at least half the population by 2008.
To meet these objectives, several initiatives were meant to be undertaken. The progress since
then amounted chiefly to liberalization of the telecommunications sector, VAT exemptions on
the purchase of telecom equipment for internet provision, the production of guidelines, a
discussion paper and the hosting of a workshop. He noted that whilst the agenda of the NICT
Plan states that it is meant to transform the Trinidad and Tobago into a knowledge-based society
by 2008, there are no annual targets, progress reports, evaluation mechanisms, or feedback
channels for stakeholders.
Mr. Franklin then presented data which showed Trinidad and Tobago making substantially less
progress in technology diffusion compared to regional counterparts, Jamaica and Barbados,
between 1990 and 2004. He contended that the internet penetration rate (at 7.1% by March
2006) was increasing too slowly. Mr. Franklin presented a substantial list of the challenges and
risks of implementation. General themes included lack of stakeholder understanding and buy-in,
ensuring equitable distribution among income groups and ethnicities, institutional reform,
transparency, lags in liberalization and varying levels of commitment and awareness about the
plan. Mr. Franklin also cautioned that brain drain and reinforcement of old power and wealth
structures were potential implementation risks to avoid.
A Transportation Strategy for Trinidad and Tobago: Can Economics Help? – Mr. Justin
Ram, Lecturer, Department of Economics
Mr. Ram commenced by justifying the need for a transport strategy. He suggested that market
forces did not prevent negative externalities such as congestion, accidents and air emissions in
the transport market.
Mr. Ram posited that the major problem facing the transport network was congestion at peak and
off-peak hours since the demand for road space has outstripped supply. He showed that the
projections for vehicles on the roadways has risen almost exponentially. He also gave a series of
statistics showing large volumes of commuters travelling into and out of the major cities in
Trinidad and Tobago on a daily basis. Given the range of possible modes of transport, Mr. Ram
also created a matrix which showed the attributes of each mode.
16
Having given evidence that far more citizens now drive and own their own vehicles than in the
past, he also demonstrated that there has been a concurrent fall in the cost of motoring since the
real price of gasoline fell due to fuel subsidization, the removal of the road tax and the
liberalization of the market for foreign used cars.
Mr. Ram proposed solutions to the congestion problems including introducing a school bus
system, encouraging off-peak road use, discouraging city parking, removal of fuel subsidies,
reintroducing road tax, encouragement of alternatives to driving, separating the Ministry of
Transport from the Ministry of Works and having schools and workplaces closer to homes. Mr.
Ram finally also cautioned that unless the proper analysis is completed, a rapid rail project
should be delayed as it has been shown to more costly in certain US cities that a rapid bus
system, with the caveat that the perception of public transportation as an inferior good has to be
changed.
Discussion
Ms. Coker: [to Justin Ram] said that attention must be paid to the fact that the people’s activities
are not decentralized, so that in the event of a disaster, evacuation would be hampered. She also
added that the local bus system was suffering as buses and the bus drivers themselves were
aging. In the case of the former, it meant that the newly acquired buses were used as
replacements rather than additions to the fleet. She surmised that more people would use the bus
system if it were reliable. She also felt that private maxi taxis were relatively unsafe because of
the possibility of being robbed and the reckless road habits of hired drivers.
Roy Thomas: [to Justin Ram] congratulated Mr. Ram on excellent preliminary work and
suggested the inclusion of sociological factors in the study.
Gregory McGuire: [to Justin Ram] felt that along sociological lines, maxi taxi drivers might be
most opposed to the rapid rail because of the threat it would pose to their trade. He also asked
about central government decentralisation as a form of congestion mitigation and wondered how
many people going into the capital city are on business at government offices. He suggested that
quantifying those road users might make the case for moving a number of ministries out of the
capital city where some of them should not have been located originally.
Roger McLean: [to Martin Franklin] said that in terms of ICT there seems to be an absence of
consistent baseline measurements at various stages in the development process. He asked for
Mr. Franklin’s comments.
[to Justin Ram] gathered that the consensus emerging from the floor was that the congestion was
really an urban planning problem. He wondered about its impact on productivity and on disaster
management. He also suggested that Mr. Ram’s attribute table for the different types of
transportation might benefit from the inputs of a survey-type approach. Mr. McLean also
wondered how an aging population might impact on the transportation system in the future and
remarked that the study was quite broad in its scope.
17
Unidentified person: [to Justin Ram] asked whether any work had been done on the proposed
San Fernando/Port-of-Spain ferry.
Cécile Pemberton: [to Martin Franklin] asked for an explanation of the internet penetration rate
and wondered if the number of internet subscribers was an accurate indicator for internet access
given the large number of internet cafes.
[to Justin Ram] asked why fuel costs were the only indicator of cost for private transport.
Johnny Gopaulsingh: commended Mr. Ram’s statistics. He felt that historical habit might
continue to take people into Port-of-Spain, even if some services are decentralized. He gave an
alternative - having the seat of government in Gran Couva. He said that in this scenario there
would be positive implications for congestion, the imbalance of real estate prices and for overall
health and well-being. He felt that Mr. Ram’s study could be re-contextualized with this new
approach.
Jason Hagley: [to Justin Ram] stated that the transportation system and the economy are
unquestionably related and asked if a sufficient amount of money was being invested in the
transportation system to support expected industrial and other developments in the economy.
Steven Cockburn, CSO: suggested that a study be done on the possibility of using the internet
for telecommuting as a means of decreasing demand for transport.
Martin Franklin: [to Steven Cockburn] remarked that there was at least a partial solution to the
transportation problem in ICT. The part of the NICT that deals with public internet access to all
routine government processes is crucial to reducing congestion.
[to Roger McLean] replied that some measurements were taken at the start of the project in 2003,
but the project lost momentum with the loss of important personnel. There were also no
indications of progress on the pathfinder projects which were meant to carry the NICT forward.
[to Cécile Pemberton] replied that internet users are measured in persons per thousand and
gauges the number of people accessing internet both at home and from other sources like internet
cafes. The internet penetration rate has to do with access per number of households and now
stands at 7%. This implies that TSTT did something quite wrong, but has plans to offer
broadband at competitive rates in the future.
Justin Ram: [to Carlene Coker] agreed that there would be more bus usage if the system were
more reliable, but maintained that even if it were, people have no compunction in switching back
to private cars should there be any problems with the system. He also hesitated to condemn the
maxi taxi system as it is largely private and only subsidized in a minor way through the fuel
subsidy. However, he added that maxi taxis ought to be regulated and felt a public-private
partnership might be the way to do that. He also accepted Mr. Thomas’ suggestion of including
sociological factors.
[to Gregory McGuire] Mr. Ram acknowledged that determining the proportion of persons
coming into Port-of-Spain who are accessing government services was an interesting angle and
the information might serve well in presentations to policy-makers.
18
[to Roger McLean] Mr. Ram agreed that a survey might be a better approach to populating the
attribute table.
