In the 1980s, Trinidad and Tobago was an upper-middle-income, oil-exporting country that was highly dependent on the world price of oil for its economic growth. The nation displayed the largest gross domestic product of the Commonwealth Caribbean, one of the highest per capita GDPs among the nations of the Western Hemisphere, and one of the highest standards of living in the developing world. The country's GDP in 1985 stood at roughly US$7.7 billion at current prices, or about US$6,000 per capita.
The major sectors of the economy were petroleum and petrochemicals, construction, services, and agriculture. Petroleum had fueled the economy since the early twentieth century and in 1985 still represented roughly 24 percent of GDP and 80 percent of exports. Oil reserves at the current rate of extraction were expected to last approximately ten years, but the islands enjoyed large reserves of natural gas. New petrochemical plants, utilizing the country's natural gas resources, came on-stream in the early 1980s and included ammonia, urea, and methanol. These large industrial projects were located at the newly built Point Lisas industrial park, which, along with the park's new iron and steel plant, provided Trinidad and Tobago with an industrial base that was unmatched throughout the Caribbean. Construction, the major employer in the economy and often considered the bellwether of general economic activity, expanded rapidly during the oil boom of the 1970s but contracted greatly in the 1980s. Services, such as financial services and utilities, also had expanded rapidly since the 1970s and played a major role in the economy; by contrast, tourism was rather undeveloped when compared with other Caribbean islands. The agricultural sector was suffering from a long-run decline, but growth in domestic agriculture in the 1980s helped to revive that shrinking sector, albeit only partially.
In the postwar era, the economy experienced two great boom decades, both of which were followed by decades of slow or negative growth. Real GDP growth averaged 8 percent in the 1950s as the economy diversified into manufacturing and construction through the use of import substitution industrialization (see Glossary) strategies. Growth in import substitution manufacturing and the economy as a whole waned in the late 1960s, exacerbating the social unrest at the end of the decade. The quadrupling of oil prices in 1973 revived the economy and created a 9.6-percent real annual growth rate from 1974 to 1979. Trinidadians and Tobagonians, nicknamed the "Arabs of the Caribbean," were known throughout the region in the 1970s for the carnival of consumption that they participated in with their instant oil wealth. The downturn in oil prices in 1982, however, plummeted the economy into a deep depression in 1983 from which the country had not emerged by 1987. Negative growth peaked in 1984, when the economy contracted by nearly 11 percent.
Even with cyclical growth, the citizens benefited from a quality of life that surpassed that of not only most other Caribbean islands but of other Western Hemisphere oil exporters such as Mexico and Venezuela as well. The country also enjoyed a literacy rate higher than Italy's, a per capita energy consumption rate that exceeded Britain's, a per capita newspaper circulation above that in several Western European countries, an income distribution comparable to that of the United States, and an access to electricity and potable water that was better than most developing countries. Nevertheless, the country also suffered problems associated with more developed societies, including pollution, obsessive consumption, entrenched labor disputes, and growing drug abuse. As in other Caribbean countries, chronic unemployment, which had climbed to 17 percent by 1987, was the major social problem. In addition, East Indians and women lacked the same economic opportunities as white or black males; these disparities were narrowing, however.
Unlike other Caribbean nations, Trinidad and Tobago benefited immensely from the energy crisis of the 1970s. The oil boom of the 1970s flooded the national treasury, cut the unemployment rate in half, created large balance of payments surpluses, and stimulated the economy at large. Nonetheless, it also devastated the agriculture sector, which declined 25 percent because of the resulting shortages of laborers, who migrated to west coast cities for higher wages. Although the boom was reversed in the early 1980s, Trinidad and Tobago's accumulated wealth permitted it to weather the impact of the international recession better than most developing countries and avoid the debt crisis that confronted its neighbors. Although some charges of government waste and corruption were voiced during the 1970s and 1980s, sufficient discipline in public finance prevailed to allow the country to elude the fiscal crisis that confronted other oil-exporting, developing nations such as Mexico, Venezuela, and Nigeria.
In the late 1980s, Trinidad and Tobago displayed a mixed economy that allowed for a level of government involvement second only to that in Cuba among the countries of the Western Hemisphere. The large role in the economy of subsidies, transfers, and joint ventures between the government and the private sector created an intertwining of the public and private sectors that often blurred distinctions between them. During the 1970s, the government purchased a share in over fifty major companies in banking, insurance, agriculture, utilities, and manufacturing. As a consequence, the government also became the largest single employer in the country. Although Trinidad and Tobago was a country where capitalism generally flourished, free enterprise, especially the foreign sector, was highly regulated by the government.
Trinidad and Tobago was a very open economy, dependent on the export of oil to purchase large amounts of imported food, consumer goods, and capital goods. Oil represented approximately 80 percent of exports, whereas food accounted for as much as 20 percent of imports in the late 1980s. Trinidad and Tobago was the most important exporter of oil to the United States from the Caribbean Basin. The country supplied nearly 50 percent of that region's oil exports to the United States, as well as 18 percent of the region's total exports to that same market. Unlike virtually every other Caribbean country, Trinidad and Tobago generally enjoyed yearly trade and balance of payments surpluses. The country depended on the United States for roughly 50 percent of its trade, but the islands also maintained important trade relations with the European Economic Community (EEC) and the Caribbean Community and Common Market (Caricom--see Appendix C). Once a donor nation that aided its poorer Caribbean neighbors, Trinidad and Tobago in the late 1980s was increasingly in need of external financing to weather its economic adjustment period.