At a fund-rais­ing break­fast meet­ing held at the Hy­att Re­gency on June 26, po­lit­i­cal leader of the Peo­ple’s Na­tion­al Move­ment (PNM) and Prime Min­is­ter of T&T, Dr Kei­th Row­ley re­turned to an is­sue that he holds strong views on—the de­val­u­a­tion of the T&T cur­ren­cy.

In his re­marks, Dr Row­ley said, “I want to end on this note: There is a sen­ti­ment, large­ly com­ing from busi­ness­peo­ple, that the way to fix our prob­lem is to de­val­ue the cur­ren­cy. We had that ad­vice since Sep­tem­ber 2015 (when the PNM was elect­ed to of­fice) and we did not take it be­cause we be­lieve that de­val­u­a­tion is a short-term, line of least re­sis­tance that would have far-reach­ing con­se­quences for the ma­jor­i­ty of peo­ple.

“Be­cause it’s sim­ple; if you have US dol­lars and the Gov­ern­ment de­val­ues the cur­ren­cy, it does not give any­body any more US dol­lars. But what it does is that it makes every­thing more ex­pen­sive.

“So what about the peo­ple who have no US dol­lars, who are the vast ma­jor­i­ty of peo­ple in the coun­try? What you are say­ing to us is that the so­lu­tion to the coun­try’s prob­lem is to make every­thing more ex­pen­sive for the peo­ple of this coun­try.

“And you may not be­lieve this, that is the view of some econ­o­mists teach­ing at the Uni­ver­si­ty; that we are liv­ing be­yond our means, which is true, and the way to solve it is just to, with a stroke of a pen, de­val­ue the cur­ren­cy and put the pop­u­la­tion in its place where you pay the re­al price, mean­ing wher­ev­er the cur­ren­cy goes, that is what you will pay.

“Ladies and gen­tle­men, that is not the role of the Gov­ern­ment. The role of the Gov­ern­ment is not to set out to cre­ate hard­ships for peo­ple by fol­low­ing the­o­ries and the­ses. The role of the Gov­ern­ment is to give the peo­ple a chance to sur­vive and to give their chil­dren a fu­ture...

“I can tell you now, we do not con­sid­er de­valu­ing the cur­ren­cy. What we con­sid­er is to try to main­tain the gains we have made by try­ing to earn more. First, we try to pre­serve the earn­ings that we have, we try to earn more and be re­al­is­tic and let it work for us so that we can give our chil­dren and grand­chil­dren a fu­ture that the coun­try gave us.”

In the in­ter­est of con­tin­u­ing the di­a­logue on chang­ing the ex­change rate regime—I pre­fer to use the term flota­tion, which is con­tin­u­ous, rather than de­val­u­a­tion, which is a dis­crete mea­sure—it would be use­ful to make the fol­low­ing points:

1) Dr Row­ley stressed that de­val­u­a­tion does not give any­body any more US dol­lars.

Com­ment—The Prime Min­is­ter is ab­solute­ly cor­rect that a de­val­u­a­tion (flota­tion) of the TT dol­lar would not, in the short term, gen­er­ate more US dol­lars for the coun­try.

One of the rea­sons that coun­tries with float­ing cur­ren­cies, like Ja­maica, have de­clin­ing debt stock is that with a sta­t­ic ex­change rate, every time there is a fis­cal chal­lenge, such as a de­cline in the main ex­port earn­er, the gov­ern­ment goes out and bor­rows mon­ey or draws down on its sav­ings to ad­dress the fis­cal gap.

But T&T does NOT have to base its adop­tion of a float­ing ex­change rate on any for­eign coun­try be­cause we have the ex­pe­ri­ence of flota­tion of the TT dol­lar in April 1993 to fall back on. How much hard­ship was cre­at­ed by the flota­tion of the TT dol­lar in April 1993?

What our ex­pe­ri­ence from April 1993 in­di­cates is that an ap­pro­pri­ate flota­tion of the TT dol­lar would GEN­ER­ATE MORE TT DOL­LARS.

One way to il­lus­trate this is by cre­at­ing a sim­ple mod­el based on the T&T re­al­i­ty:

Coun­try A is T&T, a small, en­er­gy-de­pen­dent na­tion with a sta­t­ic ex­change rate that is fac­ing a $9 bil­lion deficit be­cause of a de­cline in the price and pro­duc­tion of its main ex­port earn­er, nat­ur­al gas.

To fund this fis­cal deficit, the min­is­ter of fi­nance of this coun­try plans to bor­row $8 bil­lion and source $1 bil­lion from its sov­er­eign wealth fund.

Coun­try B is al­so a small, en­er­gy-de­pen­dent coun­try, that is sim­i­lar to Coun­try A in every way, ex­cept for the fact that it has a float­ing ex­change rate.

So let’s say coun­try A ex­pects to earn US$4 bil­lion from the tax­es and fees gen­er­at­ed by its en­er­gy sec­tor. With the sta­t­ic ex­change rate of $6.80 to US$1 that US$4 bil­lion gen­er­ates TT$27.2 bil­lion.

