GEISHA KOW­LESSAR-ALON­ZO & AN­DREA PEREZ-SOBERS

Caribbean econ­o­mist Mar­la Dukha­ran says the so­lu­tion to this coun­try’s for­eign ex­change avail­abil­i­ty prob­lems is sim­ple and with­in reach.

She ex­plained that the Cen­tral Bank of T&T sim­ply needs to re­in­state an auc­tion mech­a­nism for US dol­lar in­jec­tions, which she said ex­ist­ed be­fore its dis­man­tling by the last ad­min­is­tra­tion in June 2014.

Dukha­ran made the sug­ges­tion in one of her re­ports, which was re­leased yes­ter­day, ti­tled, Why have suc­ces­sive gov­ern­ments of T&T de­lib­er­ate­ly cre­at­ed a for­eign ex­change cri­sis? 

The T&T-born econ­o­mist made the com­ments as Fi­nance Min­is­ter Colm Im­bert re­mained adamant that the Gov­ern­ment will not be float­ing the T&T dol­lar.

His state­ment, which came via his page on X, for­mer­ly known as Twit­ter, was in re­sponse to a Guardian Me­dia ar­ti­cle in which the In­ter­na­tion­al Mon­e­tary Fund (IMF) was quot­ed as say­ing that T&T’s for­eign ex­change re­stric­tions were not con­sis­tent with the Fund’s Ar­ti­cles of Agree­ment.

In defin­ing how a cur­ren­cy auc­tion works, the World Bank’s web­site said that un­der such a regime, the cen­tral bank reg­u­lar­ly sells a giv­en amount of for­eign ex­change through a bid­ding process and buys for­eign ex­change in the in­ter­ven­ing pe­ri­ods at the pre­vi­ous auc­tion-de­ter­mined rate. 

Stat­ing that she did not agree that freely float­ing the TT dol­lar was a good idea, Dukha­ran said in­stead that some mar­ket de­ter­mi­na­tion needs to be al­lowed in the ex­change rate to re­duce the over­val­u­a­tion of the TT dol­lar (vs the black mar­ket rate).

She added the fact was that de­mand for the US dol­lar far out­weighs sup­ply at the cur­rent de fac­to pegged ex­change rate.

The econ­o­mist said since 2012 the Cen­tral Bank had an auc­tion mech­a­nism for USD in­jec­tions in­to the bank­ing sys­tem that the Peo­ple’s Part­ner­ship and for­mer Cen­tral Bank Gov­er­nor Jwala Ram­bar­ran dis­man­tled in June 2014.

She added that Fi­nance Min­is­ter Colm Im­bert said in his bud­get speech in 2015, that he would re­in­state the auc­tion mech­a­nism as it worked well.

“Alas, here we are to­day, with a com­plete­ly un­nec­es­sary and avoid­able FX sit­u­a­tion that the cur­rent ad­min­is­tra­tion knows ex­act­ly how to ad­dress but re­fus­es to. In­stead, they have cre­at­ed ‘win­dows’ and oth­er mech­a­nisms of con­trol­ling ac­cess to FX, and one can on­ly guess why,” she added. 

Dukha­ran al­so sought to fur­ther ex­plain what the ef­fects would be if the TT dol­lar was float­ed.

“A free float of the TTD would like­ly see the TTD de­pre­ci­ate rapid­ly and desta­bilise the econ­o­my—see the ex­am­ples of Suri­name’s last two de­val­u­a­tions. But a re­turn to the auc­tion mech­a­nism we once had would see a slow and al­most im­per­cep­ti­ble de­pre­ci­a­tion in the TTD which avoids over or un­der­val­u­a­tion of the TTD and, like we saw for many years up un­til 2012, it worked well.

“A man­aged float which ex­ist­ed up to 2012 is ide­al un­der our cir­cum­stances and would be easy to re­in­state. The re­al ques­tion is why has it not been re­in­stat­ed?”  

‘It can work’ 

For­mer fi­nance min­is­ters Sel­by Wil­son and Karen Nunez-Tesheira al­so rec­om­mend that T&T re­in­state an auc­tion mech­a­nism to deal with the for­eign ex­change crunch.

Wil­son said it al­lows the mar­kets to set the price.  He not­ed that if the Gov­ern­ment plans to ra­tion how it al­lo­cates for­eign ex­change, it could be tread­ing on po­ten­tial cor­rup­tion and un­fair bias.

Wil­son al­so stat­ed that a re­view of the price range of the US dol­lar should be con­sid­ered amid cur­rent forex woes.

“You could have a range of prices, you would not al­low the price to fall be­low this, and you would not al­low the price to rise above x, not be­low y and not above x and it fluc­tu­ates be­tween those two lines,” he added. 

Nunez-Tesheira said she was sure hav­ing an auc­tion sys­tem would as­sist with the al­lo­ca­tion of the scarcest re­source.

How­ev­er, in the same breath, she said she did not know if this method would be a short-term so­lu­tion to a larg­er is­sue.

“Every sin­gle com­mer­cial bank has cut their US cred­it card spend­ing. To be frank I do not know how the auc­tion method would work. The is­sue to me right now is we are not in a po­si­tion to de­val­ue the dol­lar, but the IMF is putting pres­sure on us to do that. The ques­tion is how we are go­ing to de­vel­op a pol­i­cy of in­creas­ing our forex,” she ex­plained.

Last week, Fi­nance Min­is­ter Colm Im­bert an­nounced plans to con­sult with stake­hold­ers on chang­ing the method for al­lo­cat­ing for­eign ex­change. He said the dis­cus­sions will out­line the path to­ward achiev­ing eq­ui­table dis­tri­b­u­tion. He said the con­sul­ta­tions with stake­hold­ers, can con­clude as ear­ly as the end of this year.