Contributor – Melanius Alphonse
Business news. It is difficult to predict without fail when and, for that matter, how the trends in the market will change. Recent spikes in stock market prices and market volatility suggest that a ‘bear market’ is likely. However, the preference is for the market to remain upwards where confidence and expectation on earnings are strong enough to characterize the optimism of a ‘bull market.’
There are instances where rising energy prices may have contributed to push inflation higher. But in recent months, a global economic slowdown has contributed to falling prices and a reversal of fortune for consumers, thus helping to strengthen real incomes and help provide some relief to trim economies, in particular, Saint Lucia’s chronic widening current accounts, its fiscal deficits and thirst for external financing.
Currently, oil prices are low, commodities like cooking oil, sugar, and petroleum products are down. Cocoa prices are up some 13.4% already, over fears that the Ebola virus could spread to the Ivory Coast and Ghana, thus interrupting the cocoa harvest that runs from October to March and accounting for approximately 40% of global cocoa yields. There is the potential of much higher prices, together with coffee and chocolate, in the future, as China, India and North America are demanding more chocolate goods heading into Halloween and the holiday season. In Saint Lucia, our cocoa farmers could also benefit from rising cocoa prices on the global market. This could also help bring into production abandoned cocoa fields.
Also, the cost of fuel subsidies by the government of Saint Lucia would fall if oil prices stay low (I am not talking about the cosmetic adjustments made recently) and cause lower rates of inflation and a possible increase in economic output, if the essentials of an economic strategy are at work.
Besides that, falling energy prices are weakening currency values in countries like Venezuela, Russia, and India for example, while the Eastern Caribbean dollar is a safe harbour, up to this point.
It fact, it is practical that real factors of currency devaluation, the price of commodities and inflationary pressures may give oil producing countries reasons to be concerned (Venezuela, Russia, and Saudi Arabia) if prices remain below or less. They could be forced to cut government spending and their largesse to economies like Saint Lucia, that have become reliant on handouts for public spending that harbours debt and failed tax policies that kill enthusiasm and enterprise.
This could be tragic for Saint Lucia, accompanied with the real prospect of civil servants’ five percent salary deflation, on top of the country’s declining productivity levels that fell by a staggering six percent in 2012 and by three percent in 2013, resulting in finance minister Kenny Anthony calling for a change in attitude towards work.
Photo courtesy ensdetunis.blogspot.com
In part, the PetroCaribe deal could encounter an upward revision of interest payments and a shorter repayment period on principal in an economy with annual interest charges on debt of EC$138,793,235 from a total recurrent expenditure of EC$925,761,100 (2014/15 budget estimate).
This will most likely make it even more difficult for the finance minister to explain his leapfrog thought process of growth, much less hide the fatal flaws in the economy that gave rise to economic contraction in 2013 of negative 3.3 percent.
Ideally, measurable steps towards a correction, followed by stability and the essentials to drive real growth would be more palatable. However, that reality is still at risk, whilst the practitioners are all too happy to be pretenders of Saint Lucia’s pitfall to stagflation and double jeopardy.
This is all too familiar in a dead economy that is unable to rise from falling demand and declining confidence, long before the IMF trimmed the forecast for regional and global economic growth.
“The recovery continues but it is weak and it is uneven, so we forecast real growth to be 3.3 percent in 2014. This is down 0.1 percent from our July forecast and 3.8 in 2015, which is down 0.2 percent from our July forecast… among advanced countries the United States and the United Kingdom in particular, are leaving the financial crisis behind and are achieving decent growth. But even for that, the potential growth that they are facing in the future is clearly lower than it was say, in the early 2000. So far there’s little evidence that the Ukraine crisis has had measurable effects beyond the effected countries nor has turmoil in the Middle East affected either the level of volatility of Energy prices very much. Energy prices are low and volatility is also very low. But clearly, the risk that these risks intensify in the future could clearly have major effects on the world economy.” Oliver Blanchard, Chief Economist IMF
The reality is that the risk is all too real for small island states like Saint Lucia that continue to stagger amid worldwide turmoil and market conditions that determine economic output and real growth.
Take for instance:
• Russia and Ukraine is reported to have agreed on a price for winter gas supplies, at a time when falling oil prices have prompted another downgrade of Russian credit rating;
• The US Department of Commerce figures reveled that “The US economy grew at an annual rate of 4.6% between April and June, faster than the previous estimate of 4.2%”, primarily due to increases in exports and business investment;
• In the United Kingdom, Mark Carney, governor of the Bank of England, has had a “strong recovery” in the past 18 months in light of the poor performance of the euro region, Britain’s biggest trading partner;
• The German government just cut its economy’s 2014 GDP growth forecast to 1.2% from 1.8% and 2015 forecast to 1.3% from 2%;
• Italy is showing signs of strength in illegal economic activities such as prostitution and drugs. Prime Minister Matteo Renzi 2015 budget unveiling plans to increase borrowing, slash taxes by 18 billion euros, and promise to abide by deficit rules. The budget is made up of 18 billion euros ($23 billion) worth of tax cuts for businesses and lower-income individuals, spending cuts of 15 billion euros and 11 billion euros of extra borrowing which will be scrutinised by the European Commission before going before parliament.