With a float­ing ex­change rate of $9 to US$1, that US$4 bil­lion in en­er­gy earn­ings would gen­er­ate $36 bil­lion. The dif­fer­ence in rev­enue be­tween the sta­t­ic ex­change rate and the float­ing ex­change rate coun­tries is $8.8 bil­lion.

In this sim­ple mod­el, there­fore, the $9 bil­lion deficit van­ish­es al­most by mag­ic.

With a float­ing rate, the ad­just­ment of the ex­change rate gen­er­ates more TT dol­lars for the same amount of US dol­lars earned.

The sim­ple act of float­ing the TT dol­lar does sev­er­al things. By gen­er­at­ing more TT dol­lars for the same amount of US dol­lars earned, flota­tion:

• Re­duces the need for the Gov­ern­ment to bor­row to fund its fis­cal deficit, which goes a long way to per­ma­nent­ly solv­ing Coun­try A’s fis­cal and debt prob­lems;

• Slows down the de­ple­tion of Coun­try A’s of­fi­cial for­eign re­serves be­cause it would elim­i­nate the need for the Cen­tral Bank to sell US$100 mil­lion a month of state-earned for­eign ex­change in sup­port of the ex­change rate;

• Po­ten­tial­ly slows the de­ple­tion of the Her­itage and Sta­bil­i­sa­tion Fund by not re­quir­ing the Min­istry of Fi­nance to with­draw funds every time there is a short­fall in en­er­gy rev­enues;

• Makes Coun­try A’s non-en­er­gy and even its en­er­gy sec­tors more com­pet­i­tive, es­pe­cial­ly those man­u­fac­tur­ers that max­imise the ad­di­tion of val­ue on lo­cal prod­ucts. One good ex­am­ple is that the flota­tion of the TT dol­lar may lead to the de­vel­op­ment of an in­dus­try that goes down­stream from the an­hy­drous am­mo­nia pro­duced by Trin­gen, a com­pa­ny on the Point Lisas In­dus­tri­al Es­tate that is ma­jor­i­ty (51 per cent) owned by Na­tion­al En­ter­pris­es Ltd. NEL’s largest share­hold­er at 66 per cent is Cor­po­ra­tion Sole;

• Slows down the cap­i­tal flight that has tak­en place in T&T in the last 10 years as the au­thor­i­ties have made ac­cess to for­eign ex­change more and more dif­fi­cult. Flota­tion would quite like­ly lead to the repa­tri­a­tion of some of the bil­lions of US dol­lars that have been squir­relled away in the last 10 years; and

• Would en­cour­age re­tail­ers and dis­trib­u­tors to change their busi­ness mod­els to fo­cus more on ex­ports.

And, by the way, US$4 bil­lion is not an un­rea­son­able es­ti­mate of what the Gov­ern­ment earns from the en­er­gy sec­tor.

Ac­cord­ing to the Min­istry of Trade and In­dus­try’s Year in Re­view 2023, last year to­tal ex­ports from T&T in­creased from $55.3 bil­lion to $89.1 bil­lion, with non-en­er­gy ex­ports in­creas­ing by 15 per cent from $15.6 bil­lion to $17.9 bil­lion. That means, ac­cord­ing to the Min­istry of Trade, that en­er­gy ex­ports to­talled $71.2 bil­lion (US$10.5 bil­lion).

2) Prime Min­is­ter Row­ley al­so opined, at the PNM fundrais­er last month, that a de­val­u­a­tion has “far reach­ing con­se­quences for the ma­jor­i­ty of peo­ple, who do not have ac­cess to for­eign ex­change.”

Com­ment: By gen­er­at­ing more TT-dol­lar rev­enue, a flota­tion gives the Gov­ern­ment the abil­i­ty to sub­sidise ba­sic goods, in­crease the dis­tri­b­u­tion of food and util­i­ty cards and CDAP (the chron­ic dis­ease as­sis­tance pro­gramme) to those most in need. The Gov­ern­ment can al­so strength­en the so­cial sup­port sys­tems by in­creas­ing grants, for ex­am­ple.

3) In an in­ter­view with for­mer Guardian Me­dia jour­nal­ist Khamal Georges in Jan­u­ary 2020, Dr Row­ley said, “Those who have ac­cess to for­eign cur­ren­cy are the ben­e­fi­cia­ries of a de­val­u­a­tion. Some of the voic­es you hear call­ing for a de­val­u­a­tion, they know why they are call­ing for it. It is not in de­fence of Mr T&T. A de­val­u­a­tion overnight could hand them more bil­lions of T&T dol­lars.”

Com­ment: This is al­so true. But the ques­tions that arise are these:

Which T&T en­ti­ty has ac­cess to the most US dol­lars?

And, us­ing Dr Row­ley’s ar­gu­ment, which en­ti­ty stands to ben­e­fit the most from a flota­tion?

Sure­ly, the an­swer to both ques­tions is the Gov­ern­ment.