Not for the first time, In­ter­na­tion­al Mon­e­tary Fund (IMF) staff has en­cour­aged the Min­istry of Fi­nance and the Cen­tral Bank to adopt a more flex­i­ble ex­change rate regime.

The IMF rec­om­mend­ed that ex­change rate flex­i­bil­i­ty would pro­mote greater pri­vate sec­tor in­vest­ment in the non-en­er­gy sec­tor and in­crease the chances of T&T achiev­ing the di­ver­si­fi­ca­tion of the do­mes­tic econ­o­my every­one agrees is cru­cial.

In its con­clud­ing re­port, fol­low­ing its Ar­ti­cle IV con­sul­ta­tion with lo­cal au­thor­i­ties ear­li­er this month, the IMF staff mis­sion could not have been clear­er when it opined, “A more ef­fi­cient for­eign ex­change in­fra­struc­ture would help elim­i­nate for­eign ex­change short­falls....

“Over the medi­um term, greater ex­change rate flex­i­bil­i­ty would re­duce the need for fis­cal pol­i­cy ad­just­ments to re­store ex­ter­nal bal­ance and cre­ate room for more counter-cycli­cal mon­e­tary pol­i­cy.”

The IMF staff’s ar­gu­ment is that ex­change rate flex­i­bil­i­ty would re­sult in a “more con­ducive busi­ness en­vi­ron­ment for the pri­vate sec­tor to in­vest and di­ver­si­fy the econ­o­my.”

In oth­er words, if the T&T econ­o­my is to cre­ate a boom­ing non-en­er­gy sec­tor, whose for­eign ex­change rev­enues can ri­val and, over time, sur­pass the en­er­gy sec­tor, one nec­es­sary el­e­ment would be ex­change rate flex­i­bil­i­ty.

In re­sponse to the IMF’s “en­cour­age­ment,” Fi­nance Min­is­ter Colm Im­bert took to Twit­ter to claim that ex­change rate flex­i­bil­i­ty and high­er in­ter­est rates, an­oth­er of the in­sti­tu­tion’s pro­pos­als for the lo­cal econ­o­my, “could on­ly lead to hy­per­in­fla­tion and re­ces­sion.”

In the past, Mr Im­bert has point­ed to the im­pact of ex­change rate flex­i­bil­i­ty on Ja­maica and Suri­name’s economies. Mr Im­bert, how­ev­er, has been quite re­luc­tant to dis­cuss the ex­pe­ri­ence of one econ­o­my in the Caribbean that adopt­ed the kind of ex­change rate flex­i­bil­i­ty the IMF ad­vo­cates. That econ­o­my is, of course, the T&T econ­o­my.

Mr Im­bert was a mem­ber of the Cab­i­net, led by then Prime Min­is­ter Patrick Man­ning, that de­cid­ed to re­move for­eign ex­change con­trols and float the TT dol­lar in April 1993.

The TT dol­lar had then been pegged to the US dol­lar at the rate of US$1 to TT$4.25 since 1988. Af­ter flota­tion, the TT dol­lar ad­just­ed to an ini­tial rate of US$1 to TT$5.76, cross­ing the TT$6 mark in Sep­tem­ber 1996.

As Min­is­ter of Works and Trans­port and Lo­cal Gov­ern­ment in the 1991-1995 ad­min­is­tra­tion, Mr Im­bert is ide­al­ly placed to in­form the coun­try whether T&T ex­pe­ri­enced hy­per­in­fla­tion and re­ces­sion fol­low­ing the April 1993 flota­tion.

The ev­i­dence sug­gests T&T did ex­pe­ri­ence high­er in­fla­tion fol­low­ing the flota­tion of the ex­change rate, but there were few bel­liger­ent de­mands for wage in­creas­es by the main trade unions to com­pen­sate for the high­er prices. And, in fact, the econ­o­my grew and the coun­try’s for­eign ex­change re­serves in­creased.

This is by no means an ar­gu­ment in favour of a re­turn to a de fac­to flota­tion at this time.

At the end of 2022, the coun­try’s rate of in­fla­tion was mea­sured at 8.7 per cent, most­ly as a re­sult of im­port­ed en­er­gy and food prices. Re­vert­ing to a mar­ket-de­ter­mined ex­change rate at this time would sim­ply dri­ve in­fla­tion high­er, at a time when work­ing peo­ple are un­der con­sid­er­able strain.

T&T, how­ev­er, de­serves a more bal­anced and in­formed as­sess­ment of the pros and cons of “greater ex­change rate flex­i­bil­i­ty” from its Min­is­ter of Fi­nance, not a po­si­tion dri­ven by ev­i­dence from every­where else but T&T.