In his first one-on-one in­ter­view with a jour­nal­ist in near­ly three years, Cen­tral Bank Gov­er­nor, Dr Alvin Hi­laire, dis­cussed a wide range of is­sues with Guardian Me­dia’s con­sul­tant busi­ness ed­i­tor, An­tho­ny Wil­son, in his of­fice over­look­ing In­de­pen­dence Square in down­town Port-of-Spain on Jan­u­ary 19, 2024. In Part 1 of the in­ter­view, the fo­cus is on the front­burn­er is­sue of for­eign ex­change avail­abil­i­ty.

Q: One of the big is­sues that the pop­u­la­tion has with the bank­ing sys­tem in T&T is the avail­abil­i­ty of for­eign ex­change for over­seas trav­el ex­pens­es, for for­eign ed­u­ca­tion or med­ical at­ten­tion. What is the sit­u­a­tion of the avail­abil­i­ty of for­eign ex­change to cus­tomers.

A: That is an im­por­tant ques­tion that peo­ple are think­ing about.

We do have a sit­u­a­tion where, for some years, the for­eign ex­change mar­ket has not been in bal­ance. There is de­mand and there is sup­ply. Why is this? Part of it is that we had some prob­lems in the en­er­gy sec­tor that pre­vent­ed the flows some years ago.

Then we had the COVID-19 pan­dem­ic in which every­body was con­strained, so that both de­mand and sup­ply were less.

Now that we are com­ing out of the pan­dem­ic, we have some more de­mand, so that we do have an im­bal­ance in the sit­u­a­tion (lead­ing to de­mand for for­eign ex­change ex­ceed­ing the sup­ply of it).

What is the so­lu­tion to that? I think a durable so­lu­tion would de­pend on an ap­pro­pri­ate com­bi­na­tion of fis­cal, mon­e­tary and struc­tur­al poli­cies.

What do I mean?

Fis­cal pol­i­cy has a role be­cause it does cre­ate de­mand in it­self, but it al­so helps to stim­u­late the econ­o­my and move things for­ward.

Mon­e­tary pol­i­cy has some­what of a role, as in­ter­est rates could be one as­pect of it, but (rais­ing in­ter­est rates) has to be bal­anced against the pos­si­bil­i­ty of sti­fling growth. Mon­e­tary pol­i­cy has to go with fis­cal pol­i­cy.

Struc­tur­al pol­i­cy is quite im­por­tant be­cause here is where you could un­lock the ca­pac­i­ty of the coun­try to move things for­ward on the ex­port side. I do think in T&T we have a great deal of un­used po­ten­tial, where things take a long time. There are rigidi­ties in dif­fer­ent mar­kets, which can be un­locked. That could be moved for­ward.

I am cer­tain­ly con­cerned, post-pan­dem­ic, about our com­pet­i­tive­ness. The world has be­come a much rougher and tougher place. Peo­ple have more op­tions and are ex­er­cis­ing those op­tions....

I know there are ef­forts be­ing made to boost the en­er­gy sec­tor and hope­ful­ly we will get that sort­ed out, so that we will get back to a more com­fort­able equi­lib­ri­um.

We do have a sit­u­a­tion now where the coun­try has had, for many years, sub­stan­tial buffers. One is the ex­ter­nal re­serves. Sec­ond­ly, the Her­itage and Sta­bil­i­sa­tion Fund (HSF) and third­ly, fis­cal space mean­ing the bud­get deficit over the years and al­so the state of debt.

With these three buffers we were able to weath­er the storm of the pan­dem­ic, cer­tain­ly un­like most of the rest of the Caribbean and many coun­tries in the world.

We were able to tap in­to our fis­cal space. There was some Gov­ern­ment bor­row­ing. The HSF was used to some ex­tent and our re­serves were used to some ex­tent. This helped us to soft­en the blow on what peo­ple might have had to do oth­er­wise. Of course, this means the buffers are be­ing re­duced.

There is trep­i­da­tion about bur­geon­ing debt of low­er in­come coun­tries be­cause they had to bor­row to pur­chase vac­cines, to sup­port their hos­pi­tals and do every­thing just to get through the pan­dem­ic. So al­though those coun­tries got through the pan­dem­ic and have start­ed to re­vive, those bills have to be paid. So we may be look­ing at a debt re­struc­tur­ing sit­u­a­tion glob­al­ly. Oth­er­wise, coun­tries could be stuck.

Q: Does T&T have a debt prob­lem?

A: We do not have a debt prob­lem at this stage, but as with any coun­try and in­di­vid­ual, you have to be aware of your ex­pen­di­ture, your in­come and your as­sets and be able to man­age all three. Your ex­pen­di­ture could lead you in­to a sit­u­a­tion in which you are spend­ing more than you are earn­ing. And then you could have a prob­lem that caus­es a draw­ing down of as­sets or bor­row­ing.

