This foreign exchange situation has me really confused. Confused as to how it could have occurred, and confused as to how the conversation could have reached where it has. I'll like to outline the facts to support my level of confusion.
Fact one: The level of net official reserves stood at US$10,378 million–more than enough to cover over one year of imports. Confusion: How could a learned economist and the leader of the PNM even hint at a devaluation with this level of import cover is beyond comprehension. Oh yes, elections is a year away and that dreaded "d" word (devaluation) works magic.
Fact two: The Central Bank only intervenes to meet shortfalls in the market. In fact, it only supplies approximately 20 per cent of the supply of foreign exchange to the market. The rest is supplied by the economic activities of the country such as energy exports and manufacturing. Confusion: This apparent "shortfall" is being solely laid at the feet of the Central Bank. It seems there is total ignorance as to how this market really works.
Fact three: The new auction system provides a more equitable distribution of the supply of foreign exchange between all the market players. The traditional players who were able to command the lion's share of foreign exchange for sale to the public has now seen a sure source of profits dwindle overnight. Confusion: I think I answered my own question. If you shake up a well-established system and rock the status quo, there are bound to be repercussions.
Fact four: The TTMA complained about shortages of foreign exchange last month. Confusion: All the banks are members of TTMA! They should have a better understanding of the situation.Fact five: From January to April, the banks bought US$1.7 billion from the public and sold US$2.1 billion to the public. The Central Bank intervened to a level of US$.4 billion Confusion: My basic arithmetic shows that this market is in equilibrium. Where is the shortage of foreign exchange?
I think this situation shows there is more than in the mortar than the pestle! Is this a well co-ordinated strategy with other ulterior motives?
Ricardo Jimenez
Diego Martin