[to Cécile Pemberton] Mr. Ram explained that fuel cost was used at this point because the study
is still at preliminary stages and that a life cycle analysis will be performed to determine all the
costs of motoring. He did note, however, that fuel is the major recurrent cost in motoring.
[to Johnny Gopaulsingh] Mr. Ram was unsure whether the study might have the scope to
consider an alternative location for the seat of government. He added that there is research
which says that strong, competitive cities are necessary for overall development. He thought the
vibrancy of Port-of-Spain was still important to economic growth.
[to Jason Hagley] Mr. Ram concluded that there has not been sufficient investment in
transportation. Perhaps the remedy for this, he speculated, is to have the users of the system pay
for this investment by ringfencing transport taxes.
19
DAY 2
SESSION 5: GOVERNANCE OF NATURAL RESOURCES: ACCOUNTING FOR
RESOURCES
Chair: Mr. Earl Boodoo
Medium-term Natural Gas Supply/Demand Balance: Some Policy Implications – Mr.
Gregory McGuire, Lecturer, Department on Economics
Mr. McGuire began by contending that part of governance is providing public information about
natural assets as these assets belong to all citizens. He spoke of several new confirmed gasbased industrial projects to come on stream in the next few years, probable projects and other
possibilities. In the next 4-5 years these projects represent a possible US$13 billion injection of
direct foreign investment as well as 2 bcf/day in natural gas consumption.
Mr. McGuire described what he called the ‘promised land’ – a future which would include the
introduction of industries producing ethylene, propylene, aluminium and other downstream
petrochemical products in order to maintain the buoyancy the economy now enjoys. He posed
the question “do we have the resources to supply this level of demand for the next 20 years?”.
He used three scenarios which went until 2030 to determine possible futures.
In scenario 1, his base case, Mr. McGuire projected gas demand as the current level plus that
from confirmed projects and an incremental increase of 1% per annum. In this future gas
demand would be 4.9 bcf/day by 2030; known reserves would depleted by 2021 with no new
discoveries or by 2026 if a find of 10 tcf is assumed within 10 years. In the second scenario,
called ‘pragmatism’, he added the demand from additional probable projects to the base case
demand. Total demand would then amount to 5.4 bcf/day by 2030. In his final, ‘optimism’
scenario, projected demand equalled ‘pragmatism’ plus 0.6 bcf/day worth of additional projects.
In this scenario, even with a 10 tcf find in the next 10 years, reserves would still be fully utilized
by 2022. With limiting assumptions on the level of reserves, he was able to show that if a
reserves/production ratio of 10 years is maintained, then a reserve addition of 32 tcf is needed by
2030 to sustain the base case, 32.8 tcf for the pragmatic and 50 tcf in the optimistic. These each
represent substantial amounts of gas discoveries.
Mr. McGuire noted that forecasts are limited in that other pertinent factors were not considered.
The slate of projects, for example, is externally-driven and thus subject to change. Some plants
may also need to be retired or revamped, and other factors were not considered (political,
economic, social, etc.). His main conclusion was that the current level of known reserves cannot
sustain today’s industry past 2020. Another LNG project would require significant reserve
additions. He also observed that there still is acreage to explore and the companies in the market
are bullish about exploration. He felt that an aggressive exploration strategy and a firm and
stable relationship with Venezuela were both necessary for a secure supply scenario in the future.
20
Towards a Model for Governance and Transparency in the Energy Sector – Mr. Anthony
Paul, Managing Director, Association of Caribbean Energy Specialists Limited
Mr. Paul’s presentation justified the assertion that good governance and transparency are nonnegotiable and presented a possible framework for achieving them. He said that transparency
was necessary because natural resources are owned by the citizenry, while the government only
acted as a management agent on its behalf. Good governance, on the other hand, ensured that
owners derive maximum value from their resources. They are both attainable if there is timely
access to accurate and complete information on the industry.
Mr. Paul went on to use the vast difference between the Henry Hub price and market value of
gas to illustrate how much shortfall there can be in revenue, depending on which price was
employed for the taxation policy created by Board of Inland Revenue (US$165.7 million in the
month of January 2004). This kind of information is not available to the average citizen, he
ventured, and appears to have escaped the Board as well. He added the Petroleum Crude Oil
Pricing Committee had not met to determine the market value of crude for at least six years and
there was a routine five year lag in the government’s audit of oil companies’ tax liability.
In explaining how the government makes decisions concerning hydrocarbon resources, Mr. Paul
highlighted the non-transparency, arbitrariness and complexity of the system. In particular he
noted that some governmental agents act as both operators and regulators in the market, causing
a conflict of interest.
Mr. Paul used an outline of energy sector objectives and the framework for action from the
reports of the Vision 2020 energy sub-committee to give his suggestions on how to
systematically achieve transparency in the industry. He outlined an action sequence for good
governance – define intent; craft policy; create legislation; develop strategies, plans and actions;
execute and maintain oversight. He also held that civil society participation was essential and
most effective when efforts were coordinated and pooled.
Inequity and the Labour Market – David Abdulah, OWTU
Mr. Abdulah used an analysis of wages to draw conclusions about the labour market. He
conceded that economists now look beyond typical indicators like income per capita to examine
human well-being, above and beyond the economy’s health. However, he accounted for his own
use of per capita income by saying that in a society where the provision of public goods is
inadequate or sub-standard, people must often pay for private health and education services
though they are also provided gratis. In this way, income becomes a more important indicator of
well-being.
Mr. Abdulah outlined labour market trends. He showed, for example, that though persons with
jobs moved from 479,300 in 1998 to 583,000 in 2006, persons without jobs fell from 79,000 to
45,000. Additionally, the participation rate increased only marginally (61-64%). He felt that
these changes were not as significant as one would expect given the level of growth over the last
7 or so years. He thus questioned if full employment only referred to persons in the labour force
and why so many were not participating in the market.
21
In examining a series of income statistics, Mr. Abdulah derived a distribution which showed that
the majority of the work force is making less that TT$3000/mth. He reasoned that the work
force was skewed, showing most persons working at or just above minimum wage which in
effect made them the ‘working poor’. Accordingly, he posed the question, “is the oil and gas
wealth being distributed equitably?” He also indicated that a minimum wage increase of 29%
was not in line with food inflation being over 100%. This meant that low-income earners spent
most of their income on food, putting severe pressure on their well-being, either because of
reduced food intake or increased working hours.
He emphasized his point by highlighting the sectoral distribution of employment, in which there
was an absolute decline in agriculture, marginal increases in petroleum and manufacturing and
significant increases in construction and other services. He categorized many of the newly
created jobs as low- or semi-skilled, paying low wages. He asserted that high-end jobs were not
being created in the same fashion. He came to the conclusion that the labour force was being
consciously structured as more inequitable than it had been in the past. In addressing the social
implications for the future, given the exclusion of most of the population from the boom, Mr.
Abdulah inferred that fallouts may give rise to social expenditure in the form of poverty
reduction. Mr. Abdulah contended the superior alternative was to have policies which did not
create poverty in the first instance.
