I am grateful that Trevor Sudama in the June 7 T&T Guardian took the time to reply to my contribution “Diversification and the politician”. However, I wish to make a few comments on his response.
First, he asked whether the method of CL Financial’s entrepreneurship and pattern of foreign portfolio acquisition is the model to be followed in diversifying our economy and earning foreign exchange. Sudama sees this as acceptable if there are no such opportunities in the local economy.
If there are then we should be using our energy sector earnings (as I claimed that CL was using) to invest in the local economy to produce goods and services for export or import substitution thus earning or conserving foreign exchange.
The fundamental requirement of a small open economy is to earn foreign exchange to provide the necessary imports that we are incapable of producing ourselves. There are many ways of doing this; one is by getting foreign investment in the energy sector to exploit the petroleum resource and we benefit from the rents and the little employment produced.
Another is from the on-shore sector exporting, which is marginal given the traditional buymarkup- sell risk averse attitude of the private sector, that depends on the foreign exchange earnings of the energy sector and yet another, investment in the world at large (which we are encouraging NGC to do) which is the method used historically by the metropole in the hinterland that created our regional economies; another is licensing abroad locally developed intellectual property in other product value chains. The mix of investment opportunities in our democracy depends on the players; the government, the private sector and the intellectual support available locally.
Sudama tells us that the greater part of the financial resources used to acquire interests in foreign countries came from local savings placed in Clico and not energy sector earnings per se. CL Financial could not invest saved TT$s to buy, say, a methanol plant in Oman. Hence its “saved” TT$s had to be changed locally into US$s which were predominantly earned by the energy sector.
Hence, as the theory tells us, economic development of our small open economy is driven, not by the TT$s printed by the Central Bank or those created by the local commercial banks, but by the foreign exchange that is saved (the difference between that earned and that spent on imports).
Sudama tells us that though insurance money is to be invested to earn income, it is not equity capital.
This is indeed the tradition and as a result we have thriving insurance companies with massive deposits, of no help in this recession and which provide no economic development.
What CL Financial attempted to do was to invest these low risk funds in higher risk enterprise with the systemic risk being managed by the diversity of the markets in which they were invested.
Still, CL and other major financial companies in the world were clobbered by the collapse, not of one or two markets, but the global economy. Other governments understood the value of their companies and bailed them out, ours did not.
Finally, CL Financial earned foreign exchange and paid its depositors in say, TT$s. This exchange left foreign exchange in the local economy as did paying its local taxes.
Discussing the allegations of criminal behaviour by CL Financial’s shareholders is above my pay grade.
MARY K KING
St Augustine
