TRINIDAD ECONOMIC HIGHLIGHTS - MAY PART 1

UNCLAS SECTION 01 OF 02 PORT OF SPAIN 000590 SIPDIS SIPDIS E.O. 12958: N/A TAGS: EIND EAIR EFIN TD SUBJECT: TRINIDAD ECONOMIC HIGHLIGHTS - MAY PART 1 PORT OF SP 00000590 001.2 OF 002 The following were notable economic issues in T&T during late April/early May: (1) Inflation continues with little change (2) BWIA job cuts coming (3) T&T Business confidence weakens (4) A thousand Chinese to build aluminum smelter -------------- ¶1. Inflation continues with little change -------------- The inflation rate in T&T was running at an annual rate in March of 6.6 percent, according to T&T Central Bank figures. While this was only slightly higher than 6.5 percent in February, there is still no sign of it falling to the Bank's target range of 4-5 percent. In the absence of clear signs of any substantial easing in inflation, the Bank stated in April that monetary policy needed to remain tight to address inflation pressures. It said in the coming weeks it would discuss with commercial banks further measures to absorb liquidity and dampen consumer credit. Food prices, particularly fruits, vegetables and fish, continue to be the main drivers of inflation, currently running at an annualized rate of 19.3 percent. COMMENT: With the announcement May 10 that the U.S. Federal Reserve raised the fed funds rate to 5 percent, post anticipates that the T&T Central Bank will raise the repo rate later this month. End comment. -------------- ¶2. BWIA job cuts coming -------------- Further job cuts at state-owned airline BWIA are included in a new business plan, according to Curtis John, president of the Aviation, Communication and Allied Workers Union. BWIA is in the middle of a major restructuring exercise to transform it into a regional carrier. According to John, new BWIA CEO Peter Davies was clear that there would be job cuts. These cuts are expected to take place over a period of two years and would commence after completion of the restructuring exercise. Minister Lenny Saith has been reviewing the plan since April 14 as chairman of the Cabinet subcommittee on BWIA, but has yet to advise if it meets with government approval. The government has promised yet another infusion of US$250 million to the airline once it has completed its restructuring plan. -------------- ¶3. T&T Business confidence weakens -------------- According to the Corporate Confidence Index (CCI) of the Arthur Lok Jack Graduate School of Business at the University of the West Indies, business confidence in the T&T economy weakened in the first quarter of 2006. The report cited as major factors for this decline high interest rates, lack of available funding and a shortage of skilled labor. The report stated that the greatest contraction in confidence came from a reduction in the investment outlook. Business confidence declined from 44 to 10 points (on the CCI scale) over a six-month horizon and from 56 to 24 points for the 12-month horizon. -------------- ¶4. A thousand Chinese to build aluminum smelter -------------- Alutrint Ltd., a 60-40 partnership between state-owned National Energy Corporation (NEC) and Sural Group of Venezuela, announced that 1,000 Chinese workers would be hired to help build its aluminum smelter in southwestern Trinidad, and train locals to run it. According to an official of Alutrint, the smelter plant will cost between US$500-700 million and would produce 155,000 metric tons of aluminum annually. China National Machinery Equipment Import and Export Corporation will supply the workers to build the smelter and an industrial park, producing aluminum products such as cables, rods and auto parts. Since this is a new industry for Trinidad and Tobago, the company (and implicitly the GOTT) believes that T&T workers do not have the required skills to build and operate such a plant. Construction is expected to take more than two years, and may require 1,000 to 1,500 workers. Once operational, about 800 persons will be employed full-time at the smelter and industrial park. PORT OF SP 00000590 002.2 OF 002 Both Alutrint and Alcoa, which is developing plans for its own US$1.5 billion smelter to be built in the southwestern corner of Trinidad, are awaiting approval from the T&T environmental regulator before commencing construction. AUSTIN