MND on Inflation

Aug 10, 2006

The Movement for National Development (MND) has long held the view that “inflation is THE major issue facing the population at this time, and for the foreseeable future.

This view has been expressed by us in many statements and releases to date as well as our draft Manifesto which has been available for the past 3 months on our website mndtt.com. ‘Inflation is currently spiralling out of control. This trend is not only contrary to job creation, but a sure way of making the poor poorer’.

The recent IMF reports and the pronouncements by the Governor of the Central Bank, fully confirm our worst fears of dangerous levels of inflation that threaten our financial and social security. The Governor stated clearly that those engaged in present wage negotiations cannot or must not expect to receive salary increments equivalent to the current level of inflation. It is instructive that he only now seems to be concerned by this government’s over spending. The truth is he is advocating cuts in living standards for us all, especially those most unlikely to deserve it, those poor people on low or fixed incomes and the pensioners.

It seems highly insensitive that this PNM government, which has constantly boasted about our Country’s economic success, buoyant revenues etc., can ask of the most vulnerable in Society, to bear the brunt of the government’s own disastrous policies of wild spending on this that and just about everything else. A policy that has benefited many foreign companies and close friends of this regime to the detriment of the masses.

We would also mention in passing, that when a government has to resort to ‘food stamps’ as a way out of difficulties, then you very well know something is up!

Many of us will recall with horror, the experience faced when exactly the same conditions prevailed, for exactly the same reasons, by in many cases exactly the same people, in the early 80’s.  The MND asks, have we learnt nothing from that awful experience.

The consequences of inflation are such that in the developed world, a half percent increase in the inflation rate can cause Governments to fall- and it is just worth noting that currently in the developed world, Countries with a headline inflation rate of 3.5% are fighting the disease tooth and nail; and that’s at a level barely half of what is reported as ours!

In T&T food prices have gone up an average of 23% per annum over the last 4 years. Whereas for most people living in T&T salaries have either stood still or at best risen marginally.

The effect of this is that the majority of citizens can now only afford much less food today than they could have done 4 years ago.

Food prices have risen for many reasons:

i.                     government policy has driven people out of agriculture. The closing of Caroni Ltd., the grab for fertile land together with the government’s self induced construction boom and make work programmes have all contributed to the significant decline in local food production and manufacturing;

ii.                    the majority of our food is therefore imported and pricing is subject to currency strength, world pricing and world demand;

iii.                  the cost of doing business in T&T has increased because fuel prices have increased, electricity has increased and so too wages, brought about by the shortage in labour as a result of government’s policies.

In addition, interest have steadily been increasing to curb the surplus funds on the market – resulting in further hardship for small businesses entering or operating in the market and the inevitable price increases to consumers in order to meet these rising operating costs.

The T&T economy is not being driven by sustainable growth projects either:

In fact, much of the current building programmes do not arise out of real economic success, but on construction projects of this government. Whilst genuine private enterprise projects are being stifled.

If excessive dependence is therefore created by the government in their own spending activities, rather than real economically justifiable activities, then you end up with too much money being spent on government wages bill, to achieve too little output, driving inflation to ever higher levels. We would therefore ask of this government, how many thousand people can expect to lose their jobs over the next few years as a result of Government activity?

This over spending in construction which was recently addressed by the IMF, has made it difficult if not impossible for ordinary citizens to own a home. In the last 2 years many houses have doubled in price because of the drastic increases in labour and building material costs.

This has been a direct frontal attack on the middle class of T&T.

In summary, I have tried to point out here members of the media, just some of the evils facing our Nation as we enter an era of high inflation, to which this Government seems more or less oblivious.

Unless we ‘get our act together’ and fast, then we are in for a heap of trouble the likes of which we have not seen since the early 80’s.

The question is therefore now, what can we do? Are there any solutions at this stage of the inflation cycle that we could contemplate?

We do not pretend that there are quick fixes- with inflation there are none! That is the harsh reality we now face.

Nevertheless, the Movement for National Development (MND) would even at this stage, like to suggest a few possible solutions for consideration, before it is just too late, and the medicine will then have to be even more dire than it now has to be.

1) Slow Down Government Construction programmes- Select the least necessary government construction projects now, and put them on hold. For example the MND cannot understand the haste to commence the East Port of Spain Project when so much is going on, neither do we believe a $15 billion mono rail is the answer to our traffic woes.

