SoE economic impact a mixed bag

THE STATE of emergency (SoE), extended for three months on Monday and largely welcomed by business chambers, is designed to minimise disruption.

But there will still be short-, medium- and long-term negative effects on the economy.

In some respects, the measure is unobtrusive. There is no curfew. There are no limits on gatherings. There would appear to be no impediment to Carnival.

However, all of this is subject to review. The emergency itself, if not revoked earlier, will be subject to renewal in April.

Although crime has fallen sharply, officials warn that emergency regulations may change depending on the situation.

Uncertainty affects investor and consumer confidence.

The state of emergency’s open-ended nature; the underlying issue of the future of current police leadership; lingering questions over the planned resignation of the Prime Minister and internal PNM processes; and the lack of a set date for the constitutionally due general election; all raise substantial question marks.

The expected mid-year budget review, if it takes place, may not be enough to counter the sense of an economy in limbo.

Clues as to the likely impact of the SoE may be gleaned from what occurred in 2011.

According to the Central Bank’s economic survey for that year, "The distribution sector was projected to fall by 8.5 per cent for the year as a consequence of the subdued economic landscape as well as the possible effect of the state of emergency and curfew.

"On the other hand, the manufacturing sector was projected to grow by one per cent, driven primarily by increased production.

"Overall, lower than anticipated government expenditure in the first half of the year, as well as the imposition of a state of emergency in the latter part of 2011 negatively impacted sectors such as construction, manufacturing and distribution."

However, the People’s Partnership measure came in the context of an economy that was already in recession.

According to the bank, 2011 was the third successive year of GDP contraction.

And the current emergency, unlike that one, does not have restrictions on movement.

Yet, even if construction, manufacturing and distribution do not take a hit this time around, it is clear Tobago and tourism will still be affected.

It is not just the decision of some cruise ships not to dock.

It is also the fact that tourism is about branding. While the country has been labouring under a serious crime problem for decades, the formal declaration of another emergency attracted considerable international publicity. It is a cause for pause for even returning nationals.

Nevertheless, crime has cost the country too much over the years.

According to the IMF, at least 3.5 per cent of GDP is lost given spending on policing and security, medical expenses, judicial procedures and forgone income. That’s billions.

Indirect costs include productivity decline, distortions in resource allocation and damaged investor perception.

The SoE might, thus, be a small price to pay.

But the bitter medicine must be accompanied by stronger preventative measures.