World may have to deleverage

THE EDITOR: According to the Oxford dictionary, deleveraging is the process of reducing the level of one's debt by rapidly selling one's assets. The global debt is $257 trillion according to an International Monetary Fund estimate for the end of March, 2020. TT's national debt has been steadily increasing.

After the covid19 crisis passes, TT and the world will have to deleverage. The oil price is about US$22 a barrel, a more than 60 per cent drop in about a month.

Historically, there are four ways to deleverage. The first is to cut government spending but this will mean an increase in unemployment. Second is debt restructuring that entails debt reduction and decreasing installment payment amounts. Third is taxing the rich and business companies. The fourth way of deleveraging is by printing money. It is likely that a combination of all of the above will be employed.

The United States has the World Reserve Currency and 70 per cent of its GDP is based on consumption. Currently and for the next few months, consumption will be anaemic. The US is TT's most important trading partner and major contributor to the tourism industry and remittances. The sky is not falling but we certainly have rough seas ahead and there will be a need to navigate these rough seas skillfully.


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"World may have to deleverage"

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