If I am not mis­tak­en, I be­lieve to­day marks the 30th an­niver­sary of the ac­tu­al date of the flota­tion of the TT dol­lar.

I be­lieve con­grat­u­la­tions are due to the Cen­tral Bank—in­clud­ing then Gov­er­nor, Ainsworth Hare­wood and deputy Gov­er­nor, Dr Ter­rence Far­rell, but al­so all of the un­her­ald­ed tech­ni­cal em­ploy­ees who would have worked on de­vis­ing strate­gies and mod­el­ing var­i­ous sce­nar­ios. I am sure the Cen­tral Bank and the Min­istry of Fi­nance would not have un­der­tak­en the flota­tion of the T&T with some for­eign tech­ni­cal ad­vi­sors. Those should be recog­nised as well.

Con­grat­u­la­tions are al­so due to the Cab­i­net of the time, which was head­ed by the late Prime Min­is­ter Patrick Man­ning. While the then Min­is­ter of Fi­nance, Wen­dell Mot­t­ley would have tak­en the lead on the is­sue, it is im­por­tant to note that that Cab­i­net in­clud­ed both the cur­rent Prime Min­is­ter Dr Kei­th Row­ley and the cur­rent Min­is­ter of Fi­nance, Colm Im­bert.

It is a mys­tery that nei­ther has giv­en the flota­tion to the kind of re­flec­tion it de­serves. It is al­so a mys­tery that nei­ther of T&T’s pre­mier in­sti­tu­tions of eco­nom­ic re­search has cho­sen to mark the oc­ca­sion of the 30th an­niver­sary.

Ten years ago, UWI Pro­fes­sor Emer­i­tus, Patrick Wat­son, host­ed a 20th-an­niver­sary fo­rum to dis­cuss the mat­ter as he was then the di­rec­tor of the Sir Arthur Lewis In­sti­tute of So­cial and Eco­nom­ic Stud­ies.

Prof Wat­son host­ed the fo­rum, which in­clud­ed a pan­el com­pris­ing Mar­i­ano Browne, for­mer Gov­ern­ment Min­is­ter; Prof Comp­ton Bourne, then ex­ec­u­tive di­rec­tor, Caribbean Cen­tre for Mon­ey and Fi­nance and for­mer Pres­i­dent, Caribbean De­vel­op­ment Bank, An­tho­ny Wil­son, ed­i­tor of the T&T Busi­ness Guardian and se­nior man­ag­er of op­er­a­tions at the Cen­tral Bank, Al­is­ter Noel.

Fol­low­ing that fo­rum, this col­umn be­came in­ter­est­ed in the top­ic and wrote sev­er­al com­men­taries, in this space, on the is­sue.

The com­men­tary with the most provoca­tive head­line was: “Is 10 to one re­al­ly mur­der” which I be­lieve was pub­lished in Sep­tem­ber 2015.

That piece re­flect­ed on the col­umn that is re­pro­duced on this page and made the fol­low­ing point:

“Thurs­day’s BG View, which was head­lined ‘Is a ful­ly float­ing ex­change rate the an­swer to T&T’s prob­lems?’ seems to have caused some angst among read­ers, some of whom felt that mov­ing to a sys­tem in which the de­mand and sup­ply of for­eign ex­change de­ter­mine the price of the US dol­lar—from a sys­tem in which the Cen­tral Bank con­trols the ex­change rate and the amount of for­eign ex­change it sells to the mar­ket–would cause so­cial dis­rup­tion.

“The fear was ex­pressed that mov­ing to a ful­ly-float­ing ex­change rate would mean a sharp de­pre­ci­a­tion in the val­ue of the TT dol­lar, which could cause the Laven­tille Hill to de­scend on the cap­i­tal in fury, like a swarm of lo­custs, pil­lag­ing, plun­der­ing and loot­ing Port-of-Spain be­cause the price of bread, roti, bake and dou­bles had in­creased. Not to men­tion the up­roar in West­moor­ings and Good­wood Park at the im­pact of a de­pre­ci­a­tion on the price of straw­ber­ries, bagels, and An­gus beef.”

