Home' Trinidad and Tobago Guardian : November 30th 2014 Contents NOVEMBER 30 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
COMMENTARY | SBG3
On October 8, when the
announced that it had
sold US$50 million to
the banking system,
the institution stated
that "T&T s net official
stand at US$10.135 billion," representing about
12 months of import cover.
That sale, according to the Bank, was "the
first of a series of foreign exchange interven-
tions strategically timed to ensure there is a
consistent supply of foreign exchange to meet
demands of the business community as the
Christmas season draws near."
On October 16, when the Central Bank sold
another US$50 million to the banking system,
the country s net official stood at US$10.125
On October 22, the Central Bank sold
US$100 million to the banking system, the
third intervention for that month, with the
institution stating that "this sizeable inter-
vention...was based on lower than expected
US dollar conversions from energy companies
and increased seasonal demand from the busi-
ness community for foreign exchange."
A rational person would surmise that
increased demand for foreign exchange from
the business sector plus lower than expected
US dollar conversions from energy companies
equals a reduction in the net official reserves.
In other words, if fewer US dollars are com-
ing into the banking system and there is
increased demand for the US dollars from the
business community, it should stand to reason
that the stock of foreign reserves would decline.
What actually happened?
The Central Bank reported that, rather than
declining, the net official reserves jumped
from US$10.125 billion on October 16 to
US$11.299 billion on October 22, that is by
US$1.174 billion in the space of eight days.
representing over one year s import cover.
Now, is it a coincidence that the US$1.174
billion by which T&T s foreign reserves
increased between October 16 and October 22
is almost the exact amount of money, US$1.175
billion, that the Government received from
the consortium named Consolidated Energy
Ltd for the sale of 56.53 per cent of Clico s
shares in Methanol Holdings Trinidad Ltd?
That sale was consummated on October 9.
If the US dollars that buttressed the country s
foreign reserves did in fact come from the
MHTL proceeds, several important issues arise:
• Why was there no public announcement
that the proceeds from the large one-off MHTL
transaction were being into the pool of money
available "to ensure there is a consistent supply
of foreign exchange to meet demands of the
business community as the Christmas season
• Who authorised the placement of funds
into the pool and why?
• Is this the most prudent use of the MHTL
• What became of the proposal by Minister
of Finance Larry to use the MHTL proceeds
to reduce this country s foreign debt, which
would have placed T&T in a position of being
upgraded by the rating agencies?
• How does making the US$1.174 billion
available "to meet the demands of the business
community" square with Mr Howai s state-
ment, outlined in an email published in the
Guardian on October 24, as follows: "We are
in the process of putting the arrangements
for debt reduction in place. The challenge that
we face is that if we pay off debt now it will
result in an exogenous increase in the money
supply which will increase the level of liquidity
and will raise the spectre of inflation risk.
"We are therefore considering establishing
a sinking fund which will offset the debt but
not increase the level of liquidity in the sys-
"We are developing the structure to facilitate
that (a sinking fund) when the Central Bank
begins the process of repayment, as the funds
are now with Clico, which is under the control
of the Central Bank. For the time being the
funds (from the MHTL sale) have been placed
in Treasury Securities by Clico."
Mr Howai s statement raises a number of
• When he says the funds have been placed
in treasury securities by Clico, does he mean
that the insurance company invested in TT
Government bills, notes or bonds or the gov-
ernment paper of another sovereign, such as
the US Government?
• And if the funds have been invested by
Clico in US Government bills or notes---as
seems more likely, but in this country, who
can tell---how is it possible that they have
turned up as part of the Government s net
• Can money that has been invested by an
insurance company under the Government s
control suddenly (and magically) be trans-
formed into net official reserves?
• If the investment in treasury securities is
an interim step before the establishment of a
sinking fund---which in the T&T context is
money set aside to pay long-term debt---what
happens to the foreign reserves when that
money is placed in the sinking fund? Would
it still be considered part of the reserves?
Was this apparent shell game (now you see
it, now you don t) an attempt to buttress the
country s foreign reserves in the face of
increased pressure, following the reduced con-
version of US dollars by the energy companies,
the sharp reduction in oil prices and the insa-
tiable demand for US dollars from the "busi-
All over the world, the currencies of com-
modity-dependent countries have suffered
declines against the US dollar.
On Friday, Mexico s peso fell to its weakest
level against the US dollar in more than two
years, according to the Wall Street Journal,
while Bloomberg reported that Norway s krone
plunged to its lowest against the dollar since
March 2009. Nigeria s naira posted its worst
month in six years after it weakened 7.3 per
cent this month and even Canada s loonie has
lost 6.3 per cent of its value.
Is avoiding the currency volatility of much
larger countries a good or bad move and did
political expediency play any part?
Operator responds to
"Can Digicel survive
On Thursday, Antonia Graham, who is Dig-
icel s head of group public relations responde
to your article: "Can Digicel survive mega
Firstly I would like to thank you for your
continued interest in Digicel.
I read your article on November 20th with
interest. Whilst, as you know, we don t nor-
mally comment on enquiries about our finan-
cials given we are a private company, I would
like to clarify a few points:
- Amend & Extend: You mention that 14
per cent of the bondholders declined to par-
ticipate in a debt restructuring in June of this
year and suggested that this indicated they
were not happy with the company s future.
What you are referring to is in fact a private
placement with our banks which has nothing
to do with our bondholders. Having met the
banks in question, their decision not to par-
ticipate in this refinancing was because the
interest rate we had on offer did not meet
their own financial return criteria. It was not
in any way due to them not being happy with
the company s future and we continue to have
an ongoing healthy relationship with them.
-Growth: As you know we report our rev-
enues in US Dollars, and when there is an
adverse movement against some of the cur-
rencies we operate in against the US Dollar
this will also reduce the amount of the reported
revenues (in US Dollars). This however masks
the organic growth in market hence we also
report constant currency growth, which for
the quarter you were commenting on was +
4 per cent.
- CWC/Columbus: Our position with the
proposed C&W acquisition is that we are call-
ing on governments, regulators and other inter-
ested parties to closely examine the transaction
and consider what it could potentially mean
for competition in the region---particularly in
those markets where CWC and Columbus
currently compete against each other.
I think it is widely accepted that a return
to a monopoly or a virtual monopoly in the
impacted sectors (cable TV, fixed broadband,
submarine fibre, fixed phones) is fraught with
risks including potential over-pricing and
under-investing, unless certain remedies and
actions are taken to ensure that a level playing
field is maintained. These remedies and actions
can include sharing infrastructure, restrictions
on bundling and divestitures.
In the case of T&T, the glaring issue to be
resolved is C&WC s 49 per cent shareholding
in TSTT. I presume that CWC will be required
to divest that stake and no doubt the deter-
mination of appropriate terms and conditions
for such a sale will need to be considered.
All of this requires careful analysis and
thought. Cable & Wireless s internal deadline
of March 31st should be irrelevant as it is not
their decision to make and instead due process
needs to be gone through in an open and
Our strategy remains unchanged however
we will carefully assess what measures are
taken in each market to maintain a
competitive market prior to further
committing our investment dollars -- hence
we like the public are anxious to participate
in an open and thorough consultative
Have MHTL proceeds been
added to T&T foreign reserves?
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