T&T growth prospects dismal, could be zero for 2009

A special report on the Caribbean in LatinFinance has bad news for Trinidad and Tobago. The report by Larry Luxner published March 5, 2009 says contrary to upbeat projections for growth the country's GDP would stall in 2009 and have a modest expansion in 2010.

It quotes Neeraj Aurora, an analyst with JP Morgan as forecasting zero per cent to minus-1 per cent in the current year and just 2.5 per cent expansion next year. That, of course, could be even worse depending on how the commodities markets behave in the months ahead, Aurora says.

Aurora believes the Manning administration did the right thing by quickly taking charge of the CL Financial fiasco in late January but he says "it has now become evident, even if people weren't inclined to believe it that Trinidad and Tobago is no longer insulated from the global economic slowdown."

The country would be running a deficit in the current fiscal year because of the dramatic fall in oil prices. The budget, originally calculating oil at US$70 a barrel, had to be rejigged. But even the new projection of US$50 a barrel is turning out to be too optimistic.

So far the government has not pulled any funds out of the "rainy day" Heritage and Stabilization Fund and has said repeatedly it won't touch it, but if the bottom drops out of the barrel it does have the option to use the money.

People are quite concerned because of what has happened with the CL troubles, especially considering that the conglomerate's total assets exceed 60 per cent of the country's GDP. Apart from its Trinidad and Tobago holdings, CL has a presence all across the Caribbean and in the U.S. and beyond. It has investments in business and finance, rum, agriculture, real estate and petrochemicals.

The deal worked out between CL Chairman Lawrence Duprey, and the government and the country's Central Bank is for CL to sell its 55 per cent shareholding in Republic Bank and its energy interests in its subsidiary, Methanol Holdings, one of the world's largest methanol companies.

According to Moody's senior analyst Allessandra Alecci, the financial sector could encounter further problems as a result of the fallout from CL's difficulties.

She told LatinFinance the size of CL raises questions about confidence in the economy and the financial sector. But at this stage the government has managed to isolate the CL problems and maintain a high level of confidence in the system.

Alecci said the real problem is the sharp downturn in the economy and the additional stress on the banking system.

Moody's is still carefully monitoring the situation and so far it has not adjusted the country's bond ratings. Alecci said, "Given the very adverse macroeconomic backdrop for Trinidad and globally Moody's remains vigilant and will continue monitoring developments in the financial system and the economy as well as the potential for further fiscal costs associated with bailouts.

Standard & Poors isn't that upbeat. In February S&P put the currency ratings - both foreign and local - on CreditWatch with negative implications, LatinFinance reported, quoting S&P as saying, "we will resolve the CreditWeatch status of the ratings once we can estimate the potential fiscal cost to the government, the broader damage to the financial system, and any impairment to the island's medium-term growth prospects.

Read more at LatinFinance: T&T Holdco Blows Up