DA­REECE PO­LO

Se­nior Re­porter

da­reece.po­lo@guardian.co.tt

The Gov­ern­ment and Fi­nance Min­is­ter Colm Im­bert are be­ing urged to step in to reg­u­late how banks dis­trib­ute for­eign ex­change, with at least one econ­o­mist sug­gest­ing leg­is­la­tion to lim­it the amount of US dol­lars banks can utilise for in­vest­ments in for­eign mar­kets as a short-term mea­sure and busi­ness call­ing for sol­id ac­tion to al­le­vi­ate the woes they are fac­ing.

The calls come af­ter Sco­tia­bank’s an­nounce­ment that it plans to re­duce its max­i­mum US dol­lar cred­it card spend­ing lim­it, ef­fec­tive from 1 De­cem­ber.

In a no­tice to cus­tomers on Wednes­day, the lo­cal­ly list­ed, ma­jor­i­ty Cana­di­an-owned com­mer­cial bank in­di­cat­ed that the US dol­lar spend­ing lim­it on the Aero Mas­ter­card Black would be cut to US$5,000 a month, while all oth­er per­son­al cards would see a re­duc­tion to US$2,000 per month. Sco­tia­bank has al­so in­formed cus­tomers of plans to in­crease cred­it card fees and in­ter­est rates.

The de­ci­sion has drawn crit­i­cism from the pub­lic, with many tak­ing to so­cial me­dia to voice their dis­gust with the move.

Com­ment­ing on the de­ci­sion yes­ter­day, econ­o­mist Dr Vaalmik­ki Ar­joon point­ed out that banks are ac­cu­mu­lat­ing US dol­lars in sur­plus but not­ed this mon­ey is not be­ing cir­cu­lat­ed among the pub­lic. He the­o­rised that most of these funds are be­ing ac­quired to build for­eign ex­change re­serves for pro­pri­etary port­fo­lios and in­ter­na­tion­al in­vest­ments.

“That is re­sult­ing in them hav­ing an ex­cess of US as­sets over US li­a­bil­i­ties, so this prac­tice is nat­u­ral­ly ty­ing up US dol­lar funds that could oth­er­wise have been al­lo­cat­ed to the gen­er­al pub­lic and the busi­ness sec­tor,” Dr Ar­joon said.

He not­ed that be­tween 2020 and 2022, banks held a com­bined sur­plus of US$726 mil­lion that he claimed was not dis­trib­uted pub­licly. The an­nu­al sur­plus­es for those years were US$86 mil­lion, US$392 mil­lion and US$248 mil­lion re­spec­tive­ly, he said, quot­ing from Cen­tral Bank da­ta.

“For the last ten years, banks would have held a sur­plus of about US$1.25 bil­lion, mean­ing that they ac­quired US$1.25 bil­lion more than what was sold to the pub­lic dur­ing that time. I could go back even fur­ther; over the last 16 years, the sur­plus was ap­prox­i­mate­ly US$1.75 bil­lion,” he said.

He ac­knowl­edged that in 2023, au­tho­rised deal­ers sold more than they pur­chased, re­sult­ing in a deficit of US$272 mil­lion.

Nonethe­less, he be­lieves Gov­ern­ment should in­ter­vene to reg­u­late the bank­ing sec­tor’s use of for­eign ex­change.

“This rais­es an im­por­tant pol­i­cy and reg­u­la­to­ry ques­tion: should reg­u­la­tions be im­ple­ment­ed to lim­it the ex­tent to which banks can hold for­eign cur­ren­cy as­sets in ex­cess of for­eign cur­ren­cy de­posit li­a­bil­i­ties? I think this could be a tem­po­rary mea­sure un­til ex­ports re­turn to a high­er lev­el.”

Ar­joon said Sco­tia­bank’s de­ci­sion will have “dam­ag­ing” ef­fects on the econ­o­my, not­ing that small and medi­um en­ter­pris­es will strug­gle, po­ten­tial­ly forc­ing them to ei­ther scale down op­er­a­tions or close. He al­so warned that black mar­ket ac­tiv­i­ty will in­crease, as many in­di­vid­u­als seek to ob­tain for­eign ex­change to pay sup­pli­ers.

He fur­ther said the Gov­ern­ment needs to en­hance pri­vate sec­tor com­pet­i­tive­ness and di­ver­si­fi­ca­tion to in­crease T&T’s ex­port po­ten­tial in non-en­er­gy sec­tors.

He said he sus­pects the Gov­ern­ment may at­tempt to bol­ster for­eign ex­change re­serves by is­su­ing bonds on in­ter­na­tion­al mar­kets to ac­quire US dol­lars, which would sub­se­quent­ly be de­posit­ed in the for­eign re­serves ac­count and con­vert­ed to TT dol­lars by the Cen­tral Bank as a mea­sure to al­le­vi­ate the forex prob­lem. He con­sid­ers the im­ple­men­ta­tion of a neg­a­tive list to re­strict the im­por­ta­tion of items that can be pro­duced lo­cal­ly to be a less de­sir­able op­tion.