Sustaining Full Employment After the ‘Oil Dun and the Yankees Go’: Focusing on the labour
Market Challenge in the Transformation of the Rentier Economy – Prof. Dennis Pantin
Prof. Pantin opened his presentation by supplying empirical trends in different sectors of the
labour market over the periods 1973-84 (boom), 1985-1995 (bust) and 1996-2006 (boom). He
hypothesized that there is a positive relationship between the performance of the hydrocarbon
sector and employment creation, particularly in relation to the construction sector.
Prof. Pantin then questioned what the implications of the demise of the local hydrocarbon
industry would be. He explained that several factors such as high energy prices, environmental
concerns and the increasing unease of metropolitan countries over uncertain supply would
contribute to this scenario. Continuing his analysis, Prof. Pantin emphasized the importance of
the rentier economy paradigm, where economic survival and growth is dependent on external
rents derived from natural resources, as a theoretical framework for the local economy.
Prof. Pantin prescribed four “MMCI” rules for the transformation of the economy away from
rentier status, namely, Maximize value-added, Measure economic rents, Capture economic rents
and Invest such rents. His proposals included:



Investment within natural resource sector to maximize value-added and export potential,
independent of the natural resource stock (e.g. services, foreign investment), as well as
investment in other productive sectors of the economy and in human, social and physical
infrastructure,
Implementation of Industrial and Technology Policy to support investment choices,
Provision of incentives for genuinely productive activities in both the hydrocarbon and
non-hydrocarbon sectors,
22




Investment concentrated heavily in human resource development which supports
investment choices,
Modification of national income accounts to measure genuine savings,
Sterilization of windfall incomes,
Buttress of monetary/BOP objectives through establishment of a Modified Currency
Board.
In closing, Prof. Pantin offered some thoughts on the transformation of the economy. He
estimated that 60,000-80,000 directly or indirectly boom-related jobs will be affected by an
unfavourable change in energy markets unless the economy is transformed. He also projected
that the transformation process would take about ten years, with some results visible in 3-5 years,
and according to preliminary estimates, could cost between TT$6 billion and TT$16 billion. He
also advocated for transitional arrangements such as micro-entrepreneurial development,
decentralized employment and involvement of stakeholders in creating transitional and
transformational strategies.
Discussion
Ronald Ramkissoon: [to Dennis Pantin]: asked if the Prime Minister’s suggestion of creating a
macro-company in the energy sector to do business abroad was congruent with the ideas Prof.
Pantin presented.
[to David Abdulah] asked firstly if the labour unions were likely to be a constraint. He also
asked what the basis for distribution of energy wealth ought to be.
[to Gregory McGuire] inquired if the tax regime were appropriate. He also asked if obtaining
additional energy supplies from Venezuela or African countries was feasible.
Charles DeMatas, UWI: [to Anthony Paul] said that when tax regimes are renegotiated,
sometimes a free tranche of ‘royalty gas’ is given to governments as a form of payment. He
asked how the allocation of the gas is decided. He also wondered why there was an emphasis on
LNG in the natural gas market as opposed to going straight to the ‘promised land’ industries.
Contrasting the approaches of the UK and Norway in terms of natural gas extraction, Mr.
DeMatas surmised that Norway had benefited from a more gradual approach to extraction.
Norman Girvan: [to Gregory McGuire] asked about the possible inclusion of global shifts and
possibilities such as a global recession or a decrease in the demand for fossil fuels when making
projections about the potential length of the resource boom.
[to Dennis Pantin] asked if it were possible to diversify to a non-rentier economy without the
state also reducing or altering the incentives for rentier activities by decreasing expenditure or
increasing taxation.
Kelvin Sargeant: [to David Abdulah] asked if the unions have decided on what a ‘decent’
minimum wage should be. He also wondered if Mr. Abdulah had any thoughts on how to
optimise worker productivity.
23
Johnny Gopaulsingh: commented that the economy has always been driven by energy and
external factors. Given that solar energy will prove to be the cleanest energy, he wondered why
related research and development was not encouraged given the abundance of the resource
domestically.
Gregory McGuire: [in response to Ronald Ramkissoon] replied that the PM’s idea of a macro
oil and gas company is not new. Reflecting on the extant problems in state energy companies,
Mr. McGuire felt that merging them would be counterintuitive and compound problems that
exist in at least two of the companies. As an alternative, he offered the idea of a new company
which ought be adequately capitalised with its own structure and direction and perhaps with the
National Gas Company as a shareholder. He continued on to the tax regime by indicating that
the lukewarm response to the last bid round would more than likely prompt the Ministry of
Energy to reconsider its stance on upstream incentives.
He also felt that maintaining good relations with Venezuela is crucial and will require a fair
amount of diplomatic skill, but the resolution of the first cross border agreement should augur
well for the relationship. On the other hand, he emphasized that importing supplies from Africa
would not allow the industry to remain price competitive given the cost of transport. To
capitalise on African markets, state companies might do well instead to follow the lead of
Methanol Holdings Limited and acquire African assets in order to capitalize on business
opportunities there.
[in response to Norman Girvan] conceded that inclusion of factors such those that as were
mentioned is valid. However, without the benefit of formal calculation, Mr. McGuire ventured
that both oil and gas could fall by as much as 30-40% in price without damaging the
government’s fiscal position because of the incredible increases in volume over the last few
years.
Anthony Paul: noted that Trinidadian business and in particular individual energy personnel in
the diaspora are doing well overseas. He suggested that local business involvement in energy
services abroad was an excellent entry point into the industry as it involved lower risk and was
more sustainable. He also added that Trinidad was producing some the best geoscientists and
drillers in the world and that marketing training services was another opportunity to capitalize on
benefits in the sector.
[to Mr DeMatas] explained that the use of royalty gas is decided among the Standing Committee
on Energy, and to a lesser extent, the Inter-Ministerial Committee and the Task Force on Gas.
David Abdulah: commented that the PM’s statement on merging state companies was politically
motivated and had more to do with unseating trade union representation for energy workers. He
felt that a major challenge for state enterprises was their internal self-governance and said that
unions have long advocated that state boards be insulated from political regime change so that
companies could maintain consistent vision and strategy.
[to Ronald Ramkissoon] replied that the distribution of wealth should not be operationalized
through handouts or programmes like URP or CEPEP which are essentially about political
patronage. He felt that the key issue was transformation and that dependency must be
24
discouraged by ensuring that permanent jobs are not low-end service jobs and that short-term
employment is created within the structure of the economy and the thrust to transformation.
[to Kelvin Sargeant] A decent wage depends on the cost of access to nutritious food, social
services, transport and utilities. If these things can be addressed, the dollar amount of the
minimum wage could be lower. Low productivity is a function of a low sense of ownership in
addition to factors which contribute to stress such as family issues and inordinate road
congestion. This is something which should be studied and discussed at length.
Dennis Pantin: added to Mr. McGuire’s contribution that the operations of state-owned
companies such as Petrotrin should not simply be accepted as a ‘lost cause’ and submitted that
shared ownership among the people of the country might be a potential way to demand
accountability.
