PE­TER CHRISTO­PHER

Se­nior Mul­ti­me­dia Re­porter

pe­ter.christo­pher@guardian.co.tt

For­mer MP Rush­ton Paray says while he un­der­stands the frus­ta­tion that has dri­ven the call by the Trinidad and To­ba­go Cham­ber of In­dus­try and Com­merce for a mar­ket-dri­ven ex­change rate, he has warned that the low­er class will take the longest and most sig­nif­i­cant hit if such a mea­sure is in­tro­duced.

The for­mer Ma­yaro MP said in a post to so­cial me­dia, “There is al­so the so­cial di­men­sion. De­val­u­a­tion is re­gres­sive. Low­er in­come house­holds spend a high­er share of in­come on food, trans­port and ba­sic ser­vices. When prices rise, they feel it first and longest. Coun­tries that man­age de­val­u­a­tion suc­cess­ful­ly re­ly on strong, tar­get­ed trans­fer sys­tems to cush­ion the im­pact. Trinidad and To­ba­go’s sup­port mech­a­nisms are un­even and slow. With­out rapid in­ter­ven­tion, the cost of ad­just­ment shifts di­rect­ly on­to house­holds.”

On Fri­day the Cham­ber is­sued a po­si­tion pa­per urg­ing the gov­ern­ment to ad­dress the for­eign ex­change sit­u­a­tion which had reached a break­ing point. The pa­per ar­gued that the cur­rent ex­change-rate regime has led to TT dol­lar be­ing over­val­ued for more than a decade.

The pa­per ac­knowl­edged points raised pre­vi­ous­ly that de­val­u­a­tion of the dol­lar would lead to se­vere in­fla­tion. How­ev­er draw­ing on ex­am­ples of pre­vi­ous ad­just­ments in 1988 and 1993, the pa­per ar­gued that both in­stances demon­strat­ed “that con­trolled ad­just­ments lead to tem­po­rary, not desta­bil­is­ing, in­fla­tion­ary ef­fects.”

Paray said, “The Cham­ber’s po­si­tion re­flects gen­uine busi­ness frus­tra­tion. Firms can­not plan. Ac­cess to for­eign ex­change is un­even. Small­er op­er­a­tors wait while larg­er play­ers man­age. In­vest­ment de­ci­sions stall. Con­fi­dence weak­ens. From that van­tage point, a mar­ket-dri­ven ex­change rate looks like clar­i­ty. One rate. Few­er dis­tor­tions. Bet­ter price sig­nals. In the­o­ry, it re­stores or­der.”

How­ev­er, Paray ex­plained that T&T’s lim­it­ed eco­nom­ic di­ver­si­fi­ca­tion made this equa­tion a lit­tle more com­plex than sug­gest­ed.

“Trinidad and To­ba­go im­ports the bulk of what it con­sumes. Food, med­i­cine, house­hold goods, build­ing ma­te­ri­als, and pro­duc­tion in­puts all re­ly on for­eign ex­change. A move to a mar­ket-dri­ven ex­change rate would al­most cer­tain­ly mean a sharp de­pre­ci­a­tion from the cur­rent of­fi­cial lev­el.

That change would flow quick­ly in­to prices. Su­per­mar­kets would reprice. Phar­ma­cies would reprice. Trans­port and util­i­ties would fol­low. Wages would not move at the same pace,” he said.

“Sup­port­ers of de­val­u­a­tion of­ten point to com­pet­i­tive­ness and ex­ports. The log­ic is sim­ple. A weak­er cur­ren­cy makes ex­ports cheap­er and im­ports more ex­pen­sive. The prob­lem is that this log­ic as­sumes an ex­port base ready to re­spond. In Trinidad and To­ba­go, ex­port earn­ings re­main dom­i­nat­ed by en­er­gy. En­er­gy ex­ports are al­ready priced in US dol­lars. Out­side of en­er­gy, non-en­er­gy ex­ports re­main nar­row and con­strained by scale, lo­gis­tics, ac­cess to fi­nance, and pol­i­cy in­con­sis­ten­cy. Agri­cul­ture re­mains frag­ment­ed, un­der­cap­i­talised, and ex­posed to cli­mate shocks. A weak­er cur­ren­cy rais­es in­put costs for these sec­tors be­fore it im­proves out­put.”

Over the week­end, for­mer min­is­ter of fi­nance Karen Nunez-Tesheira was al­so not con­vinced that the de­val­u­a­tion would solve the for­eign ex­change cri­sis with­out sig­nif­i­cant ad­just­ments to the al­lo­ca­tion of for­eign ex­change regime with re­gard to im­port costs and ex­port po­ten­tial.