One week ago, Prime Minister Kamla Persad-Bissessar directed three of her senior ministers to hold a meeting with the Governor of the Central Bank to discuss the burning issue of the availability of foreign exchange.
The Prime Minister was responding to requests from prominent members of the business community at a "conversation" she held with them at the diplomatic centre.
It may have struck the Prime Minister as deeply ironic that she leads a country that has more than US$11 billion in net official foreign reserves–which is more than enough to last the country for one year–but there are many citizens who are told by their bankers that they have to wait for up to six weeks to get money to pay legitimate foreign invoices and bills.
The issue of the availability of foreign exchange is a problem crying out for a permanent solution that goes beyond the bandaid approach of the Central Bank periodically "intervening" in the foreign exchange market to sell US dollars, or sterling or euro to the authorised dealers.
It is noteworthy that on the day the Prime Minister met with the businesspeople, the Central Bank was preparing to make a fresh US$200 million intervention, which was the first for 2015. That intervention would be enough to satisfy the legitimate demand for foreign exchange for a short time, until the backlog builds up and the queue returns to six weeks once again.
This simply is no way to run a modern country and the Prime Minister is right to seek a solution that brings an end to a system of foreign exchange allocation in which, according to the International Monetary Fund's 2014 Article IV report "repeated shortages have resulted in incentives to hoard foreign exchange," and that is imposing "easily avoidable costs" on businesspeople and others.
In that report, which has been available to the local authorities since June 2014, the IMF suggests that "Trinidadian businesses may suffer damage from being unable to pay their foreign suppliers, and those parties unable to purchase foreign exchange from authorised dealer at the official exchange rate could be incentivised to pay a premium to purchase foreign exchange elsewhere."
It does not take a rocket scientist– or an IMF economist–to predict that if there is an artificially induced shortage of something that is fairly essential, that those in need may resort to extra-ordinary measure to obtain it. Quite helpfully, last year's IMF mission even recommended that "a lasting solution to the shortages requires that the Central Bank introduce greater flexibility to the foreign exchange market.
This could be achieved through an unconditional commitment to meet foreign exchange demand or by allowing greater flexibility in the pricing mechanism (eg by widening the limits on the exchange rate)."
This is not to suggest that these two ideas are the only means of solving the problem of availability of foreign exchange. The advantage of the IMF is that it operates in 188 countries around the world and it has been providing economic advice around the globe since 1945, which simply means that there is no problem of availability of foreign exchange that the institution has not diagnosed before.
Serendipitously, there is an IMF mission in Port-of-Spain this week conducting the 2015 Article IV consultations with government officials, private sector representatives and others, including the Central Bank technocrats. In the spirit of problem solving, the local authorities should attempt to tap in to the expertise that resides at the Fund.
If that is done, maybe when the IMF mission returns to Portof- Spain in 2016, it would be in a position to refer to the foreign exchange availability problems in the past tense.