The outlook for this scenario is that Europe and Asia have a direct spill-over effect on the Caribbean region’s trade agreements and tourism product, which is heavily linked to the world economy and thereby influences Saint Lucia’s economic development.
Prime Minister Kenny Anthony. Courtesy iisd.ca
To be specific, “Grants in the amount of $96.65 million which represents a 94 percent increase from the last year’s out turn. The main donors are the Republic of China (Taiwan) contributing $40.5 million, the European Union with a contribution of $23.7 million and the Caribbean Development Bank (CDB) with a contribution of $3.9 million.” (Budget Statement 2014)
The mystery surrounding Saint Lucia’s economic situation heading into the fourth quarter is perhaps too gloomy for the finance minister to give a factual update. But that is understandable if, after three years of debt accumulation and no growth, rising unemployment, stagnant wages, and access to credit that are still declining, home equity lines of credit are down, and a lack of progress in exports and investments, economic fragility that remains high.
Added to that is the fear of high consumer debt and uncertainty in paying off lingering debts (individual and national) is simply too real, narrowing inequality, higher education, business ownership and a decent social safety net — the result of which is a declining and poorer middle class.
Further, with declining capital resources and poor fiscal management, the finance minister seeks to project an outlook that is bright, “showing positive signs of growth.” Whoops! However technical this may be, or perhaps true for the one percent, while overstating the overall economic environment, the vast majority of the people are seeing diminishing returns and growing poverty dating back to pre independence 1979.
In this state of affairs, the finance minister has failed to roll out either an economic strategy or to influence a policy path that works. In fact, it is hard to escape the financial turmoil that has widened the economic gap regardless of what the people of Saint Lucia are appeased into believing.
No amount of hype and spin doctors can mitigate economic pain and suffering, investor fears, and the failure of budget predictions that compound taxpayers’ worry about persistent economic weakness and what the future holds – a large portion of which is made-up of huge debt repayments and the high risk exposure of default that is threatening Saint Lucia’s current and future development for years to come.
So what’s the story in this critical time? Is there a strategy coming from the medieval economic idealism of Kenny Anthony’s government, with general elections due in 2016, even if there are small signs of an early poll? Can the government run on its record of dismal economic management?
Clearly the gods of the market are not kind to the liberal government of Saint Lucia. And for that reason, whatever image that is portrayed, it’s simply a myth covered with red paint intended to shine bright, except that that appearance is easily washed away. I will tell you why!
Economic growth is vital to alleviate deflation and stagnation, alongside a strategic development policy to meet the demands of people and that of business enterprise and to impact the economy creditworthiness. Also, good tax policies are needed, a stable investment environment, a transparent judicial system and the rule of law.
In preparing this article, I had reason to refer to my writings, in particular, Build a Saint Lucian brand not a charity economy, published on October 10, 2012. Back then, I wrote on a winning strategy of collaboration to define a “Saint Lucian brand” in major hubs, cities and regions, to promote bilateral trade and investment to restore stability to a fragile and unbalanced economy.
“In this global environment, Saint Lucia must bring into being new trade and investment agreements, and partnerships that enhance Saint Lucia’s presence in global markets to reflect an acceptable economic performance on the home front.”
It is less obvious than what meets the eye that a “Saint Lucian brand” is still doable today. Take for example, right now, while global commodities plummet, China and Russia are signing a 30-year, $400 billion agreement targeting joint opportunities in energy and finance, and building cooperation with Asia.
In short, there is the prospect that Saint Lucia should lean on the advantage for the establishment of a trading hub in the Caribbean to strengthen trade, financial services, in particular, exchange transactions for the purchase of goods and services — for companies operating in various time zones — at true market price, thus eliminating inflated buffers that contribute to increase cost and fluctuations in price and demand, and close the gap to making the region more appealing to doing business. These moves have emblematic utterances for corporate establishments, but more fundamental is the strategic thinking to formulate alliances and market share for global commerce.
This is probably something the liberal government of Saint Lucia should learn from their friends, rather than idealism, propaganda and warfare that are not in the interest of the people.
In any case, perhaps I am not paying attention to the liberal way of things, namely, disenchantment and cynical politics and whose economic modules are grounded in the idealism of the one percent that pitches economic pain on the people of Saint Lucia in the allegory of “Better Days” that really means the multiple irony of selective stimulus packages, high debt, low returns and the death of growth.
Hence, now that low political idealism has taken centre stage and placed a higher burden on the taxpayers to apparent oblivion, competent successors will be required to return to the basics of attacking the fundamental issues.
In that context, politics has no place in sound economic policy.
