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Caribbean Islands Balance of Payments and Debt
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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