“Central Bank governors come and go, but one major structural weakness in the T&T economy has remained unchanged; and this is that Trinidad and Tobago continues to depend on oil and gas.”
On Friday December 4th 2015, just three weeks before Christmas, the Governor of the Central Bank of Trinidad and Tobago, Jwala Rambarran announced that the country’s economy was officially in recession– four consecutive quarters of decline in real GDP. The country’s new government, which took office in September 2015, as well as the general public, had not expected the dire news. Although news of the economic downturn has largely been greeted with surprise, with many faulting Central Bank Governor Rambarran and the political party that appointed him; it is most likely that Trinidad’s current recession has more to do with the absence of a nation-wide economic plan than with any one single individual.
The turmoil of the 1980s was brought on by the very same structural issues that T&T is currently facing; decreased resource production, depressed oil prices, and a weak and sluggish non-energy sector in an oil and gas dependent economy.
In explaining the current recession, many have pointed to Rambarran’s lack of academic qualifications and professional experience. Appointed in July of 2012 by former Prime Minister Kamla Persad-Bissessar, who is also leader of the Indian-dominated United National Congress, Rambarran exemplifies a dysfunctional governance system in which appointments to what should be independent institutions are based on personal (and in T&T politics, racial) ties rather than on merit.
Dr. Terrence Farrell, a former deputy Central Bank governor was among the first to publicly doubt Rambarran’s professional capacities. Professor Selwyn Cudjoe, a professor of Africana Studies at Wellesley College also questioned: “can the country feel safe that the island’s monetary fiscal policy is placed in the hands of a man who has no real experience in the area of fiscal and monetary policy and has not run an organization of this size before?”
There is little doubt that if only for his handling of the current economic crisis, Rambarran has confirmed his inexperience for the role to which he was appointed. In failing to follow established protocol, Rambarran did not inform the country’s Minister of Finance of the looming crisis; as such, his announcement of the recession came as news to the government itself. Further, in his official announcement, Rambarran engaged in a severe breach of confidentiality by disclosing the names of the largest users of foreign exchange and the amounts used. For the latter offence, Rambarran has faced the harshest criticism; and on Christmas eve, the governor’s tenure was terminated. Dr. Alvin Hilaire now replaces Rambarran as the new Central Bank governor.
Rambarran exemplifies a dysfunctional governance system in which appointments to what should be independent institutions are based on personal (and in T&T politics, racial) ties rather than on merit
While individual political appointees – especially those with questionable qualifications – undoubtedly contributed to Trinidad’s current economic woes, there are serious structural problems to which critical attention must be paid in examining the causes of recession in Trinidad. Central Bank governors come and go, but one major structural weakness in the T&T economy has remained unchanged; and this is that Trinidad and Tobago continues to depend on oil and gas.
According to the Central Bank’s annual economic survey, in 2014 the energy sector accounted for approximately 42% of the country’s GDP, 48% of government revenues, and 85% of merchandise export receipts. This economic dependence on natural resources is not necessarily detrimental. Contrary to the concept of the resource curse, where natural resources are thought to inhibit rather than propel economic growth and development, T&T has largely fended off the institutional atrophy that plagues other resource-rich nations. In fact, oil and gas has fueled T&T’s climb up the global economic ladder.
Thanks, in large part, to an active and militant civil society devoted to transparency and accountability, the state has invested resource wealth in a development that encompasses not only increases in per capita income, but also the expansion of human capabilities, such as free education and health care. The energy sector has propelled T&T into the ranks of high-income non-OECD nations and it is now among countries with a high human development.
Nevertheless, dependence on the oil and gas sector also brings with it certain predicaments that recur over time; a certain susceptibility to booms and busts. When global oil and gas prices are favourable, the economy booms; and predictably, as is the case now, when prices plummet, so does Trinidad’s economy. T&T was once the largest supplier of Liquefied Natural Gas (LNG) to the United States accounting for as much as 80% of T&T’s LNG exports. The US is now, however, producing it’s own shale gas and has reduced LNG imports from T&T. It is lucky for Trinidad that it has found new markets in South America and Asia or the current economic crisis would be much worse.
