GEISHA KOW­LESSAR-ALON­ZO

Se­nior Re­porter

geisha.kow­lessar

@guardian.co.tt

As T&T grap­ples with a grow­ing for­eign ex­change short­age, econ­o­mists re­main sharply di­vid­ed over the best path for­ward.

Dr Ronald Ramkissoon ar­gues that a care­ful­ly man­aged de­pre­ci­a­tion of the TT dol­lar could help re­bal­ance the econ­o­my—but on­ly as part of a broad­er pack­age of re­forms.

“The price of a US dol­lar needs to be ad­just­ed to help con­trol de­mand and hope­ful­ly en­cour­age some re­flows back in­to Trinidad and To­ba­go,” he said.

Ramkissoon stressed that such a move alone would be in­suf­fi­cient with­out mea­sures to build pub­lic con­fi­dence in the do­mes­tic econ­o­my.

At a me­dia en­gage­ment last Thurs­day, Cen­tral Bank Gov­er­nor Lar­ry Howai de­scribed the forex short­age as “re­flec­tive of a ba­sic un­der­ly­ing dis­e­qui­lib­ri­um be­tween de­mand and sup­ply. Sup­ply is far less than de­mand.”

Mean­while, Dr Vaalmik­ki Ar­joon warned that cur­ren­cy de­pre­ci­a­tion could be both in­ef­fec­tive and po­ten­tial­ly harm­ful. While ac­knowl­edg­ing the need to di­ver­si­fy be­yond the en­er­gy sec­tor, he ar­gued that a weak­er cur­ren­cy would not nec­es­sar­i­ly boost non-en­er­gy ex­ports and would like­ly fu­el in­fla­tion and high­er busi­ness costs.

“A weak­er ex­change rate does not make ex­porters more com­pet­i­tive abroad. In­creas­ing FX in­flows from en­er­gy re­quires high­er glob­al prices or greater lo­cal pro­duc­tion, sup­port­ed by a more com­pet­i­tive up­stream sec­tor,” Ar­joon said.

He not­ed that non-en­er­gy man­u­fac­tur­ers have ex­pand­ed ex­ports in re­cent years, but this sec­tor still rep­re­sents on­ly 7.5 per cent of the econ­o­my com­pared with en­er­gy’s 30–40 per cent.

“Ex­pand­ing this sec­tor is crit­i­cal to off­set loss­es in FX earn­ings from en­er­gy and strength­en eco­nom­ic re­silience. But de­val­u­a­tion would not nec­es­sar­i­ly pro­vide the boost ex­pect­ed.

“Most ex­ports are al­ready priced in US dol­lars, and man­u­fac­tur­ing ex­porters re­ly heav­i­ly on im­port­ed raw ma­te­ri­als, pack­ag­ing, ma­chin­ery, ship­ping, and lo­gis­tics. A de­val­u­a­tion rais­es their costs in TT dol­lars, erod­ing mar­gins rather than cre­at­ing a pric­ing edge.”

Ar­joon warned that mi­cro and small en­ter­pris­es could be par­tic­u­lar­ly hard hit, po­ten­tial­ly lead­ing to down­siz­ing or clo­sure, leav­ing larg­er firms to pass on high­er costs to con­sumers.

He em­pha­sized that while re­duc­ing un­nec­es­sary im­ports—such as cer­tain food items that could be pro­duced lo­cal­ly—is im­por­tant, es­sen­tials like phar­ma­ceu­ti­cals, cloth­ing, elec­tron­ics, and tech­nol­o­gy can­not be eas­i­ly sub­sti­tut­ed.

“Im­porters will con­tin­ue to bring these goods in, charg­ing high­er prices. The re­sult would be in­fla­tion, wage pres­sures, and a more ex­pen­sive busi­ness en­vi­ron­ment. The prob­lem is com­pound­ed by FX be­ing treat­ed as an as­set, with au­tho­rised deal­ers in­vest­ing over­seas or in high-in­ter­est US dol­lar loans in­stead of sup­ply­ing SMEs.”

Ar­joon con­clud­ed that a mul­ti-pronged strat­e­gy is nec­es­sary: mea­sured in­creas­es in do­mes­tic in­ter­est rates, deep­er lo­cal cap­i­tal mar­kets to re­duce cap­i­tal flight, and a more com­pet­i­tive busi­ness en­vi­ron­ment. This in­cludes bet­ter SME fi­nanc­ing, re­duc­ing port and cus­toms de­lays, tack­ling crime, op­er­a­tional­iz­ing spe­cial eco­nom­ic zones to at­tract for­eign di­rect in­vest­ment, and plug­ging trade mis­in­voic­ing leak­ages.