But it is al­so tricky be­cause what you want on your ex­pen­di­ture side is to in­vest in pro­duc­tive ac­tiv­i­ties, which will build the ca­pac­i­ty to earn and al­so sat­is­fy the needs of the pop­u­la­tion.

Q: Com­ing back to the for­eign ex­change is­sue, do you think the lim­i­ta­tion of forex at com­mer­cial banks is ap­pro­pri­ate in a coun­try like ours?

A: There is an im­bal­ance in the for­eign ex­change mar­ket (with de­mand ex­ceed­ing sup­ply) and peo­ple do find ways around that, which is dis­trib­ut­ing it in a way that they think is ap­pro­pri­ate.

The Cen­tral Bank has the ca­pac­i­ty to in­ter­vene in the forex mar­ket. So while the coun­try is work­ing through the macro­eco­nom­ic sit­u­a­tion of an im­bal­ance, the Cen­tral Bank is do­ing as much as it can to bring steadi­ness, pre­dictabil­i­ty and pre­ci­sion to the mar­ket.

We tra­di­tion­al­ly sell for­eign ex­change to the au­tho­rised deal­ers. For the last two years or so, we have em­barked on a path of sell­ing US$50 mil­lion to the au­tho­rised deal­ers every two weeks. We think this pre­dictabil­i­ty has helped, but what do we do in gen­er­al to de­ter­mine our in­ter­ven­tion in the mar­ket be­cause that is a path that we could end up chang­ing? We look at the in­flows and out­flows of for­eign cur­ren­cy, we look at the state of the for­eign re­serves, we look at gov­ern­ment bor­row­ing, the whole path of every­thing, and we look at mar­ket in­tel­li­gence and then we make a de­ter­mi­na­tion. This de­ter­mi­na­tion has end­ed up in this path that I have ex­plained to you.

Will we con­tin­ue that? We will have to see how it goes, be­cause we are look­ing for a more durable so­lu­tion that would be based on a macro­eco­nom­ic con­fig­u­ra­tion of poli­cies. But we do ac­knowl­edge that there re­mains some rigid­i­ty in the mar­ket and some im­bal­ance.

Why he stayed

Q: Your sec­ond term of of­fice came to an end in De­cem­ber. Ac­cord­ing to the re­ports, you opt­ed for a third term. Why did you opt for an ad­di­tion­al term and how long is it?

A: The in­stru­ment of ap­point­ment is for three years. I feel proud and priv­i­leged to be part of this elite in­sti­tu­tion, where you have a team that is ded­i­cat­ed, strong and that is pre­pared for na­tion­al ser­vice. That is why I am here.

Q: Are you 63 this year?

A: (Chuck­les but does not an­swer)

Q: Did the fact that the pol­i­cy­mak­ers asked you to serve (for three more years) mean that there was no­body else avail­able or will­ing to step in­to your shoes?

A: You will have to ask them.

Q: Cen­tral banks through­out the world, and in the re­gion, have put in place mea­sures to make them more in­de­pen­dent in their pol­i­cy­mak­ing. Do you think in­de­pen­dent cen­tral banks are bet­ter for economies than cen­tral banks that are not in­de­pen­dent?

A: I think cen­tral bank pol­i­cy­mak­ing in­de­pen­dence is good eco­nom­ics. As an econ­o­mist, I think cen­tral banks have a role. What is that role? You have a coun­try, you have dif­fer­ent in­sti­tu­tions and arms of the State. Cen­tral banks were put in when peo­ple start­ed to is­sue their own cur­ren­cy and need­ed some in­sti­tu­tion to man­age that and to pre­serve the val­ue of their cur­ren­cies. In oth­er words to deal with in­fla­tion. I think the Cen­tral Bank of T&T has that role and cen­tral banks should have the tools to per­form that role. Cen­tral banks are part of an ap­pa­ra­tus. They are not in­de­pen­dent of that ap­pa­ra­tus as they are part of the na­tion­al sys­tem.

The elect­ed rep­re­sen­ta­tives, through the Par­lia­ment, set the stage. So there is a law. Cen­tral banks have laws. We have our law, the Cen­tral Bank Act, which sets out our role. Our role in­cludes in­fla­tion, but it in­cludes oth­er things, such as fi­nan­cial sta­bil­i­ty.

Q: Is the Cen­tral Bank of Trinidad and To­ba­go in­de­pen­dent of the Min­is­ter of Fi­nance, for ex­am­ple?

A: We op­er­ate with­in a frame­work that was es­tab­lished by law. With­in that frame­work, we have alot of space and we utilise that space. Part of our man­date, es­tab­lished in the law and it is al­so good sense, is to col­lab­o­rate with the Min­is­ter of Fi­nance, with the dif­fer­ent min­istries and oth­er gov­ern­ment agen­cies on macro­eco­nom­ic pol­i­cy. And we do that, we have meet­ings every week. We dis­cuss every­thing very open­ly.

With­in our man­date, we ex­press our­selves and I think we have the space to do what we do.