Apr 2016 Financial News

IDB boss on Moody's downgrade... Opportunity for positive change

Apr 28, 2016

Despite the downturn in the T&T economy and the low energy prices that the country depends on, Tomas Bermudez, country manager, Inter-American Development Bank (IDB), believes that all is not lost and there is hope for the economy.

“It is obvious that T&T is going through a recession because of the fall in oil prices. The advantage of this is that T&T still has a strong balance sheet, it still has strong reserves to weather the storm. The reality imposed on the country gives a new opportunity for change. The recession gives the opportunity for T&T to do things differently,” he told the Business Guardian last week Tuesday at the his office, St Clair.

He believes the Government is taking the right action to deal with the current state of the economy.

“A lot of things mentioned in the mid-year review are meant to deal with the fiscal situation. It is what the recipe will tell you to do, which is to look at your expenditure and find new sources of revenue. In that part, they are doing the right thing.”

However, he said, that T&T still has to “walk the talk” in terms of diversification. “

Looking at the diversification from a risk management perspective, I think this economy will be energy-based for many years to come. That is a reality. But I think you should not be subject to this cycle as you were in the past. T&T has to strategically plan how it is going to mitigate the effects. The Government has to implement a diversification strategy and look for new sources of income.”

He said T&T’s eras of high economic growth has historically been linked to high oil prices but that was broken after the 2008 global crisis.

“Prices recovered after 2008 but T&T’s economy did not recover fully. So, is it just the price of oil or is it something else that is structural in the economy that hampers that growth? These are the questions that the country needs to address to make the economy more efficient.”

IDB’s role

Bermudez pointed out that in energy economies like T&T, the Government is in control over large parts of the economy.

“The country needs to look at how it takes less oxygen from the private sector. The Government has to create an enabling environment and create conditions for the private sector to start doing business and finding new market.”

He said there are other small countries— like Uruguay in Latin America—where the private sector is large.

“They have been able to build a strong private sector. The private sector has to be productive in finding new markets.”

He said the IDB has been studying T&T’s private sector and there are areas that companies can compete in. “

One sector is the services sector for hightech companies. For about 15 years we worked with Uruguay to develop this sector and there were some companies that wanted to outsource in areas like programming and accounting elements. In that 15 years they have been able to build an industry.”

He also said T&T has the right geography and educated workforce to build a similar industry.

“We have a new programme that we are launching with the Ministry of Planning to do the same. We have companies that have shown interest. There are companies that do projects in Web design and they want to employ people in this area. They come to Trinidad and look for the people here with those skills.”

He said service in the oil and gas sector is also another area local companies can capitalise on.

“T&T has built world-class knowledge in this area and there are many local companies that can compete effectively.”

He said the IDB wants to help finance private companies and they have the Inter-American Investment (IIC) unit which is a private sector vehicle of the IDB Group.

“We will use this to help finance viable companies in this country. The IDB will target medium- to large-sized companies or they will directly come to us. We do only a small number of transactions a year. The IDB is open to financing US$2 million to US$250 million. So, US $250 million will be for a big infrastructure project like an airport but, for medium-sized projects, we have different ranges we cove.”

For smaller businesses, he said, the IDB wants to partner with local banks to target this range as they tend to be more vulnerable and traditionally the banks have not been able provide the kind of financing they need.

“The Government could also intervene and have some programme of guarantees that could help the SME’s. So the IDB will look at all options.”

Moody’s downgrade

Two weeks ago, Moody’s Investor Services downgraded T&T from Baa2 to Baa3 and assigned the country a negative outlook.

Bermudez said, this again, shows why T&T needs to act quickly to begin diversifying the economy.

“Moody’s is saying that T&T has been hit hard by the drop in oil prices. That is why diversification is important so a country does not have to rely exclusively on one source of income. Moody’s also spoke specifically about the availability of credible data in the country.”

He said the data that T&T has at the moment is “not credible” and more has to be done to strengthen the Central Statistical Office.

“That is an issue highlighted by us, by the International Monetary Fund (IMF) and that rating agency for some time. The CSO has to find its place and give credible, meaningful data.”

Despite the difficult economic situation of the country, Bermudez believes the Government has begun to address the problems.

“The Government is taking the right measures to deal with the current fiscal situation. Look at the speech of the Minister of Finance in the mid-year review. The Government is taking the right steps in terms of revenue and expenditure.”

He said if T&T is to become competitive and place higher on the annual international competitiveness index, it has to reform its port procedures, make it easier for businesses to be opened, cut the bureaucracy in buying and selling property and, in general, make life easier for businesses to operate and export.

“The Government has to make processes shorter and more simple and this makes doing business easier. The obstacles need to removed to make the country more competitive.”

 

Source:
RAPHAEL JOHN_LALL
raphael.lall@guardian.co.tt
Business Guardian, BG6
Thursday April 28, 2016