Mar­i­ano Browne

The last five columns fo­cused on what has been loose­ly la­belled “a for­eign ex­change cri­sis”. We not­ed that the forex short­age is pri­mar­i­ly linked to a sec­u­lar de­cline in the vol­ume of nat­ur­al gas pro­duc­tion and in­ter­na­tion­al en­er­gy prices, which gen­er­ate the bulk of forex earn­ings. This has re­sult­ed in a per­sis­tent forex short­fall de­spite the Cen­tral Bank’s (CBTT) month­ly forex in­jec­tions in­to the sys­tem. It al­so not­ed that nu­mer­ous IMF Ar­ti­cle IV Re­ports iden­ti­fied that the of­fi­cial ex­change rate was over­val­ued when com­pared to the Re­al Ef­fec­tive Ex­change Rate (REER).

In ef­fect, the of­fi­cial ex­change rate is a fixed rate sup­port­ed by CBTT month­ly re­leas­es to the com­mer­cial bank­ing sys­tem. Keep­ing the ex­change rate fixed rather than al­low­ing it to float with the move­ment in the terms of trade acts as an ef­fec­tive sub­sidy. Main­tain­ing this sys­tem has con­se­quences.

First, the econ­o­my los­es com­pet­i­tive­ness. Avoid­ing an ex­change rate ad­just­ment re­moves the in­cen­tive to find al­ter­na­tive or new ex­ports, ie, di­ver­si­fi­ca­tion. Sec­ond, it leaves forex de­mand un­al­tered. Third, a sup­ply short­age fa­cil­i­tates an un­of­fi­cial mar­ket and hoard­ing. Fourth, it en­cour­ages the ad­min­is­tra­tion to re­ly on ex­ter­nal loans to meet forex de­mand and de­fend the sta­tus quo rather than ad­dress the pol­i­cy mis­match­es that ex­ac­er­bate the cri­sis.

The con­tin­u­ous de­cline in the of­fi­cial ex­change re­serves, the im­port cov­er, and the con­stant pri­vate sec­tor com­plaints pro­vide con­crete ev­i­dence that the cur­rent ad­min­is­tra­tive mech­a­nisms have failed. The com­mer­cial bank­ing sec­tor’s ef­fort to re­strict de­mand by uni­lat­er­al­ly re­duc­ing cred­it card lim­its may act to de­cel­er­ate the out­flow but can­not over­ride the fun­da­men­tal flaws in the cur­rent op­er­at­ing sys­tem. What are the ad­min­is­tra­tion’s plans to ad­dress the per­sis­tent forex short­age?

Fi­nance Min­is­ter Dav­en­dranath Tan­coo ac­knowl­edged the pub­lic com­plaints about the avail­abil­i­ty of for­eign ex­change when pre­sent­ing the 2025 Mid-Year Bud­get Re­view. He in­di­cat­ed that he would pur­sue sev­er­al ini­tia­tives to ad­dress the com­plaints, if not the short­age. The sev­en ini­tia­tives are list­ed in the or­der in which they were pre­sent­ed.

First, to es­tab­lish a For­eign Ex­change Al­lo­ca­tion Com­mit­tee, to bring “greater trans­paren­cy, eq­ui­ty and strat­e­gy to the al­lo­ca­tion of scarce FX re­sources”. Sec­ond, to im­ple­ment re­port­ing oblig­a­tions for high-vol­ume im­porters to en­sure for­eign ex­change in­flows and out­flows were aligned with the coun­try’s eco­nom­ic pri­or­i­ties. Third, the de­vel­op­ment of repa­tri­a­tion pro­to­cols, in­vest­ment pro­tec­tion frame­works and div­i­dend safe­guards to boost in­vestor con­fi­dence in Trinidad and To­ba­go’s eco­nom­ic in­sti­tu­tions.