Fis­cal out­comes

Ac­cord­ing to the Cen­tral Bank’s da­ta cen­tre, which does not have da­ta for 1990, the cen­tral gov­ern­ment’s over­all fis­cal bal­ance in 1991 was a deficit of $1.04 bil­lion in 1991. That im­proved to a deficit of $512 mil­lion in 1992. In 1993, the over­all fis­cal bal­ance was a sur­plus of $71.1 mil­lion, fol­lowed by a sur­plus of $14.9 bil­lion in 1994, a deficit of $45.1 mil­lion in 1995 and a sur­plus of $171.6 mil­lion in 1996.

What is more in­ter­est­ing than the over­all fis­cal bal­ance is the fact that cen­tral gov­ern­ment’s ex­pen­di­ture in­creased in the years af­ter the flota­tion.

The gov­ern­ment’s to­tal ex­pen­di­ture in 1991 and 1992 was $6.74 bil­lion and $6.61 bil­lion re­spec­tive­ly. In 1993, the year of the flota­tion, to­tal ex­pen­di­ture was $6.67 bil­lion. In 1994, to­tal ex­pen­di­ture rose to $7.54 bil­lion, which was 13 per cent more than spend­ing in 1993.

The to­tal ex­pen­di­ture in 1995 was $8.45 bil­lion, which was 12 per cent more than in 1994.

And the cen­tral gov­ern­ment’s to­tal ex­pen­di­ture in 1996 was $9.37 bil­lion, which was 10.82 per cent more than the pre­vi­ous year.

So in the three years af­ter the flota­tion, the gov­ern­ment’s ex­pen­di­ture in­creased by dou­ble dig­its. This stands to rea­son as for the same amount of cen­tral gov­ern­ment US dol­lar earn­ings, the flota­tion al­lowed gov­ern­ment to re­port more TT-dol­lar rev­enue. For ex­am­ple, if the gov­ern­ment earned US$1 bil­lion in tax­es at an ex­change rate of $4.28 to US$1, that would equate to $4.28 bil­lion. At an ex­change rate of $6 to US$1, gov­ern­ment’s rev­enue ris­es to $6 bil­lion, which is 40 per cent more.

Out­come

One of the ad­van­tages of the flota­tion is that it gave the gov­ern­ment “more fis­cal space” as the econ­o­mists like to say. That fis­cal space gives the gov­ern­ment more op­tions in how to dis­trib­ute its re­sources to the pop­u­la­tion.

Debt

In the Cen­tral Bank’s Hand­book of Key Eco­nom­ic Sta­tis­tics, there is a ta­ble that pro­vides T&T’s to­tal debt out­stand­ing go­ing back to 1955. In 1990, T&T’s to­tal debt out­stand­ing was $10.52 bil­lion. In 1991, to­tal debt out­stand­ing jumped to $11.38 bil­lion. In 1992 it was $11.59 bil­lion.

In the year of the flota­tion, 1993, to­tal debt out­stand­ing jumped to $14.78. That was 27.5 per cent more than the pre­vi­ous year.

In 1994, to­tal out­stand­ing debt in­creased to $15.67 bil­lion, a six per cent in­crease over the pre­vi­ous year.

In 1995, to­tal out­stand­ing debt rose to $16.16 bil­lion and in 1996 to $17.20 bil­lion.

T&T’s to­tal out­stand­ing US dol­lar debt be­fore the year of the flota­tion was about US$1.5 bil­lion. With the ex­change rate of $4.28 to US$1 be­fore the flota­tion, that trans­lat­ed to the equiv­a­lent of about $6.6 bil­lion. In 1993, the TT-dol­lar equiv­a­lent of the coun­try’s for­eign debt jumped to $9.42 bil­lion. In 1994, it in­creased to $10.10 bil­lion. In 1995, it dropped to $9.84 bil­lion and in 1996 it was $10.21 bil­lion.

Con­clu­sion

A flota­tion def­i­nite­ly in­creas­es the lo­cal cur­ren­cy equiv­a­lent of for­eign cur­ren­cy in­debt­ed­ness. That means coun­tries think­ing about float­ing their cur­ren­cies need to fac­tor not on­ly the quan­tum of for­eign debt but al­so the for­eign debt ser­vice re­quire­ments, the per­cent­age of the debt at fixed or float­ing rates, and the struc­ture of the debt among oth­er is­sues.