ewart s williams : investment strategies in an uncertain world address by mr ewart s williams, governor of the central bank of trinidad and tobago, at the business insight caribbean investor conference, port - of - spain, 1 december 2006. * * * good afternoon, ladies and gentlemen. let me first thank the organizers, business insight limited, for inviting me to this very interesting conference which focuses on “ investment strategies in an uncertain world ”. the media release couple days ago observed that the conference was prompted by the significant declines experienced in the stock markets of trinidad and tobago, jamaica and barbados over the last two years and noted that investors and market practitioners were looking for answers. i saw from the programme that there was a discussion this morning on the evolution of the market in trinidad and tobago and it may well be that you have already solved the problem. i hope it is not too late to give my take on the matter and discuss some options, which in my view, could ease some of the current pension funds restrictions while maintaining prudential standards to protect the workers ’ savings. let me first give the background to the current issue. since its inception in 1981 there has been little growth in the number of companies listed on the trinidad and tobago stock exchange. in 1981 there were thirty - five listed companies with a total market capitalization of $ 2. 3 billion. twenty - five years later, there are thirty - two listed companies with a market capitalization of approximately $ 110 million. it is estimated that institutional investors ( largely pension funds ) account for about ninety percent of total demand in a market in which only about twenty - two percent of shares are actively traded – the remainder having been bought to hold. since it was established in 1981, the value of stock market capitalization in trinidad and tobago has grown by over 50 times and much of the increase has taken place since 2002. in that year market capitalization was $ 48 billion and this grew to a peak $ 120 billion in mid 2005 before falling to $ 107 billion at end of 2005. since then market capitalization has declined by a further 18 percent. when the imf conducted its financial sector review in mid - 2005, prior to the slide in the market, it observed that, “ the sharp increase in stock market capitalization was not reflected in earnings ”. from a sample of 13 firms, representing some 60 percent of market capitalization, stock prices between 2001 and mid - 2005 rose 1. 5 times while earnings per share increased 0. 5

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