Pe­ter D Nep­tune

Trinidad and To­ba­go faced a run on its re­serves in the first half of the year as the Cen­tral Bank in­ject­ed sev­er­al hun­dred mil­lion of dol­lars to deal with the high de­mand for for­eign cur­ren­cy, says Cen­tral Bank Gov­er­nor Ewart Williams. Williams said sta­tis­tics from the bank­ing sec­tor and the Cen­tral Sta­tis­ti­cal Of­fice showed there was a dra­mat­ic slow­down in im­ports to near­ly half its val­ue in 2008, while the de­mand for for­eign re­serves climbed to more than US$1.1 bil­lion for the first sev­en months of 2009.

But, Williams main­tained that the coun­try was not in cri­sis. He told the me­dia and oth­er spe­cial in­ter­est groups in­vit­ed to a news con­fer­ence on the econ­o­my at the Cen­tral Bank yes­ter­day that non-en­er­gy im­ports for the first two months of the year de­clined by more than 50 per cent to US$911 mil­lion from US$1.55 bil­lion last year. He said de­spite this, the Cen­tral Bank was pre­pared to de­fend the TT dol­lar, as en­sur­ing its sta­bil­i­ty was im­por­tant for fu­ture growth and con­fi­dence in the lo­cal econ­o­my.

"The Cen­tral Bank can con­firm that we have more than ten months for­eign re­serve cov­er­age and we are pre­pared to pro­vide the sup­port that was need­ed to en­sure the busi­ness com­mu­ni­ty has the con­fi­dence to in­vest," Williams said. He said there may have been some run on the for­eign re­serves, but much of the in­creased de­mand for cur­ren­cy re­sult­ed from the re­duced for­eign cur­ren­cy earn­ings from the en­er­gy sec­tor, as they faced low­er vol­umes, mar­gins and rev­enues. Nor­mal­ly, the com­mer­cial banks would buy cur­ren­cy from the en­er­gy sec­tor, but with that source fac­ing a slow­down, they turned to the Cen­tral Bank. He said the re­duced im­port bill was di­rect­ly re­lat­ed to the slow­down of the econ­o­my, in­sist­ing that T&T was not in a re­ces­sion and cer­tain­ly not in a cri­sis.

"Whether the cur­rent sit­u­a­tion is a re­ces­sion or a slow­down is less im­por­tant than mak­ing sure that we adopt the right poli­cies for our spe­cif­ic cir­cum­stances," Williams said. "The US and oth­er ad­vanced economies may be able to spend their way out of re­ces­sion be­cause there is sig­nif­i­cant spare ca­pac­i­ty, and an abun­dance of oth­er pro­duc­tive fac­tors which are wait­ing to be mo­bilised. "Most de­vel­op­ing coun­tries, in­clud­ing T&T, lack this lux­u­ry and need to be more aware of the im­pli­ca­tions of the de­mand stim­u­lus, on in­fla­tion, for­eign ex­change, pub­lic debt and medi­um-term sus­tain­abil­i­ty."

De­spite this, Williams said the coun­try's sit­u­a­tion could not be de­fined as a re­ces­sion, be­cause the de­cline was not broad based across all sec­tors and must im­pact on in­comes and em­ploy­ment that prompt­ed fur­ther de­clines.

"The sit­u­a­tion in T&T is that we have mixed in­di­ca­tors; some are pos­i­tive, such as low­er­ing in­fla­tion, low un­em­ploy­ment and sta­ble in­comes," he said.

"De­spite sig­nif­i­cant neg­a­tive in­di­ca­tors, such as a de­cline in GDP, and eco­nom­ic ac­tiv­i­ty is down, the coun­try is not in a re­ces­sion–at least it is too ear­ly to con­firm. "The ear­ly in­di­ca­tion was that both lo­cal­ly and abroad there are signs of a turn­around, thus we may not get three con­sec­u­tive quar­ters of de­cline and chances are that we may re­alise a turn­around in the econ­o­my by the end of the year."