Divestment as fiscal strategy

COLM IMBERT leaned heavily on the divestment of state assets within his budget. While this suggests the government sees it as a key tool within economic planning, divestment is no miracle cure when it comes to addressing the imbalance between revenue and expenditure. Depending on the uses to which returns are applied, it is, at best, a plaster.

In his budget presentation of September 30, the Finance Minister said the state would sell or lease the Magdalena hotel while developing a new five-star hotel at Buccoo and a marina at Lowlands, Tobago; sell the state’s 49 per cent stake in Clico while being cognisant of $13 billion in debts from CLF entities; and would resolve the vexed Pointe-a-Pierre refinery issue. On the latter, proposals are being sought from three entities that passed through a process that began in February: TT-based CRO Consortium, US-based iNCA Energy LLC and Nigeria-based Oando PLC.

In recent years, there has been global pushback against the Keynesian idea of the role of the state within economic activity.

If there is a vision or philosophy behind the government’s fiscal policies – including its most recent budget – it might be the notion that the state should be shrunk: it has no business doing what the private sector might better do. Meanwhile, the fixed level of social spending betrays an unwillingness to expand the state’s obligations to vulnerable citizens.

As it relates to the refinery, which Mr Imbert said had accumulated losses in excess of $15 billion alongside $3 billion in loan guarantees still on the state’s books as contingent liabilities, the cabinet seeks proposals from the three companies that will incur no further expense.

"The government has no intention of exposing taxpayers to the recurring billion-dollar losses that occurred previously in the operation of the refinery, and the success of this venture is predicated on the principle that it be at no cost to the taxpayer," Imbert said.

But asset divestments are not permanent solutions, that is because they, too, come with their own costly drawbacks. Fire sales may see expediency prevail over value.

The subjectivity inherent to how transactions can be assessed, especially if the bedrocks of transparency and rigid adherence to procurement ideals are not satisfied, also generates political risk.

But even if the best deals are struck in the best of circumstances, the uses to which any money raised is key.

If funds are simply reapplied to recurrent expenditure, as opposed to funding measures which bolster revenue generation, then any gains made will be one-off.

It is easy to suggest illiquid assets remain useful buffers down the road. But in practice, realising sales can be fraught and time-consuming, as seen with the Petrotrin affair, now in its sixth year.

That’s no fail-safe measure.

Meanwhile, the jury is still out on whether divestment is the appropriate ideological approach in a moment of great global economic turbulence when the safety net of the collective state as an idea seems needed more than ever.