Economist: Devaluation won’t affect TT-V’zuela relations

Indera Sagewan-Alli, Director of the Caribbean Centre for Competitiveness believes the TT dollar suffered a devaluation in the last few years. “The T&T currency over the last few years has suffered a devaluation as the Central Bank has allowed the band within which it floats to be lowered. The generally accepted value of $6.30 to $1 US a few years ago has moved now to $6.44 to $1 US, and this is on the formal market.

“Given that the banking system now has a queuing system of requests prior to selling, this has strengthened the black market for US dollars and with it the attendant increase cost. The overall effect then is that the real devaluation is even higher than the $6.44,” she told the T&T Guardian.

Sagewan-Alli was commenting on Venezuela’s devaluation of its currency by 32 per cent from 4.3 to 6.3 bolivars to the US dollar. She said she does not see economic relations between the two countries being affected by the devaluation, although Venezuela’s competitiveness can be affected.

“It does mean that the domestic cost element of operations for production in Venezuela is now cheaper, as a devaluation is, other things being equal, argued to provide a positive competitive advantage to the devaluating country. However, if the cost of operations has a very high import content, foreign exchange usage, then this can worsen competitiveness,” she said.

She also said the devaluation must be looked at in the context of Venezuela being a major supplier of oil on the world market. “We must also understand the energy sector is the country’s largest supplier of foreign exchange. If there is a resurgence of this sector, there is little concern about further devaluations in the short term,” she said.

“It is only if there is a significant contraction in this sector that there would be cause for concern. Moreover, the continued stability of the currency is also a function of the country’s ability to grow quickly other foreign exchange earning sectors.”