Fourth, to ex­plore for­eign cur­ren­cy tax ex­emp­tions and in­vest­ment tax cred­its. Fifth, to re­view “… Trinidad and To­ba­go’s net­work of bi­lat­er­al tax treaties and work with Cari­com part­ners to ad­vance re­gion­al tax har­mon­i­sa­tion, pro­mot­ing cross-bor­der in­vest­ment and re­duc­ing ad­min­is­tra­tive bur­dens on re­gion­al busi­ness­es.” Min­is­ter Tan­coo sug­gest­ed two oth­er pos­si­ble ini­tia­tives. Sixth, to in­tro­duce an Ex­port Al­lowance and Ex­port Growth In­cen­tive, with a fo­cus on high-po­ten­tial non-Cari­com mar­kets and ex­pand in­ter­na­tion­al trade rep­re­sen­ta­tion. Sev­enth, he said there are con­sid­er­a­tions to es­tab­lish an Ex­port Pro­ceeds Re­ten­tion Fa­cil­i­ty.

The forex short­age is both im­me­di­ate and on­go­ing. It re­quires a mix­ture of im­me­di­ate re­forms and medi­um-term mea­sures. The first three ini­tia­tives are ad­min­is­tra­tive and do noth­ing to al­le­vi­ate the sit­u­a­tion. Ini­tia­tives four, five and six are fis­cal mea­sures which one could ex­pect in the 2026 Bud­get. Fis­cal mea­sures take time to im­ple­ment and even more time to take ef­fect, pro­vid­ed they are ad­e­quate­ly de­signed. There­fore, they can have no im­me­di­ate im­pact on the cur­rent sit­u­a­tion. Sim­i­lar­ly, it is un­clear what is meant by an “Ex­port Pro­ceeds Re­ten­tion Fa­cil­i­ty”, as na­tion­als have been al­lowed to op­er­ate for­eign cur­ren­cy ac­counts since the late 80s.

Gov­ern­ment’s re­sponse to the forex short­age is fo­cused on the as­sump­tion that there is an im­bal­ance in how forex is dis­trib­uted. How­ev­er, it has not ad­dressed nor ac­knowl­edged that pol­i­cy mis­match­es cre­ate the prob­lem, such as run­ning per­sis­tent deficits with a fixed ex­change rate. On­ly net earn­ers of forex have no dif­fi­cul­ty in sourc­ing their forex needs, and even they will have pe­ri­od­ic im­bal­ances.

Pre­sum­ably, the “For­eign Ex­change Al­lo­ca­tion Com­mit­tee” will be a crea­ture of the CBTT, as com­mer­cial bank­ing reg­u­la­tion is the CBTT’s province, not the Cab­i­net’s. A lot re­mains to be re­solved. Un­der what prin­ci­ples will the com­mit­tee op­er­ate, and what will be its le­gal ba­sis? How will its rec­om­men­da­tions be im­ple­ment­ed?

The CBTT has wide da­ta col­lec­tion pow­ers, in­clud­ing the broad de­tails of forex us­age. Un­doubt­ed­ly, the da­ta col­lec­tion can be im­proved. How­ev­er, com­mer­cial bank cus­tomer da­ta is pro­tect­ed by well-de­fined com­mon law prin­ci­ples. The de­bate be­tween Prof Rose-Marie Belle An­toine and Dr Ter­rence Far­rell re­veals dif­fer­ences in le­gal in­ter­pre­ta­tion in the ap­pli­ca­tion of the Cen­tral Act rel­a­tive to pri­vate da­ta. Ap­point­ing a Cen­tral Bank gov­er­nor who is like­ly to be more amenable to the ad­min­is­tra­tion’s di­rec­tives is help­ful.

The third ini­tia­tive, the de­vel­op­ment of repa­tri­a­tion pro­to­cols, in­vest­ment pro­tec­tion frame­works, and div­i­dend safe­guards, sounds more ap­plic­a­ble to in­com­ing for­eign di­rect in­vest­ment, al­though it could al­so ap­ply to out­go­ing in­vest­ment.

De­mand ex­ceeds forex sup­ply. Min­is­ter Tan­coo’s an­nounced ini­tia­tives will not im­prove forex avail­abil­i­ty in the next three years. The un­ad­dressed is­sue is that the of­fi­cial ex­change rate is not sup­port­ed by mar­ket fun­da­men­tals. If the forex pric­ing mech­a­nism re­mains di­vorced from a mar­ket-based so­lu­tion, or T&T ex­port earn­ings re­main de­pressed, or the fis­cal deficit con­tin­ues, the short­age will per­sist.

Mar­i­ano Browne is the Chief Ex­ec­u­tive Of­fi­cer of the UWI Arthur Lok Jack Glob­al School of Busi­ness