[to Norman Girvan] Prof. Pantin agreed that incentives for diversification were needed. He
highlighted the sterilization of foreign exchange flows to reduce the monetization of windfalls,
attendant inflationary pressure and to prevent wastage of foreign exchange on consumer imports,
in addition to the reintroduction of a modified currency board.
[to Johnny Gopaulsingh] replied that the long-term competitive advantage of Trinidad and
Tobago was in becoming a centre of intellectual discourse and cultural engagement. In this vein,
Prof. Pantin suggested that incentives to encourage research and development and the
development of commercial products were important.
Devin Basdeo, South Chamber of Industry of Commerce (SCIC): commented that Trinidad
and Tobago’s competitive advantage is in oil and gas, particularly in service provision. He
added that the SCIC, Ministry of Energy and Energy Industries, inter alia, are now pushing for
the creation of centres of excellence and local content.
Nyron Seaton: gave the suggestion of diversifying the economy away from oil and gas by
providing educational services to Latin America, particularly in teaching English. He added that
competitive advantage could be had in traditional and sports tourism as well as educational
services and asked what incentives can be put in place for the private sector to fill this niche.
Joy Braithwaite: first wished to draw attention to the UN’s Millennium Declaration as a guide
for ensuring that all persons are included in the process to development. She asked about the real
meaning of a minimum wage in a context where people are working in excess of forty hours a
week. She also noted that she knew of 3,500 vacancies in the manufacturing sector, whilst the
government offered more than 150 different training programmes which were meant to be easily
available to the public. She wondered what was missing in having persons find employment.
[to David Abdulah] asked to what extent the trade union movement could redirect its members to
access the training services offered.
[to Dennis Pantin] asked what part the Heritage and Stabilization Fund played in managing
energy windfalls. She also wondered what prevented the country’s entry into the plastics
industry.
25
[to Anthony Paul] she added finally that, while it is often that acknowledged that civil society
participation is a critical element in discussion on development, such inclusion is often ignored
or only offered on a token basis.
Gregory McGuire: [in response to Devin Basdeo] endorsed the importance of building the
energy services sector.
[in response to Nyron Seaton] He also observed that education service provision to Latin
America has flagged in the past, that the private sector need not wait on the government for
incentives, and that some players were already tapping into this sector.
Anthony Paul: [in response to Devin Basdeo] found that the local services sector was once
flourishing, but was starting to decline as multinational companies were now shifting former
North Sea personnel to Trinidadian operations and displacing local operators. He added that the
push for local content had disappeared with the change in the Minister of Energy & Energy
Industries and cautioned the SCIC against losing sight of local opportunities in favour of only
pursuing international ones.
[in response to Joy Braithwaite] on the subject of civil society engagement, Mr. Paul felt that a
mechanism for leadership and a common platform of objectives were necessary to unite these
groups.
David Abdulah: [in response to Devin Basdeo] advanced that the philosophical stance on
human resources ought to be shifted to appreciate the true value of human capital.
[in response to Joy Braithwaite] felt that people would decline more formal employment as long
as there were programmes like CEPEP. He also noted that some of the training programmes
could be rationalized so that it would be easier for people to know how to access them. He
added that the union advocated the older style apprenticeship programmes which successfully
produced skilled workers in the past.
Dennis Pantin: [in response to Joy Braithwaite] said that the HSF Act is an advancement on
having no legal framework, but there ought to be a separation of funds for the distinct purposes
of heritage and stabilization which are quite different. As it stands, he concluded, the fund acts a
stabilization which can be depleted quite quickly and significant funds must instead be reserved
for investment purposes.
26
SESSION 6: SOCIAL SECTOR ISSUES
Chair: Mr. Martin Franklin
Social Sector Support in a Full Employment Context: New Dispensation, New Paradigm –
Prof. Karl Theodore, Coordinator, Health Economics Unit
Prof. Theodore’s presentation made the case for Social Sector Support (SSS). He proposed that
SSS was necessary because even in a full employment context in Trinidad and Tobago, 66,000
persons remained either without a job or business interests (30,000 unemployed; 36,000
discouraged or unemployable).
He asserted that temporary direct support is necessary for such people, as long as work
avoidance and other negative effects were not engendered. He proposed information and
placement (I-P) for displaced but willing workers; training and counsel for the discouraged; and
income support for the unable.
He explained that I-P activity diminishes labour market
deficiencies and links activity in order to maintain and increase productivity levels. Training and
counselling provides human capital development, and must also address building work ethic,
adjusting expectations and providing advice on a sustained basis. Income support may come
partially in the form of service provision, rather than as cash transfers, in addition to which, some
of the cash support may be temporary.
Prof. Theodore advised that to prevent entrenched dependency, income and work effort must be
linked by connecting SSS benefits to human capital development and separating it from political
patronage. He suggested there ought to be a Statutory National Commission on SSS, as
recommended by the 1994 McIntyre Report. Preparation for major changes to the breadth and
nature of the training programmes offered was also needed. Prof. Theodore ended by advising
that it would be wrong to conclude full employment implies there is no need for SSS.
CARIFORUM-EU Economic Partnership Agreement: The Welfare Impacts and Implications
for Policy in Trinidad and Tobago – Dr. Roger Hosein, Lecturer, Department of Economics
Dr. Hosein’s prefaced his analysis by saying that small states have an inherently higher degree of
vulnerability and are constrained by their level of development, resource endowments and
bilateral, regional and multinational arrangements. Given the replacement of the Lomé
Convention by the Cotonou Agreement, Trinidad and Tobago had to consider the potential
welfare effects of a CARIFORUM-EU Economic Partnership Agreement (EPA).
He observed that the economy was performing well in terms of GDP growth, current account
balance and terms of trade and was also enjoying high prices for hydrocarbons and
petrochemical exports. The majority of export and import trade was with the United States, but
European Union trade volumes were significant, as was the rapidly declining trade balance.
Using methodology borrowed from Greenaway and Miller, Dr. Hosein calculated that if an EPA
had been implemented, the country would have incurred a welfare loss of US$76.1m in 2005,
though, he noted, it would have been more if not for partial liberalization initiatives in the
1990’s. While he added that the EPA can bring added inflows on foreign capital through
investment opportunity creation and provide opportunities for economies-of-scale in the larger
regional market, it would also imply greater presence of the EU in the region.
27
In order to prepare for these consequences, Dr. Hosein drew up an extensive list of suggestions.
They included strengthening the National Training Agency with high performance software to
identify early labour market trends, increasing managerial support for microbusiness loans,
streamlining data churning at the Central Statistical Office, upgrading the Bureau of Standards
and CARIRI, upgrading capacity and facilities at UWI and UTT for face-to-face and distance
learning modes, building capacity at the Ministry of Trade and Industry and restricting the
influence of criminal activity on output.
A Spatial Comparison of Tourism Development and Crime: Barbados and Tobago – Mr.