In addition to falling international prices, gas production in T&T has decreased. This, in turn has adversely affected industries for which gas is key. The result has been to shrink LNG and petrochemical exports; including methanol, ammonia, urea, iron, and steel. The weak performance of the comparatively smaller non-energy sector has further compounded the foreign exchange glut as there is not enough of a buffer to protect the economy from fluctuations in global oil and gas prices.
Encouraging people to curtail their personal spending on cars and televisions will not solve the foreign exchange crisis
These fault lines are not new to Trinidad. From policy experts and politicians to lay folk, since T&T’s independence from colonial rule in 1962, it has time and again been identified that a lack of economic diversification acts as a serious impediment to sustainable and stable development. Many Trinbagonians still remember the severe seven year recession between 1983 and 1989 that undid much of the gains made during the oil booms of the 1970s.
Companies were collapsed and downsized, middle class people, particularly government workers who had accumulated savings had their wages frozen, reduced, or even entirely eliminated as thousands lost their jobs. Unemployment soared at 22% at the height of the 1989 downturn. The combination of lost wages and the rising cost of living swept many into poverty. The national loss was encapsulated in the nation’s primary traditional cultural vehicle for political and social commentary: the calypsos.
Captain, the ship is sinking!
Captain, the seas are rough
We gas tanks empty
We oil pressure reading low
Shall we abandon ship
Or shall we stay on it
And perish slow
We don’t know, we don’t know
– “The Sinking Ship” Gypsy, 1986
The turmoil of the 1980s was brought on by the very same structural issues that T&T is currently facing; decreased resource production, depressed oil prices, and a weak and sluggish non-energy sector in an oil and gas dependent economy. It took T&T one decade to climb out of the economic and social crevice into which it had fallen. With the announcement of a new recession, it is possible that we might be braced for the same.
In some ways, we are in a different era. First, T&T has accumulated substantial foreign reserves and a Heritage and Stabilization Fund designed to set aside savings from the good years and mitigate the impact of low oil revenues in bad years. Second, there are now options for borrowing if the new government decides to lift the borrowing limit. Despite the problems attached to IMF loans, and the structural adjustment packages that come with them, which have been heavily criticized for being anti-poor and exacerbating economic and social problems, they present options for the T&T government. So does the New Development Bank and country lenders such as China; notwithstanding the as yet undecided verdict on the possible hidden conditionalities attached to these alternative loans.
in 2014 the energy sector accounted for approximately 42% of the country’s GDP, 48% of government revenues, and 85% of merchandise export receipts.
While some conditions may be different today, serious problems still remain that may continue to lend themselves to oil-related recessions in the future. Inefficient spending has been a problem for several governments; and the past two governments have engaged in gross and inexplicable spending sprees. For instance, in 2013, the state spent $6.8 million to retrieve a fire truck that had itself been bought for $2 million.
Opportunities are abundant for investment in productive infrastructure that will boost growth and development. A rapid rail transit system that would benefit commuters and save on lost hours of productivity regularly spent in traffic jams, is one such possibility. But most importantly, the economy is in severe need of diversification. Encouraging people to curtail their personal spending on cars and televisions will not solve the foreign exchange crisis. New non-energy related sectors for development need to be urgently identified. Economic planning for crucial sectors such as agriculture, tourism, and information technology has now become a near emergency, after decades of governmental lip service.
Rambarran may have severely mishandled his running of the economy during his tenure as governor of Trinidad and Tobago’s Central Bank, but it is the country’s economic structure itself and the inability of each successive government to faithfully install a plan for economic reform and diversification that has led to the recurrent oil-dependent crisis in which T&T currently finds itself.
Dr. Zophia Edwards is a Trinidadian national. She is an assistant professor of sociology at Providence College, Rhode Island. She is also on the editorial board of Policy Trajectories. Dr. Edwards’ Ph.D. thesis was focused on economic and social development in oil and mineral-rich developing countries.