ewart s williams : the international financial crisis – impact on the region and trinidad and tobago feature address by mr ewart s williams, governor of the central bank of trinidad and tobago, at the couva / point lisas chamber of commerce, port - of - spain, 15 january 2009. * * * thanks for inviting me to address you today. in my remarks i will try to put the current economic difficulties facing trinidad and tobago in the broader context of the still unfolding global financial crisis. the world economy was going along reasonably fine until the third quarter of 2008 when we were suddenly blind - sided with an international financial crisis the likes of which we have not experienced in almost a century. and just when we were beginning to see some stabilization in international financial markets, the world finds itself catapulting into a global recession of an intensity that ’ s still not fully appreciated. there are many theories surrounding the roots of the crisis : i would not go into the polemics, except to say that we are where we are now as a result of several “ sins ” in the world ’ s major economies, including for example, a prolonged build - up of structural imbalances ; inadequate financial sector regulation, excessive risk taking and a fair amount of greed. the whole world is facing a crisis that is primarily the making of the richer more developed countries and while it was once felt that the damage would have been limited to the culpable, it has now engulfed the entire world, putting a lie to a widely held view that emerging market countries had “ de - coupled ”. the irony is, since the fourth quarter of 2008 equity markets in the emerging economies have declined by much more than in the developed countries. moreover, the major emerging market countries, for example mexico, brazil, russia as well as the asian economies, have also been hit by significant capital outflows and exchange rate depreciation. the poorer developing countries are not being spared as they face the adverse market realities as well as major reductions in foreign aid. the global recession is undoubtedly turning out to be much worse than was initially expected. there is now a consensus that growth in some of the major economies will be negative in 2009, with recovery not expected until 2010. emerging markets and developing countries are expected to fare slightly better with real gdp growth projected at about 3 per cent, much of which will come from china and india. note, however, that in the case of china, real growth is coming down from an

bank is projecting real gdp growth of 1 - 2 per cent ; some increase in unemployment, perhaps to 6 - 7 per cent ; an inflation rate of 7 - 8 per cent and little, if any, increase in official reserves. the non - energy fiscal deficit is projected at around 12 per cent of gdp while the overall deficit is projected to widen to around 1 - 1. 5 per cent of gdp. i would admit that these forecasts are subject to wide margins of error since the global environment is still extremely unstable and thus some of the basic parameters are subject to considerable volatility. the current economic environment is a nightmare for policymakers. in the u. s. for instance, some commentators are complaining that obama ’ s massive rescue package is too small, while the traditionalists think that it is far too large. here at home, there is a view in some quarters that the bank should move immediately to lower interest rates. while a reduction in interest rates may contribute to boosting domestic demand and containing the economic slowdown, it ’ s our view that, with inflation currently at 14. 3 per cent, lowering interest rates without some reasonable indication that inflation is on a downward path, would carry serious risks of further entrenching inflation and an inflationary psychology. some people see a depreciation of the currency as being inevitable. i disagree, pointing to our significant foreign reserve cushion which gives us the ability to stabilize our foreign exchange market, if needed. let me end with a few words about the opportunities that the current economic setting presents. there is no doubt that the economic situation will be difficult in 2009, but i am confident that we will weather the storm and do just fine. calling to mind the old adage that “ behind every dark cloud there is a silver lining ” we should keep reminding ourselves that, even if the crisis is prolonged it would eventually come to an end. what is perhaps most important in all of this is that we should be preparing ourselves for the new opportunities that must arise once the situation stabilizes. this is the time for the business sector to be introducing productivity enhancing measures which would help tide you through the down - turn and serve you in good stead in the recovery phase. this is the time to engender a culture of increased productivity among your workers and set the stage for linking wage increases to productivity, when the recovery comes. if the current economic slowdown brings an end to the unsustainable real estate bubble and the splu