Finance Minister, Colm Imbert, said yesterday that a devaluation or a de facto flotation of the TT currency would do “tremendous damage” to the local economy, throwing hundreds of thousands of people into poverty and causing hyperinflation.
He was speaking at a virtual news conference, called to discuss the concluding statement of the International Monetary Fund (IMF) team. During the news conference, Imbert went through each of the 20 points made in the concluding statement, which was issued the day after the mission’s two-week Article IV consultation.
In point 12, the IMF mission said a more efficient foreign exchange infrastructure in T&T would help eliminate foreign exchange shortfalls that have been experienced here since 2013.
“IMF staff encourages the authorities to remove all restrictions on current international transactions, while providing sufficient foreign exchange to meet demand for all current international transactions,” said the mission from the world’s lender of last resort.
Imbert said T&T is not now in an IMF programme and has not been in one since 1991 “and it is unlikely that we will ever get into an IMF programme, at least not under this government.”
The fact that T&T is not now in an IMF programme, Imbert said, means “we don’t have to agree with anything that the IMF advises us to do, and we don’t agree with this,” (removing all restrictions on current international transactions).
Imbert said, “For seven years, this Government has resisted any calls from any sector to devalue or float the TT dollar, because we believe that is going to send hundreds of thousands of people into poverty. We believe it would cause hyperinflation and we believe that it will do tremendous damage.
“So, when the IMF says that they encourage the authorities to remove all restrictions on current international transactions, we are not doing that.”
In rejecting out of hand the IMF’s advice on removing all restrictions on current international transactions, Imbert said: “We shall not be pumping US dollars into the system for people to buy townhouses in Miami, which is the end result of this.”
He said: “So, when the IMF says they encourage ‘the authorities to remove all restrictions on current international transactions,’ we are not doing that.
He said the Government’s resistance to the IMF’s encouragement on the foreign exchange issue explains why the current administration came up with its Exim Bank facilities. Through those facilities, the Exim Bank sells foreign exchange to importers of essential foods and pharmaceuticals as well as manufacturers who export a substantial percentage of their output.
He said the Government will continue to expand the Exim Bank facilities to other categories of imports that are in the public interest.
“We will put more money into the Exim Bank, so that our foreign exchange is focused on creating jobs and on boosting exports, and also dealing with the import of essential items,” said Imbert.
Both Imbert and Prime Minister Keith Rowley were members of the 1991 to 1995 Cabinet headed by then Prime Minister Patrick Manning.
Asked whether the flotation of the TT dollar in April 1993 resulted in skyrocketing inflation and recession, Imbert said: “The simple answer to that is yes, but that is not the point. We are now in 2023. I can’t look at what went on 30 years ago and construct a hypothetical scenario.
“I am telling you, I am not asking you, that if we were to devalue the dollar to TT$10 to US$1, for example, which would be a 50 per cent or 40 devaluation, we would have an immediate increase in the cost of imported goods and we would have immediate demands from the labour unions, which would be very difficult to challenge, for increased wages. That would have a cyclical effect and a domino effect on inflation.”
Imbert said he did not think the question about the flotation of the TT dollar was a serious one.
“I don’t think you need to be a rocket scientist to figure out that if you devalue the dollar significantly–because we have such a high import bill and because so many manufactured goods and food comes from abroad–I don’t think we need to belabour this point.”
The concluding statement by the IMF mission also said the Central Bank should “seriously consider” increasing the repo rate to contain inflationary pressures and to narrow the interest rate differentials between T&T and US three-month treasury bills.
Imbert said that unlike the US Federal Reserve (central bank) which has a legal mandate to use interest rates to use interest rates to contain inflation, the local central bank has no such mandate.
“Our Central Bank looks at all sorts of things– economic growth; credit to businesses, the rate of unemployment, among other things–and makes a very careful decision on the repo rate, in terms of maintaining it at 3.5 per cent. That’s because the Central Bank does not want to crash the economy. Look at what is happening in the United States....
“I want to commend the Central Bank and I agree with its policy. When you look at interest rates, it must not just be narrowly focused on inflation, but must also look at GDP, employment and economic activity,” said Imbert.
He said: “We are not doing this,” referring to increasing interest rates.