Anslem Richards, Director, PRDI, Tobago
Mr. Richards’ study examined the possibility of a relationship between the level of tourism
development and the level of crime in Tobago and Barbados. After giving a brief description of
both islands, noting the significant contribution of tourism to their economies, he defined tourism
as “the selling of a people, their culture and environment to the rest of the world” for the purpose
of the study. He also chose to present some observations from his survey of related empirical
literature, namely:



Property related offenses, including robbery, are strongly related to tourism development,
Increasing inflows of visitors produce significantly higher levels of burglary and rape and
Tourism development leads to an increase in organized crime.
Mr. Richards then outlined several theoretical frameworks for considering the crime-tourism
nexus. These included, inter alia, the ‘hot spot’ theory that certain locations in a destination
encourage criminal activity by supplying tourists as victims and/or a centre for tourists to
exercise their own demand for deviant activities, as well as the ‘routine activities theory’ wherein
there are sufficiently motivated persons who take on crime as way of life in the presence of
suitable victims/targets and the absence of capable guardianship. However, he emphasized that
tourists serve both as victims and as perpetrators of criminal activity.
He also noted that there are structural traits in host societies to encourage and facilitate the
practice of certain types of crimes against tourists by not enforcing the moral codes of conduct
needed for peaceable community living. He showed that the correlation between crime and
tourist arrivals was positive for both Barbados and Tobago, but was more significant in Tobago,
showing a 0.675 correlation coefficient.
His major recommendation for mitigating the unwanted effects of tourism was for policy makers,
planners and developers to take note of the seemingly significant relationship between tourism
development and crime in the Caribbean and include crime mitigating systems at the conceptual
and design stages of tourism development projects. He also suggested community-oriented
tourism policing as well as improved data collection and monitoring and evaluation.
Discussion
David Abdulah: [to Prof. Theodore] remarked that in the context of boom and bust cycles, there
is a tendency to increase social sector spending in times of plenty and vice versa in difficult
28
times. Consequently, he asked how the temptation of trying to throw a lot of money at a problem
without actually resolving the problem could be avoided.
[to Roger Hosein] suggested that a critical analysis of trade patterns between CARICOM
countries and the EU was missing from his presentation. He went on to ask why the range and
volume of items exported to EU during the time of preferential access was not increased. He
also inquired as to the specific pros and cons of the EPA in terms of potential loss of jobs,
income and markets.
Devin Basdeo, South Chamber: [to Roger Hosein] asked what the potential markets for local
industries were. He also asked if penetration of markets in Latin America and Asia-Pacific could
be achieved. He elaborated on this idea by asking if the competitive sectors identified by the
Ministry of Trade could export their goods and services and if CAFTA-like agreements would
assist in penetrating the EU and markets in the south.
[to Anslem Richards] observed that crime is often identified with lower income persons. He
asked how criminals among the wealthy could be identified.
Lester Henry: [to Anslem Richards] was concerned about the definition of tourism as the “sale
of a people”, which Dr. Henry likened to slavery. He also asked if Mr. Richards could offer any
insight on whether there was under-reporting of crime in relation to tourism.
Roger McLean: [to Anslem Richards] asked about the reliability of the correlation coefficients,
in particular in the Barbadian case, especially if there had been underreporting. He recognized
Mr. Richard’s recommendations as supply-side interventions and wondered if there were
demand-side solutions as well. Additionally, he asked Mr. Richards to what extent the largess
from the resource boom is coupled with inequity which contributes to the justification for
criminal activity.
Karl Theodore: [in response to David Abdulah] replied that the social sector needs to be
separated from the political arena. He felt that civil society ought to put pressure on the
administration to do so. He went on to say that temporary employment programmes must be
administered so that beneficiaries understand that they must move on to the job market.
Roger Hosein: [in response to David Abdulah] responded that he believed the country did not
pursue further trade opportunities with the EU because of the booming trade in oil, which
overshadowed the output of other markets, and the consequent demonstration effect which this
had on other industries – thereby raising wages in industries where there was no consequent
productivity increase. Thus, “monsters’ were created in the non-booming tradable goods
industries by not properly managing Dutch disease.
Concerning the exact microeconomic impact effects of the EPA on the labour and output market,
Dr. Hosein refrained from giving a definite answer, as he said he was currently developing an
input-output model that ought to give a better indication. However, given the relative openness
of the economy and the dynamism of the labour market, he surmised that there would not be a
significant effect on unemployment.
29
[in response to Devin Basdeo] remarked that in order to penetrate Latin American markets there
is a need for a marketing company (either regional or national) to aggressively pursue these types
of export markets.
Anslem Richards: [in response to Devin Basdeo] replied that there is much room for studies to
be conducted on white collar crime and the recent Living Standards Survey would present a good
dataset for such work.
[in response to Lester Henry] replied that the definition of tourism was based on the nature of the
service. He felt that tourists pay to enjoy people, their culture and their environment and this is
also the way that Caribbean tourism is promoted. Whether this amounted to contemporary
slavery, he gathered, was a matter of perspective.
On the issue of underreporting, he added that crime data would always have ‘dark figures’, but
he could not say to what extent. He explained that the data had come directly from the police
service in Barbados and he assumed that it would at least demonstrate accurate trends.
[in response to Roger McLean] felt that the offshore-onshore dichotomy of the economy allowed
it to experience economic boom alongside social decay because the demand for export products
was unaffected by localized crime. Furthermore, Mr. Richards postulated that crime would
always exist, but that the society itself needed to be organized to discourage it and set moral
codes of conduct which could be upheld.
He also said that crime prevention should be the focus of this activity rather than crime detection.
He proposed that the mechanism for this was analysis of the social context in which people live.
Such study would allow for critical interventions in terms of at-risk groups and vulnerable
households. He felt that a major constraint to this type of work was the lack of an infrastructure
to monitor or examine these conditions in any meaningful way and suggested that the University
of the West Indies should be leading the discourse in this area. “History” he said, “is created in a
society by changing the status quo by social transformation or social revolution.”
30
SESSION 7: St. Augustine Association of Graduates of Economics (STAGE) FORUM
Chair: Mr. Nyron Mohammed
An Investigation of Wage Equalisation in the Nursing Market Within the CARICOM Region
– Mr. Diedron Lewis
Mr. Lewis’s presentation sought to demonstrate that intraregional migration within CARICOM
should allow wage convergence in the nursing market among member states. Mr. Lewis
introduced his work as coming from a context of increased emigration of nurses to North
America and the EU. He used Samuelson’s Factor Price Equalization Theorem for theoretical
grounding.
Mr. Lewis established wage disparity, poor working conditions, limited career opportunities and
recruitment initiatives as push and pull factors for regional migration. Theoretically, he
explained, nurses tend to move to nearby countries where GDP levels and standard of living are
higher, especially if extraregional migration is not possible. He presented a dataset which
showed non-convergence for nurses’ wages in the Caribbean between 2001 and 2003. Mr.
Lewis then presented possible barriers to entry into extraregional labour markets. These
included immigrant screening in the US, the threat of global terrorism in external markets and
the practice of ‘ethical recruitment’ in the UK.
He proposed workforce planning, recruitment and retention, bonding nurses to markets as well as
remarketing the profession and re-attracting emigrated personnel as methods to secure sufficient
nursing personnel in the region.
