Thursday, July 16 2009

Life would be made much simpler if stimulation packages worked, according to Dr Patrick Watson who also believes that Trinidad and Tobago was sailing in uncharted waters where old remedies do not apply.

His view is that the government could have done much better in leading the diversification of the economy through the years of plenty. “Private individuals are afraid of risks in the current circumstances. If private individuals are unwilling, then the task of stimulating the economy falls inevitably to the Government,” he said.

He was among an array of analysts who were giving their views at a forum titled, “The economic fallout — How to survive and thrive”, organised by the Presentation College Past Students’ Association at Presentation College Auditorium, San Fernando.

While there are some recent signs that US recession may end later in 2009, Watson cautioned that there were no such indicators as yet for Europe.

In addition, IMF and World Bank projections are being constantly revised downward, he warned. With reference to investments in the local financial sector, Watson, director of Sir Arthur Lewis Institute of Social & Economic Studies (ISER), said these have not been hit in the same way as in the developed countries where banks and other financial institutions are folding.

In the coming months, the rate of inflation is likely to subside so that the real interest rate will be positive or close to it, he said.

In developed markets, equities have not been performing very well and have even resulted in capital loss, he said, noting that while stock prices are falling nobody is buying.

Are recent declines in equity values more an opportunity than a catastrophe? he was asked.

“Some are recommending that we “go brave” and purchase such equities. Others are suggesting buy and hold stocks. This will be of interest to people who have money for the long haul,” he said.

In his presentation, he presented a slide show showing the level of Caribbean Public Sector Indebtedness 2007 with Suriname, Trinidad and Tobago and the Bahamas showing 20 to 40 percent and that other end countries like St Kitts, Jamaica and Guyana with indicators of 130 to 175 percent.

The economy is on shaky ground and growth will slow even further this year and may even be negative, he said.

There may be negative consequences for social programmes — GATE, URP, CEPEP but said there was still the need to push ahead with the diversification of the economy

Wayne Dass, CEO, Caricris and past president of Trinidad and Tobago Certified Financial Analyst Society pointed out that Jamaica has been hardest hit by the global crisis — a high debt level, 130 percent of GDP, a reduction in tourism and closure of bauxite companies. Remittances fell by 17 percent in 2008 which is 20 percent of private consumption.

The return to the IMF is a strong possibility and crime continues to rise (62 per 100,000), he said.

Barbados also has experienced a slow down in tourism and rise in unemployment and that a stimulus package is in the works as the increased debt was now 46 percent of GDP in 2009.

In the OECS too, there was a slow down in tourism, a fall off in construction and rise in unemployment.

Dass went on to indicate that he anticipated a slight reduction in inflation — around ten percent — with borrowing costs declining and that there were adequate reserves to protect the exchange rate.

Dave Seerattan, a research fellow at the Caribbean Centre for Money and Finance at UWI, St Augustine said that economic growth has fallen off largely due to the global economic developments especially with respect to commodity prices and that the projections for 2009 is for slower growth and higher unemployment.

Despite the gloomy outlook, Watson said that the local financial sector is in a strong position in spite of the CL Financial debacle, pointing to high liquidity, strong profits, capital and asset quality.

Also there was limited disruption in this country’s financial markets and while there has been foreign exchange market tightness, the Central bank has been able to control this.

Institutional arrangements also reduced vulnerabilities where insurance companies have an 80 percent local asset ratio and deposit insurance coverage.

The banks are the dominant financial institutions and have little exposure to the type of assets that caused much of the problems in developed markets, he said.

He also pointed out that the fallout from shortfall in government revenues of TT$ 7.6 billion as of January 2009 and the likely cutback in expenditure was likely to hit activity and employment in the construction sector.

Further, he said lower commodity prices have prompted layoffs in petrochemical sector, especially the service companies, but noted that economic recovery could come in 2010.

The rate of retail sales growth has fallen from 22.4 percent to 7.2 percent. Real estate prices are down; median house prices fell TT$900,000 in December 2008, a 47.1 percent decline from 2007.

Nigel Romano, country CFO and operations and technology head at Citibank, Philippines and former director, group strategy and corporate development at RBTT, made reference to schemes and products such as collateralised debt obligations (CDOs), credit default swaps (CDS) and the mortgage repackaging business, noting the lack of regulatory systems in these investments fuelled greed.

Ian Narine, centre director, wealth management, Scotia private client group, gave tips on investing which included :

•Lesson 1: Benefit from the failure, lessons and experiences of others. You have a finite amount of investable funds – don’t risk making every investing mistake before you learn the ropes about investing.

•Lesson 2: Trust your financial advisor but never invest in a product or security that you don’t understand.

Make sure you know how everything works.

•Lesson 3 - Even with the best of due diligence appreciate that the market is constantly changing and so long as you are invested always remain on your guard.

•Lesson 4 - There are no guarantees.

•Lesson 5 - Take responsibility for your financial affairs — it’s your money, your labour and toil.