The econ­o­mist al­so main­tained that de­valu­ing the TT dol­lar is not a vi­able so­lu­tion to the forex cri­sis.

“De­val­u­a­tion is not the so­lu­tion be­cause, in the con­text of Trinidad and To­ba­go, we don’t have the con­di­tions to tru­ly ben­e­fit from a de­val­u­a­tion.”

How­ev­er, econ­o­mist and for­mer in­de­pen­dent sen­a­tor Am­ri­ta De­onar­ine is not is sup­port of Ar­joon’s call.

She cau­tioned that for­mal­is­ing for­eign ex­change con­trols should be ap­proached with care, not­ing that leg­is­lat­ing how com­mer­cial banks in­vest their for­eign ex­change can on­ly be a tem­po­rary mea­sure.

“If you’re go­ing to sus­tain that for a long pe­ri­od, you’ll en­counter dif­fi­cul­ties. When you’re op­er­at­ing a man­aged float­ing ex­change rate regime, it’s chal­leng­ing to im­ple­ment for­mal for­eign ex­change con­trols be­cause you would ef­fec­tive­ly be push­ing the coun­try back to where it was a few years ago,” she ex­plained.

De­onar­ine ar­gued that com­mer­cial banks will like­ly re­tain au­ton­o­my in their dis­tri­b­u­tion de­ci­sions, em­pha­sis­ing that the core is­sue is that T&T is not earn­ing enough for­eign ex­change. She said there is al­so still no clear di­rec­tion for di­ver­si­fy­ing the econ­o­my to gen­er­ate for­eign ex­change rev­enue, which is part of the prob­lem.

“To me, the so­lu­tion is to re­vis­it our growth strat­e­gy, find mean­ing­ful ways to earn for­eign ex­change, and re­think the non-en­er­gy man­u­fac­tur­ing sec­tor, which has ben­e­fit­ted from nu­mer­ous in­cen­tives, al­though the gains may not be suf­fi­cient,” she said.

For­mer Fi­nance Min­is­ter Sel­by Wil­son al­so con­tend­ed that con­trol­ling for­eign ex­change is not the way for­ward.

“I am gen­uine­ly con­cerned when peo­ple at­tempt to in­ter­vene in the man­age­ment of for­eign ex­change. That presents a sig­nif­i­cant prob­lem,” he said.

Wil­son re­count­ed an at­tempt to con­trol for­eign ex­change in the 1980s through the Trinidad and To­ba­go Ex­change Con­trol Act and ex­pressed scep­ti­cism re­gard­ing banks in­vest­ing over­seas.

“I’m sure that more peo­ple are us­ing for­eign ex­change and buy­ing for­eign goods than the banks are in­vest­ing abroad,” he said.

Guardian Me­dia reached out to the Bankers’ As­so­ci­a­tion for com­ment but none was forth­com­ing up to press time.

Cham­bers want sol­id mea­sures

Mean­while, mem­bers of the busi­ness sec­tor al­so want sol­id mea­sures to bring re­lief.

Con­fed­er­a­tion of Re­gion­al Busi­ness Cham­bers chair­man Vivek Char­ran said small and medi­um en­ter­pris­es are des­per­ate for a so­lu­tion and would sup­port reg­u­la­tion of for­eign ex­change if it proves ben­e­fi­cial.

“If by the end of the year oth­er banks fol­low suit and this US$5,000 cred­it card lim­it is fur­ther re­duced to US$2,000, it will lead to a cri­sis sit­u­a­tion,” he warned.

Char­ran lament­ed that SMEs have faced for­eign ex­change is­sues for years, not­ing that many busi­ness­es owe for­eign sup­pli­ers, ac­cu­mu­lat­ing in­ter­est on their bills, which is ex­ac­er­bat­ed when banks are al­so owed.

“I am very scared. I speak to peo­ple al­most every day, and they ex­press their fear,” he said.

Not­ing that since April 2020, US$1.18 bil­lion was dis­trib­uted by the Ex­im Bank to 110 dis­trib­u­tors of es­sen­tial goods to mit­i­gate short­ages, he said he be­lieves the co­hort was a small one. Char­ran ar­gued that this amounts to around $400 mil­lion a year, stress­ing that enough com­pa­nies did not ben­e­fit from the funds.

He said small ex­porters have lit­tle in­cen­tive to store funds at lo­cal banks due to their in­abil­i­ty to ac­cess them when need­ed. Sim­i­lar­ly, he said Trinida­di­ans work­ing abroad face com­pa­ra­ble chal­lenges.