Financial Development and Economic Growth in the Caribbean – Ms. Varuna Ramlal
Ms. Ramlal’s study of Barbados, Jamaica and Trinidad and Tobago sought to determine if a
relationship exists between financial development and economic growth and if so, whether one
causes the other, or whether the relationship exhibits bidirectional causality. She employed both
a Vector Auto-Regression (VAR) framework and cointegration in her analysis.
In her models, Ms. Ramlal used three variables – the log ratio of broad money to GDP (m), the
log ratio of domestic credit to GDP (c) and the rate of GDP growth (g). The variables for all
countries showed the presence of unit roots, save the growth variable for Jamaica. Her block
causality tests implied bicausal relationships mostly, while for Jamaica, only m appeared to
cause growth. The evidence from the impulse response functions, Ms. Ramlal indicated, seemed
to demonstrate a negative relationship between economic growth and financial development,
especially in the case of the c variable. On the other hand, the variance decomposition, showed
almost no relationship among the variables, except in Trinidad and Tobago, where there was
evidence of bicausality. Finally, from her cointegration results, Ms. Ramlal concluded that the
short-run cointegrating vectors showed evidence of bidirectional causality in Barbados and in
Trinidad and Tobago, while in Jamaica there was only evidence of unidirectional causality from
financial development to economic growth.
On this basis, Ms. Ramlal concluded that financial sector led to economic growth, except in the
case of the credit variable which seemed to have the opposite effect. As such, she recommended
31
that economic policy ought to encourage financial sector development, while attempting to
minimize negative effects.
Discussion
Marlene Attz: [to Diedron Lewis] asked for clarification on what ethical recruitment denoted,
given that it appeared there was a high extraregional demand for Caribbean nurses.
[to Varuna Ramlal] asked Ms. Ramlal what she was specifically indicating in referring to
development of the financial market. She also questioned what the mechanism was for financial
market development leading to economic growth.
Cécile Pemberton: [to Diedron Lewis] asked for Mr. Lewis’ thoughts on the preconditions for
wage equalization in the region. She was unsure whether wages would actually equalize across
the region, or whether nurses would simply cluster in countries such as Barbados which could
afford to pay higher salaries.
[to Varuna Ramlal] asked for clarification on why there seemed to be a contradiction between
the findings from the VAR model and the cointegration exercise.
Carlene Coker: [to Diedron Lewis] asked why Mr. Lewis singled out wages as the major factor
for mobility, as there were other possibilities such as poor working conditions, decreased scope
in training opportunities and insecurity of tenure.
[to Varuna Ramlal] suggested that three more countries with lower economic growth be added to
the study to see if the conclusions would remain the same.
Steven Cockburn: [to Diedron Lewis] asked if the graph of nurses’ wages displayed nominal or
real wage data.
[to Varuna Ramlal] asked if the data were tested for stationarity, if the data were differenced, and
if any Augmented Dickey-Fuller (ADF) tests were conducted.
Unidentified Person: [to Diedron Lewis] asked Mr. Lewis if he compared the number of nurses
migrating with migration trends of nurses from other countries.
[to Varuna Ramlal]: suggested that Ms. Ramlal could examine specific sectors within the finance
market in further studies.
Diedron Lewis: [in response to Marlene Attz] replied that there is not a total ban by the UK on
recruitment of nurses from developing countries. Rather, cognizant of contributing to brain drain
in developing countries, the UK recently approved legislation that limits all public hospitals from
recruiting nurses from selected developing countries (the Caribbean included). However, this
policy does not extend to their private health facilities.
[in response to Cécile Pemberton] Mr. Lewis replied that the theory only presupposed the
disparity of wages. He added that policy considerations such as an inter-country rotation system
for nurses, bonding nurses to markets and establishment of specialised institutions for training
32
and care were also needed. A major concern for nurses is a lack of opportunity to advance in
specific areas. Perhaps the location of specialised institutes for different purposes in different
countries could be an incentive. In this way nurses and patients would go to specific countries
depending on their training and needs, respectively.
[in response to Carlene Coker] Mr. Lewis agreed that there were other push factors that caused
nurses to emigrate such as working conditions and highlighted other factors which he had
considered such as relative GDP level and standard-of-living as well as opportunity for training
and development.
Mr. Lewis also pointed out that his overall study included extra-regional migration as well and
presented data on the emigration of nurses.
Varuna Ramlal: first clarified that she had concentrated on banking sector development in her
study as the data for the stock and bond markets were insufficient for her analysis.
[in response to Cécile Pemberton]: Ms Ramlal explained that the trend variables were left out of
the VARs because diagnostic testing had shown them to be insignificant. She also disagreed that
the VARs contradicted the cointegration results and felt that they showed bidirectional causality
for financial development and growth in Trinidad and Tobago and Barbados and unidirectional
causality for Jamaica.
[in response to Carlene Coker]: Ms. Ramlal explained that she had originally wished to consider
seven countries in her study, but was forced to narrow her scope as there were insufficient
datasets to do so.
[in response to Steven Cockburn] Ms. Ramlal pointed out that she had tested for stationarity by
using both the ADF and KPSS tests.
Finally, Ms. Ramlal noted the suggestion to consider impacts on other sectors of the financial
sector as material for further study.
Sonja Teelucksingh: [to Diedron Lewis] asked about the brevity of the sample for wage data,
saying that three years was insufficient to determine either wage convergence or disparity. She
wondered if Mr. Lewis had examined a larger period.
[to Varuna Ramlal] advised Ms. Ramlal that she ought to exercise caution in interpreting her
impulse response functions, because the confidence interval bands were very wide, particularly
for Jamaica, casting a shadow on the reliability of the results. She suggested that the results for
Trinidad and Tobago were the most interesting as they supplied the best diagnostics. She
followed on Ms. Pemberton’s thread, by saying that despite the conclusion of unidirectional
causality, the variables did not seem to interact meaningfully in the Jamaican VAR. She also
commented that the presence of a stationary variable in her cointegration model for Jamaica may
have made Ms. Ramlal’s results misleading.
Dennis Pantin: [to Varuna Ramlal] reflected that outside of econometric analysis, Jamaica had a
financial sector meltdown within the last decade. He asked how Ms. Ramlal accounted for this
in her analysis as there was still a significant debt overhang in the Jamaican economy.
33
Claude Byer: [to Varuna Ramlal] put forward that the c value may not have cointegrated well
because it was heavily influenced by a consumer loan portfolio which would have contributed
little to economic development.
Varuna Ramlal: [in response to Sonja Teelucksingh] conceded that interpreting the results in
light of the confidence bands was difficult and agreed that Trinidad and Tobago showed the most
interesting interaction, while Jamaica showed little.
[in response to Dennis Pantin] Ms. Ramlal said that there was a problem with the credit variable
for Jamaica, but that there was no way to treat for that econometrically.
[in response to Claude Byer] Ms. Ramlal noted that in her paper she also made the point that
consumer loans may have been accounted for the lack of interaction alluded to by Mr. Byer.
