Raphael John-Lall

A for­mer deputy gov­er­nor of the T&T Cen­tral Bank and Econ­o­mist Dr Ter­rence Far­rell crit­i­cised econ­o­mist Mar­la Dukha­ran’s re­port last month for draw­ing “sen­sa­tion­al con­clu­sions” which claimed that T&T has US$25 bil­lion over the last 12 years in the er­rors and omis­sions as­pects of T&T’s bal­ance of pay­ments.

Her analy­sis was pub­lished in Ju­ly ti­tled, “T&T is the world’s largest los­er (not user) of for­eign ex­change” in her Ju­ly 2024 Caribbean Month­ly Eco­nom­ic Re­port.

In the re­port, she said that while au­thor­i­ties com­plain that cit­i­zens are de­mand­ing too much for­eign ex­change for lux­u­ry goods, bil­lions of dol­lars in scarce for­eign ex­change are mys­te­ri­ous­ly dis­ap­pear­ing.

Far­rell spoke last Fri­day on the top­ic of “Forex leak­ages in T&T and its im­pact on trade and de­vel­op­ment out­comes” in a we­bi­nar host­ed by the De­part­ment of Trade and Eco­nom­ic De­vel­op­ment, Uni­ver­si­ty of the West In­dies (UWI) St. Au­gus­tine.

“Mar­la has iden­ti­fied an im­por­tant prob­lem and we must com­mend her for rais­ing the is­sue. The big­ger is­sue that she has raised is the whole is­sue about da­ta col­lec­tion and the need for good, time­ly da­ta to sup­port good pol­i­cy­mak­ing. That’s ab­solute­ly crit­i­cal...but I think that the con­clu­sions that she drew were a bit, how should I put it, sen­sa­tion­al. They were over the top and they led to a cer­tain kind of spec­u­la­tion about what is go­ing and which I think that is not what the prob­lem is. Most of those flows re­late to the ser­vices ac­count. The US$25 bil­lion which is miss­ing is not miss­ing at all as we have al­ready spent it and con­sumed it,” Far­rell said.

He re­ferred to her ar­ti­cle about the mon­ey “miss­ing” and mon­ey “dis­ap­pear­ing” and crit­i­cised her con­clu­sion.

“Mar­la said some­things which I think are ac­tu­al­ly…quite frankly they shocked me and I think they shocked a lot of peo­ple that reached to me and asked me if it is this true…I think that is the kind of lan­guage that got peo­ple won­der­ing what is go­ing on. So cer­tain­ly, the peo­ple who are po­lit­i­cal and so on…they were say­ing this is an­oth­er in­di­ca­tion of some kind of malfea­sance go­ing on.”

He added that it is not a case of mon­ey “dis­ap­pear­ing” but sim­ply that it has been spent.

“All that mon­ey that you are talk­ing about that is miss­ing some­where…the mon­ey is gone, yes it is gone but is it be­cause we have spent it. It goes back to the point that Roger Ho­sein made ear­li­er about how we con­sume for­eign ex­change.”

Dukha­ran al­so said the US$25 bil­lion that has gone miss­ing is about 77 per cent the size of the econ­o­my (2022, IMF) and over US$16,000 per per­son.

Far­rell was crit­i­cal of her method of cal­cu­la­tion and how she in­ter­pret­ed the da­ta.

“She al­so said that it is 77 per cent of the size of the econ­o­my. In oth­er words, I think what she seemed to have done is tak­en the US$25 bil­lion, con­vert­ed it to TT dol­lars and di­vid­ed it by T&T’s cur­rent GDP lev­els to get the 77 per cent of the size of our econ­o­my. That is ac­tu­al­ly a wrong way to look at the prob­lem.

“Mar­la al­so said that the TT dol­lar is over­val­ued vs the black­mar­ket forex ex­change rate. That is not lan­guage quite frankly that econ­o­mists would use in terms of look­ing at over­val­u­a­tion. We don’t cal­cu­late or as­sess over­val­u­a­tion or un­der­val­u­a­tion in re­la­tion to the black mar­ket. On so­cial me­dia there were peo­ple spec­u­lat­ing about cap­i­tal flight, the drug trade, hu­man traf­fick­ing and so on. Mar­la her­self en­cour­aged that kind of spec­u­la­tion in her own spec­u­la­tive com­ment talk­ing about mon­ey leav­ing the coun­try via cash and jew­ellery and so on.”

He re­mind­ed lis­ten­ers that in the ear­ly 1990s, the Gov­ern­ment lift­ed cur­ren­cy con­trols.