“Any leg­is­la­tion that fa­cil­i­tates the eq­ui­table dis­tri­b­u­tion of for­eign ex­change to busi­ness­es across the board in Trinidad and To­ba­go would be a pos­i­tive de­vel­op­ment,” he con­clud­ed.

Ch­agua­nas Cham­ber of Com­merce pres­i­dent Bal­dath Ma­haraj, mean­while called on Im­bert to re­vis­it the SME forex fa­cil­i­ty promised in 2023 Bud­get.

He al­so called on Im­bert to com­mu­ni­cate a clear pol­i­cy on the dis­tri­b­u­tion of for­eign ex­change to sup­port busi­ness sta­bil­i­ty and eco­nom­ic growth.

In a state­ment to Guardian Me­dia, Ma­haraj said, “The on­go­ing for­eign ex­change chal­lenges un­der­score the ur­gent need for a sus­tain­able strat­e­gy to ad­dress the na­tion’s cur­ren­cy sup­ply. There have been some con­cerns from busi­ness­men re­gard­ing the trans­paren­cy of al­lo­ca­tions to cer­tain busi­ness­es but this could not have been ver­i­fied. If a clear FX dis­tri­b­u­tion pol­i­cy is com­mu­ni­cat­ed, busi­ness­es can plan bet­ter for their sup­plies.”

On the Sco­tia­bank cap, Ma­haraj said this ad­just­ment im­pacts the ca­pac­i­ty of card­hold­ers to make for­eign pur­chas­es, par­tic­u­lar­ly for busi­ness­es re­liant on over­seas sup­pli­ers or ser­vices.

He not­ed that the Sco­tia­bank de­ci­sion mir­rored a broad­er trend among lo­cal banks, which have been forced to adapt due to for­eign ex­change short­ages im­pact­ing the bank­ing sec­tor over re­cent years.

“The busi­ness com­mu­ni­ty ful­ly un­der­stands the need for sig­nif­i­cant sums to be al­lo­cat­ed to­ward sat­is­fy­ing cred­it card set­tle­ments as a pri­or­i­ty, yet these re­duced lim­its have sparked con­cern among those who re­ly on US dol­lars for es­sen­tial trans­ac­tions,” Ma­haraj said.

He added that when busi­ness­es can­not source US dol­lars to pay their sup­pli­ers, they of­ten turn to the black mar­ket, which not on­ly rais­es costs but erodes sup­pli­er con­fi­dence in lo­cal buy­ers’ abil­i­ty to re­pay.

“This ad­di­tion­al ex­pense ul­ti­mate­ly im­pacts the fi­nal con­sumer, as busi­ness­es are forced to raise prices to off­set these in­creased costs. Con­sumers, too, are di­rect­ly af­fect­ed, es­pe­cial­ly those who typ­i­cal­ly spend more than $2,000 on ho­tels, rental cars, meals, and shop­ping while abroad,” said Ma­haraj.

So­cial me­dia abuzz with com­men­tary

Frus­trat­ed cus­tomers have al­so tak­en to so­cial me­dia to lament Sco­tia­bank’s de­ci­sion.

Ce­o­la Be­lix with the X han­dle @Ce­o­laB said, “Sco­tia­bank play­ing in our faces”.

In an ear­li­er tweet, she said, “Sco­tia­bank just an­nounced it’s re­duc­ing its month­ly cred­it card lim­it from $3,000 to $2,000 USD and stop­ping all over­seas ATM with­drawals and point of pur­chas­es as of De­cem­ber 1. Looks like the time has fi­nal­ly come for me to switch banks.”

Shar­ing his thoughts on Face­book, so­cial me­dia user Keron Rose lament­ed the forex cri­sis, which he does not be­lieve can be fixed in the next 20 years.

He be­lieves the so­lu­tion is to vote com­pe­tent peo­ple in­to gov­ern­ment, and en­cour­aged cit­i­zens to search for in­ter­na­tion­al jobs and seek for­eign clients, as well as leave the coun­try.

“You trav­el and the low lim­its on your cred­it cards are get­ting you lots of de­clined trans­ac­tions...you can’t even book a flight and a ho­tel in the same month due to the low al­lo­ca­tions. You are fi­nan­cial­ly trapped in Trinidad and To­ba­go!” he stressed.

An­oth­er Face­book user, Ramesh Rat­e­dram Ram­nath, al­so sig­nalled his in­ten­tion to leave the fi­nan­cial in­sti­tu­tion.

“Hi Sco­tia­bank, ef­fec­tive No­vem­ber 4th 2024, I would like to close all my ac­counts. Please do not email me again,” he wrote, hav­ing tagged the in­sti­tu­tion. —With re­port­ing by Geisha Kow­lessar-Alon­zo