Diedron Lewis: [in response to Sonja Teelucksingh] acknowledged that lack of data was a
problem he had faced, but indicated that since nurses were only included in the groups of
workers able to move freely in CSME as of July 2007, the historical data would not prove as
useful for the analysis as would projections for the future.
34
SESSION 8: ‘MR. DIVIDER, RUN SOMETHING’: BUDGET CONSIDERATIONS
2007/2008
Moderator: Mr. Anthony Wilson
Panelists: Prof. Dennis Pantin, Dr. Dhanayshar Mahabir, Mr. Anthony Paul, Mr. David
Abdulah, Mr. Gregory McGuire
Anthony Wilson: opened the discussion by commenting on the “curious” title of the session. He
felt that the most important thing to consider about the budget was whether it came before or
after national elections. In the former scenario, Mr. Wilson felt that the budget would tend to be
generous and inclined to favour sectors of the population which the government felt would lend
their support at election time.
Dennis Pantin: said there is a need to transform the Trinidad and Tobago economy from its
natural resource dependence by 2020 and simultaneously create a fully employed economy
through decent jobs. He also saw a need for the following:







Reform of the statistical data collection process to reflect theoretical grounding in
economic models of transformation,
Microeconomic studies which determine the source of local and international
competitiveness in both hydrocarbon and non-hydrocarbon industries,
A stated industrial policy,
Fiscal and monetary reform such that windfall earnings are sterilized and put to proper
use and taxation is reformed such company audits are performed more often,
An undertaking to resolve transportation problems,
ICTs, biodiversity and exploration of solar energy,
Governance reform.
Anthony Wilson: asked if it were possible to transform the economy away from dependence on
natural resources while having full employment.
Dennis Pantin: replied that if new opportunities were created at higher wages, there would be
greater long-term stability and proper macroeconomic policy and incentives for investment.
David Abdulah: reiterated that the labour market had built-in inequities which need to be
addressed lest there be reinforced social exclusion and greater internal conflict, hence the need
for transformation in preparation for the time when hydrocarbon resources are depleted.
Gregory McGuire: agreed that transformation of the economy was absolutely necessary, given
the context of finite natural resources. He also said that the energy sector has neither employed,
nor can employ the bulk of the population, so that people must find meaningful work outside of
the sector. He added that there are indigenous firms in the energy services sector that are
internationally competitive and that they should be encouraged to sell their services. He added
that government expenditure ought to be used to stimulate demand for goods and services and
gave the example of government’s provision of school meals as a ready market for local produce.
35
Anthony Wilson: asked what barriers the private sector faced in developing the nonhydrocarbon sector.
Dhanayshar Mahabir: deferred the question and began by saying structural adjustment was
painful and thus the upcoming budget ought to respect the fragility of the economic structure that
was built from that time. As such, expenditure levels could not remain as high as they have been
in the past two to three years without putting tremendous pressure on prices. He argued that in
times of plenty the returns to productive resources would be high, but that vulnerable groups in
society might not share in this prosperity unless the government provided a safety net through
redistributed income. As such, he recommended that the rents derived from the energy sector be
converted into currency and then into equity in the HSF, calling for a target of US$20 billion for
the fund to be achieved by the year 2020. He also felt that there ought to a focus on pension
reform, namely, indexing pensions for elderly citizens and ensuring that pension schemes are
fully funded.
Anthony Paul: spoke about the government’s ability to collect the taxes that it is due.
Mentioning the lag in detecting underpaid taxes, Mr. Paul implicitly suggested that hiring
external auditors might be a more cost effective solution to ensure faster revenue collection. He
also referenced the government’s ineffective or sometimes nonexistent pricing mechanism for
hydrocarbons as another source for tax leakage. Thus, he recommended that the relevant
institutions be strengthened and capacity increased to maximize the take from the energy sector.
He also suggested that the sector and the competitive businesses within it should be studied to
derive lessons for the rest of the economy.
David Abdulah: first offered his guess that the budget would come before the national elections.
He went to address what he deemed philosophical budget issues, saying that governments did not
have an efficient approach to problem-solving and was not sympathetic to the needs of the
populace. As such, he wished to see a simplification of the problem-solving approach and a
moratorium on all “mega-projects” until a national physical development plan and land use plan
were devised, transparency could be ensured and a phased approach to construction could be
employed in order to sustain employment in the sector over a longer period.
He also called for culture and agriculture to become focus sectors. He added that taxes could be
raised at higher levels of corporate income, with tax credits for training, foreign exchange
generation and retooling, inter alia, offered as incentives. He also felt the tax regime could be
adjusted to deal with money laundering and the drug trade. He concurred with Dr. Mahabir’s
comments on pension reform and noted that similar suggestions had been made in the Social
Sector sub-committee during the Vision 2020 planning process. He also called for a liberation of
the collective bargaining process and the right to freedom of association for a wider portion of
the labour force to join trade unions. Finally, he also presented preservation of cultural heritage
as a viable tourism venture and source of income.
Anthony Wilson: continued the discussion by asking for the trade unionist view on the
imminent takeover of RBTT.
David Abdulah: replied that trade unions were opposed to the sale of RBTT, much as they
opposed the sale of Trinidad Cement Limited to CEMEX. He went on to add, in the same vein,
36
that they opposed market liberalization as prescribed by the World Trade Organization because it
made local firms vulnerable and the country susceptible to a recolonialization of sorts.
[Floor opened to comments]
Unidentified person: commented that the recommendation for transformation of the economy
had been around since the 1980’s and that in today’s environment, business people were
currently leaving the country. She felt that there was a need to appreciate the onshore/offshore
dichotomy and pointed to what she deemed “onshore decadence”. She added that social capital,
an onshore resource, is breaking down, and it, unlike other commodities, cannot be imported.
She proposed that everybody in the local society feels alienated via ethnic, class and other
divisions. She invited the University to conduct studies on this phenomenon, as she felt it would
undermine any attempts at transformation.
Norman Girvan: observed that the media were noticeably absent for the most topical
presentation of the conference [media photographer appears, amidst general laughter] and
suggested that an alternative media source be created. He went on to ask how pricing for LNG
worked. He also questioned what Trinidad and Tobago’s role was in the regional economy and
further wondered if it could serve as a locomotive for growth in the region, for instance if intraregional suppliers were given preference over extra-regional in relation to fiscal purchases of
goods and services.
Anthony Paul: explained that he had not seen the memorandum of understanding that the
Trinidad and Tobago government had signed with Jamaica, but emphasized that MOUs in
general do not promise quantities, prices, or priority of supply in terms of natural gas. He said
that gas prices only took off in the 1990’s and his understanding was that contracts for natural
gas have been in place for a long time, and thus, the older ones may quote cheaper prices, while
new contracts have different kinds of pricing. In relation to the subsidization of gas locally, Mr.
Paul answered that he was unaware of any such arrangements and explained that gas was cheap
enough to produce locally that it would not be necessary to subsidize.
Gregory McGuire: wondered if there were a gas price in T&T that Jamaica could benefit from.