“In 1993, we float­ed the ex­change rate but we didn’t just on­ly float the ex­change rate, we abol­ished ex­change con­trols. This is im­por­tant to un­der­stand. We abol­ished the ex­change con­trols not on­ly on the cur­rent ac­count but al­so on the cap­i­tal ac­count. This was un­prece­dent­ed at the time for a coun­try like T&T to abol­ish ex­change con­trols on the cap­i­tal ac­count as well. It means that if a T&T com­pa­ny wants to in­vest over­seas it does not need to go to the Cen­tral Bank to get any mon­ey. That change that we made in 1993 was a pro­found change. The abol­ish­ment of the ex­change con­trols meant that the Cen­tral Bank no longer had ac­cess to the da­ta on all of those trans­ac­tions on the ser­vices ac­count.”

Con­trary to what Dukha­ran claims, Far­rell gave the view that not all forex in­flows in­to and out of the coun­try are eas­i­ly mon­i­tored by the Cen­tral Bank as in the past.

“The Cen­tral Bank at the time had ex­change con­trols…the Cen­tral Bank knew every trans­ac­tion. The com­mer­cial banks could not sell you any­thing un­less it had an ap­proval from the Cen­tral Bank. We knew all the in­for­ma­tion be­cause we had it first. This is ex­treme­ly im­por­tant to un­der­stand what it had then and what we have now. Fi­nan­cial flows as re­lat­ed to ex­ports and im­ports from the up­stream en­er­gy sec­tor do not- and Mar­la is wrong about this- they do not flow through the lo­cal fi­nan­cial sys­tem. So, to say that the lo­cal bank­ing sys­tem has all of the in­for­ma­tion is ab­solute­ly to­tal­ly wrong.”

He al­so said that tech­nol­o­gy has al­so ren­dered the Cen­tral Bank’s over­sight over all trans­ac­tions as ob­so­lete as peo­ple no longer need to go to the Cen­tral Bank for trav­ellers’ cheques as they now use cred­it cards.

“Peo­ple now have cred­it cards which they can use for any­thing.”

He crit­i­cised bod­ies like the Cen­tral Sta­tis­ti­cal Of­fice (CSO) for not pro­duc­ing da­ta in a time­ly man­ner.

“Gross do­mes­tic prod­uct (GDP) from the ex­pen­di­ture side, we have not cal­cu­lat­ed that for how long. Ask what is the in­vest­ment rate in this econ­o­my and no­body knows. I do not know if the CSO knows but I have nev­er seen any pub­li­ca­tion of the na­tion­al in­come ac­counts that tells me what the in­vest­ment rate is. We have a huge da­ta prob­lem. The CSO has col­lapsed on it­self. This goes back to the 1980s.”

Dukha­ran who al­so took part in the we­bi­nar dis­cus­sion ac­knowl­edged the crit­i­cal re­ac­tions to her analy­sis but de­fend­ed her po­si­tion.

“You do have sta­tis­ti­cal prob­lems. You have tim­ing er­rors, you have mis­clas­si­fi­ca­tion er­rors, you have all kinds of er­rors but if we use the com­plete da­ta sets we have from the banks and we still can­not ex­plain US$2 bil­lion that should be in our re­serves rough­ly every year yet it is not there… so if we have to stick it in the er­rors and omis­sion item then this is a mas­sive prob­lem.”

She added: “The thing about the er­rors and omis­sion item is it says it is the item that cap­tures er­rors and of course any­time you start to mea­sure any­thing, you start to make er­rors and I men­tioned in my ar­ti­cle that some of what is in the er­rors and omis­sion item will be sta­tis­ti­cal er­rors. But there are oth­er ex­pla­na­tions for the er­rors and omis­sions item.

“None of the re­ac­tions or ex­pla­na­tions that I have got­ten ad­dress the fact that this prob­lem, this er­rors and omis­sions item sud­den­ly be­came large and neg­a­tive in 2011 and re­mained large and neg­a­tive since then with the ex­cep­tion of the COVID years, 2020 and 2021. So, it sug­gests that if you use the ar­gu­ment that it is all sta­tis­ti­cal er­ror, did we sud­den­ly have a col­lapse in our sta­tis­ti­cal in­fra­struc­ture in 2011 and one that per­sist­ed since then? Per­haps? But then why has it and why hasn’t it been ad­dressed?”

Fi­nal­ly, she said that the Gov­ern­ment has not done enough to iden­ti­fy and to solve the prob­lem.

“I would think that any rea­son­able Gov­ern­ment that thinks that US$2 bil­lion is un­ac­count­ed for leav­ing our coun­try every year, they would sali­vate at solv­ing this prob­lem, iden­ti­fy­ing where this is com­ing from and fix­ing it. Right now, the Gov­ern­ment is try­ing to bor­row $100 mil­lion for Petrotrin, we would not have to bor­row these sums pre­sum­ably if we did not have these kinds of leak­ages.”