geisha.kowlessar@guardian.co.tt
Two more economists have come out in support of the TT dollar being floated as a means of dealing with the country’s ongoing foreign exchange challenges.
Professor emeritus, economist Patrick Watson and UWI St Augustine economics professor Roger Hosein also agreed that this must be properly managed as well as economist Dr Marlene Attzs.
Attzs however, said a managed float is a short-term fix to a longer term structural problem.
Their comments come on the heels of a commentary submitted to Guardian Media by former minister of finance Wendell Mottley and former Central Bank governor Euric Bobb, in which they call for a return of the managed flotation of the TT dollar, which was first introduced in April 1993.
Mottley and Bobb argued that the managed flotation of the TT dollar “worked reasonably well for over two decades, a period during which a remarkable industrial policy saw T&T become a gas-based economy with a world-class presence in the markets for LNG, ammonia, methanol, UAN, and melamine.”
In an interview with Guardian Media yesterday, Watson said he agreed with the TT dollar being floated. He, however, emphasised that the management of the process is key.
“I do not want this thing taken to the extreme where we let this float get away, as has happened in Jamaica, because if you do that the rate is going to slip away very, very rapidly. The operative word there is manage. What is happening is the float is being managed but it is being over managed.
“...We have to continue managing it, but what we cannot do is let it get away,” he explained.
Speaking on CNC3’s Morning Brew programme yesterday, Hosein explained how floating the dollar could help with the economy.
“Whilst I may agree with floating not because it would trigger a lot of import substitution, but because it would manage the pace at which our existing stock of reserves decline, there is a lot of complementary work to be done in the background in the labour market.”
Hosein advised there are certain factors which need to be taken into consideration, one of which is the unemployment rate.
He said one of the things to consider in determining whether the currency should be floated is whether or not the economy has “spare capacity, reactionary space.”
“The Minister of Finance may be looking at the unemployment rate being at about 5.2 per cent and saying to himself well, the economy has full employment and therefore, there’s little room for reaction because the economy is at full employment.
“I urge policymakers not to only look at the unemployment rate in determining whether or not the economy has reactionary space or spare capacity, but it’s critical that they also look at the labour force participation rate,” Hosein explained.
He said what Government is not doing is not allowing the float to work.
“We have intervened and used a managed float in which we tended to keep the currency between about $5.25 to US$1, at one point in time, up to about $6.8, which it is now. If you allow the float to work and you remove the management of the float and by extension the injection of the Central Bank’s US dollars into the commercial banking system, then perhaps the rate would go up and we would see a number closer, and I’m guessing here, closer to $8 to US$,” Hosein stated.
Meanwhile, Attzs said a more sustainable solution is needed to address the structural challenges facing T&T, to control the appetite for foreign exchange.
She said other opportunities to increase the supply of forex, other than the energy sector, must be sought.