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Caribbean Islands-Balance of Payments and Debt

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Caribbean Islands Index

Unlike other Caribbean countries, Trinidad and Tobago's balance of payments was generally favorable because of its strong, oilbased export performance and its ability to attract foreign investment in the oil and petrochemical subsectors. Prior to the oil boom, net international reserves were generally adequate to avoid large external loans, although current account surpluses were rare. When energy prices soared in the 1970s, international reserves did the same, climbing from US$34 million in 1973 to US$3.3 billion by 1981. Reserves fell, however, during the 1980s to under US$500 million by mid-decade. The position of reserves was expected to worsen further as a result of the currency devaluation of December 1985 and continued current account deficits. In 1985 the overall balance of payments was in a deficit position of approximately US$300 million and was financed primarily by the country's international reserves. Although the deep recession of the early 1980s depleted most of the country's oil windfalls of the previous decade, it appeared that those accumulated reserves were sufficient for Trinidad and Tobago to avoid the debt crisis confronting most of the Western Hemisphere.

The nation's current account expanded rapidly in the 1970s, moving from a deficit of US$25 million in 1973 to a surplus of US$282 million a year later. Large surpluses on the current account were registered until 1982, when a deficit once again appeared and remained into the late 1980s. Surpluses on the current account averaged 18 percent of GDP during the 1974-79 period and allowed for the liberal importation of goods and services. These surpluses also augmented international reserves, which covered more than twenty months of imports by the early 1980s. The downturn in oil prices in 1982 reversed this trend and generated an unprecedented current account deficit of US$969 million in 1983. These deficits were increasingly reduced later in the decade, making the current account deficit only US$205 million by 1985. The reduction in the account's deficit was achieved primarily through a sharp decrease in imports, thus substantially improving the merchandise trade portion of the current account. Nonetheless, the account remained in a deficit position because of large deficits in the service account, especially in terms of foreign travel, the repatriation of profits, and interest payments. The deficit on the service portion of the current account reached an unprecedented level of US$732 million in 1984. Since 1981, receipts from the country's tourism industry were less than the expenses of the foreign travel of Trinidadians, thus weakening the service portion of the current account. More stringent foreign exchange controls in regard to foreign travel by Trinidadians were instituted in the mid-1980s to restrict that drain.

Net movements on the country's capital account were almost always positive, allowing for some shortfalls in the current account. Surpluses on the capital account peaked in 1982, largely as a result of greater direct foreign investment associated with the ambitious industrial projects of the late 1970s and early 1980s. As the economy contracted in the mid-1980s, direct foreign investment declined; by 1985 a debit for investment arose, indicating a net disinvestment in that year. External borrowing was not a major factor on the capital account until the mid- to late 1980s, when more lending was sought to help stabilize the country's balance of payments.

Trinidad and Tobago's debt was significant but manageable in the late 1980s. In 1985 the country's total external debt reached US$1.2 billion. Seventy-eight percent of the county's debt was with private commercial banks, followed by a 19-percent bilateral debt share. Only 3 percent of the country's debt was with multilateral lending agencies such as the IMF, the World Bank (see Glossary), and the Inter-American Development Bank (IDB). During the 1970s and 1980s, Trinidad and Tobago was not involved in any major transactions with the IMF, a rarity among developing countries in the Americas. Nearly 90 percent of the country's debt was classified as long term, with only US$149 million of outstanding short-term debt registered in 1985. As of 1987, Trinidad and Tobago had never rescheduled its external debt. In 1985 principal payments were slightly over US$100 million, and interest payments were US$80 million. As a percentage of GDP, the nation's total debt reached an all-time high in 1985 of approximately 17 percent. Debt servicing payments as a percentage of exports reached more than 15 percent by 1985. Both percentages were well below the respective Latin American and Caribbean averages of 44 and 26 percent. Nonetheless, Trinidad and Tobago's excellent credit rating, industrial base, international reserve position, and oil resources gave it considerable advantages in debt servicing compared with other developing countries.

Data as of November 1987

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