Look to smelter: Viable source of forex
The Government has to find new ways to earn revenue in 2016 to survive the collapse of oil prices, says Karen Tesheira, who served as finance minister between 2007 and 2010 under the Patrick Manning administration.
“The Government has a hard task ahead of it. It will be a difficult year. They have put forward some of the revenue generating measures they will attempt to put in place like increasing taxation, setting up the Revenue Authority, re-establishing the property tax and so on. I know the Prime Minster will be apprising us of the seriousness of the situation and people will know that we are going through a period of austerity. This is the time to tighten our belts,” she told the Business Guardian on Tuesday morning in a telephone interview.
Tesheira said oil and gas natural prices are not going to recover anytime soon.
“The United States is now a large oil producer. They have cut their imports by half. They no longer import from Nigeria. The OPEC countries like Saudi Arabia have indicated they have no intention of reducing their supply. Iran will be increasing its oil production. When you put those factors together one cannot expect the oil and gas prices to rebound in the short to medium term,” she said.
To combat this scenario, she suggested that T&T increase oil exploration as advanced technology allows for quicker finds in a shorter period.
She said T&T needs to diversify its economy urgently to move out of the economic slump it now finds itself in.
She added that there was some diversification in the past in the energy sector and pointed to the Point Lisas industrial complex built in the 1970s and the more recent Atlantic liquefied natural gas (LNG) trains.
“These were all a brainchild of the PNM. This is the time for the Keynesian model of economics to take place.The Government will have to take the lead and find mechanisms for generation of foreign exchange.”
She expanded this by saying that the Government should take the lead in the economic recovery.
When asked about the possible impact it may have on inflation, Tesheira said there is a “risk” in everything.
“I am not saying the Government should just build more roads, I am speaking about new industrial plants—like the aluminium smelter plants—and other industrial projects. We just cannot take austerity measures. We have to take strong measures to earn other sources of revenues.”
Manning era projects
Tesheira referred to plans during her tenure when that government was considering the setting up of the controversial aluminium smelter plant which was carded to be built in La Brea.
“Had that plant been built we would not have been in the situation we are in today. The prices of aluminium have not depressed. I think what Dr Rowley is going to do is follow through on some of the initiatives started under Patrick Manning. The aluminium smelter plant might be back on the table. The polypropylene and polyethylene and the plastic industry, we have to go up the value chain and look at those. We have to set up those production streams.”
According to the Economic Intelligence Unit of the Economist Magazine, forecasts for July 2015 showed that in 2013, aluminium was US $1,846.7 a tonne, in 2014 it was US $1,867.4, while in 2015 it dropped slightly to $1,779.8 a tonne. In 2016, it is expected to go back up to $ 1,912.5 a tonne.
She also said this government should continue the work to turn T&T into an international financial centre (IFC).
“We are flushed with liquidity. The Central Bank has had to issue treasury bills to mop up over $4 billion of excess liquidity. We have banks bursting at the seams with money ready to invest. It was under the PNM administration that the IFC was set up. This is another stream for diversification.”
Tesheira said T&T also has a highly educated population which will form the base for a strong industrialised economy.
“When you look at countries like Japan and Malaysia they had no resources but they used their people. We have the College of Science, Technology and Applied Arts (COSTATT), University of T&T (UTT) and other institutions.”
She said there are major differences between NAR-era recession during the late 1980s and the situation now.
“For one, we do not have $142 million in foreign exchange reserves as was the case in the 1980s. Now, we have over US$10 billion in reserves and that is 11 and a half months of import cover. Look at Barbados, they have only 16 weeks of import cover. Also, our unemployment is like Greece. We have been through that deep recession and we survived.”
She also said this Government has its new Economic Advisory Board made up of professionals with economic and finance backgrounds who will provide sound advice.
When asked if she believes the new Government will be forced to return to the International Monetary Fund (IMF) she pointed to recent statements by the Prime Minister who said he has no intention of doing that.
“There are so many differences between what we experienced during the 1980s and now,” she said.
She hopes that many Patrick Manning era plans that were discarded will be revived.
“One of the reasons why Standard and Poor’s and Moody’s downgraded us was our failure to implement. The last PP Government failed to do that. We can now implement many of the projects which are going to allow for us to earn foreign exchange.”