 The IMF has warned that we may have reached ‘full capacity’ in terms of construction, to the extent we are considering importing foreign labour. In itself this produces massive demands and creates a situation whereby more productive projects- especially from the private sector, get crowded out as a result. Government spending can most accurately be described as irresponsible, and unless brought under some degree of control, will simply feed the fans of inflation further.

2) Public Sector – the MND empathizes with labour on the issue of the need for higher wages for public servants who are suffering under this government’s policies, BUT we also recognize that huge salary increases in the public sector may not be sustainable and may fuel inflation further thus crippling the poor and the pensioners.

3) Reduction in make work programmes- again, harsh though it may seem now, we believe it will be much harsher later if not acted upon in the near term. We simply cannot devote as large a proportion as we are currently to these programmes; they are crowding out our chances for real economic gains to be registered. Not to mention removing the sense of industry, creativity and self respect from our citizens, giving them a false sense of security that they will always be cared for which they will undoubtedly pass on to future generations to the social and economic detriment of T&T’s future.

4)       Revaluation of Currency- The MND believes that the inflation cycle is at a relatively early stage, and that if the enlightened policies described above can be agreed with the Unions, social sector expenditure reduced, monetary policy tightened, then in order to make the burden more bearable  for our people, we suggest considering the upward revaluation of the TT dollar.

Unconventional as this might at first sound- there are certain factors in our Country’s economic situation that allow us to propose this as part of an overall solution to the crisis we now face:

a)       Revaluation would ‘at a stroke’ reduce all import prices including critically, food prices.

b)       It would ease the pressure on wage demands, which would otherwise be much higher

c)       It would importantly bring a measure of fiscal discipline to Governments activities, which is not otherwise apparent

d)       Revalaution would increase the value of money for those on fixed incomes i.e pensioners

e)       Because of the associated measures we recommend above in terms or reducing monies allocated to make work programmes and marginally necessary construction works, the ability of government to support the revised currency level would be enhanced.

f)         Revaluation usually makes exports more expensive, and in that regard would usually be met with a good deal of resistance from for example manufacturers. However, circumstances specific to Trinidad and Tobago may mitigate against such problems for us insofar as:-

i)         The vast majority of our earnings are from the energy sector  denominated in USD such that the usual effect of a revaluation i,e reduction in export earnings would be rather less than might be expected

ii) A large proportion of our manufacturers costs are for raw materials which would actually go down in price, thereby compensating for any marginal reduction in price competitiveness.

iii) Proposed revaluation would decrease pressure on local manufacturers facing wage demands- the other significant component of costs, especially if as we suggest a ‘social compact’ had been negotiated with the trade union body beforehand.

The effect of revaluation therefore, would be to slowly but surely squeeze the curse of inflation out of the system, and lesson the harshness of the other measures we have suggested for consideration.

Ladies and gentlemen, our Country faces a dismal future as it approaches a crisis the magnitude of which we have not seen since the early eighties. We have clearly been misled into a false sense of security by a Government which has not learned any of the lessons from our past. While our leaders like to boast of endless energy revenues resources, and pretend all is well, the exact opposite is true- the prosperity we are seeming to enjoy is largely illusory

I have not today even touched on the subject of energy prices, which are projected internationally to fall by half over the next 3 years.

The flip side of high international energy prices is what we are seeing, coupled with our own Governments economic irresponsibility, making a difficult situation much worse. Much as we might like, we cannot have it all ways; any more than anywhere else in the world.

What is now called for is a new breed of politician, one that can be honest with the people, one that understands the peoples concerns.; that do not assume the electorate is so ignorant.

There are things we can do now, to reduce the anticipated worse effects of this vicious spiral of decline we are now at the start of.

In a way, ladies and gentlemen, an approaching crisis like the one we face, provides us with an opportunity to unite our people, where excess resources can provide the breeding ground for divisiveness and strife. We believe that if we can take you all into our confidence, be specific about the medicine we have to take now, rather than much worse later, then we can expect a positive response from our people, who by and large we feel sure are much more sensible than politicians have traditionally given them credit for.

Already we sense that you know all is not well in our Country, many have been there before; let us learn from past mistakes. We  therefore call on the National Community to join with us to save our Country from what, unless swift clear action is now taken, will be a disaster for all of us.

Trinidad and Tobago deserves better.

All Position Statements