He explained that the Jamaican government wished to purchase LNG at the price that T&TEC
paid locally. However, Mr. McGuire clarified that in T&T gas is priced to the end use to which
it goes and, thus, T&TEC has its own pricing arrangements, which are very different from the
prices that other end users receive. He further explained that there are no subsidized prices in the
local market, simply differing amounts of rent extracted from different users. Since, the market
structure is different from the US, where there is an open market, there is no one declared gas
price per se. Thus, in the case of Jamaica, an arrangement ought to be commercially negotiated
based on what each of the parties desire.
Mr. McGuire also felt that there was the possibility of a feasible arrangement among T&T,
Jamaica and Venezuela. He went on to explain that despite the agreement with President
Chavez, there is no way that Venezuela can supply gas to Jamaica before 2009. He considered
the agreement strictly political. He also cautioned that CSME legalities be left out of Jamaica’s
current bid for T&T gas supplies because courts may declare that Jamaica is in the LNG
business, and thus may face Henry Hub prices.
37
Anthony Wilson: asked for comment on a suggestion by Mr. McGuire in a previous publication
that the gas price for Jamaica ought to based on a basket of petroleum products.
Gregory McGuire: replied that in undeveloped markets a mechanism for price determination
must be found, which will allow up and downswings in price. An indexed formula would serve
this purpose and could also be moderated to minimize the effects of brief price shocks for the
basket commodities.
Dhanayshar Mahabir: remarked that in the history of T&T, natural resource booms are usually
anathema to transformation. He spoke of a vibrant agricultural sector and relative diversification
prior to 1973 which was devastated by Dutch Disease and warned that the local manufacturing
sector, which had captured a large section of the CARICOM market, could suffer the same fate
and lose their gains if the government did not create policy consistent with prudent
macroeconomic objectives.
On the subject of the RBTT takeover, Dr. Mahabir expressed concern about how the domestic
operations of a branch plant of a major international bank would be regulated by the Central
Bank in the manner that indigenous banks are, adding that large corporations tend to engage in
transfer pricing and can acquire unmanageable amounts of risk, thereby jeopardizing depositors’
funds. He also warned of the potential for contagion in terms of the acquisition of additional
indigenous enterprises in what he referenced from Kari Levitt as the “silent surrender of financial
economy”.
Carlene Coker: asked if agriculture and culture could absorb the 60-80,000 jobs which Mr.
Pantin posited were tied to boom conditions in the event of potential natural resource depletion
in approximately 13 years. She also asked what the manpower strategy would minimize the need
for low-skill, low-wage jobs in the medium term.
Jason Cotton: observed that revenue policy needed to be overhauled and the elasticity of non-oil
tax revenue examined to determine if the changes that were being made to the tax regime were
the most efficient.
Richard Saunders: [to Dennis Pantin] asked if Prof. Pantin had any specific suggestions for
Tobago, particularly as fiscal federalism was being considered. He also wondered if tourism had
a place in transformation strategy.
[to Dhanayshar Mahabir] asked for clarification on Dr. Mahabir’s suggestion of improvement of
to the tax regime. He wondered if these reforms applied only to the energy sector, as in
prosperous economic times, personal and non-oil corporate taxes could also be a potentially large
source of haemorrhage.
[to Anthony Paul] asked if internal capital ought to be used for development of the energy sector
or whether domestic capital ought to be reserved for the onshore sector.
In addition, he asked what budgetary measures could be recommended for improvement, given
declining industrial competitiveness.
38
Anthony Paul: answered that both internal and external capital should be used for development
of the energy sector. He stated that internationally, energy is chiefly a financial business, while
that aspect was largely ignored in the local market. Excess liquidity in the local economy, he
stated, was created by a lack of investment options. He regretted the lack of domestic wealthcreation mechanisms and called for financial development in general and a private equity market
in particular. In the local market, he added, venture capital is extremely difficult to obtain. He
also declared that the government itself was not competent at financial management and served
only a bookkeeper for its funds, rather than as catalyst for wealth generation. He added that, at
the same time the government was also serving to crowd out new investment opportunities for
the private sector. He concluded by saying that local wealth can only be created, if local capital
is invested.
Dhanayshar Mahabir: clarified that he was referring to the entire tax net and that he was aware
that firms engaged in tax evasion in times of plenty. He saw a need to continuously strengthen
tax compliance through a dedicated unit, regardless of the state of the economy. He
recommended set targets on compliance and tax review on a ongoing basis to ensure tax rates are
appropriate.
On a separate note, he noted that the government could assist firms to be competitive by aiming
for a 5% inflation target so that the real exchange rate would not be overvalued and added that
inconsistencies in policy such as wage hikes in the vicinity of 30% would not allow this target to
be met.
Gregory McGuire: made sure to clarify that he did not mean to suggest that gas would run out
by 2020. He iterated that “where there is a well, there is a way” and said he was fairly confident
that there would be more finds.
He went on to share his belief that tourism always has tremendous potential, as long as one is
clear on what is offered to tourists. Tobago, he felt, certainly has tremendous potential in this
area and was engaging in promising developments. Mr. McGuire also suggested ICT as another
avenue, in particular specialized software development, as it did not require heavy investment
and was only limited by human ability.
Mr. McGuire reprised the issue of tax evasion and pointed out the VAT does not seem to be
growing at what one would believe the indicative rate ought to be, even with recent exemptions
considered. He surmised that there should be higher VAT revenues to accompany the massive
growth in consumption.
David Abdulah: also questioned why VAT and corporate taxes were showing flat trends while
the economy was growing rapidly. He warned that one cannot assume that corporate savings
through reduced taxation will go into productive investment and may instead simply end up in
ventures which deplete, rather than generate foreign exchange.
Mr. Abdulah also sought to dispute the wage-led inflation theory, as he contended that recent
wage increases were not substantially large and followed, rather than caused, inflationary trends.
In this way, increased wages were meant to restore real incomes that had already been eroded.
He concluded by saying that manpower policy was tied into proper overall industrial policy.
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Dennis Pantin: remarked that while rentier economies can be transformed by market forces and
liberalization, it was impossible to escape the need for state-led initiatives. He put forward that
engagement with all interested parties was unavoidable in a serious attempt to determine which
industries could be competitive in export production and import replacements. He also
emphasized the need to have an empirical examination of such policies.
He also called for food security to be provided by protecting the agricultural sector much as is
done in North America and Western Europe. He felt that the use of the full range of state
policies to support hypothetical ‘winning’ industries was obligatory as was the sterilization of
windfalls for productive investment.
He finally mentioned Trinidad and Tobago’s provision of inputs to the regional tourism industry
as another avenue for regional cooperation and development depending on relative competitive
strengths. He concluded his statement by saying that the UWI had a critical role in grounding
prospective policy statements in empirical analysis and distributing its findings widely.
In closing the conference proceedings, Prof. Pantin formally expressed his gratitude to various
parties in his capacity as Head of Department and on behalf of the COTE co-chairs, Mr.
McGuire and Dr. Attzs.
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