Home' Trinidad and Tobago Guardian : October 1st 2015 Contents OCTOBER 1 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
COVER STORY | BG5
need foreign exchange to buy raw materials.
"Manufacturers also need hard currency to pay
their debts and you must pay them in order to man-
ufacture. Sometimes 50 per cent or 60 per cent of
the input into manufacturing comes from outside
this island," he said.
He said the food import bill is about TT$4 billion
and not all is consumed locally as part of this food
import bill is re-used for other completed food prod-
ucts which are then exported.
"So this foodstuff is used for processing and is
then exported. A lot of people do not understand
that as they think all of the food imported is consumed
here. Over 50 per cent of that comes into the country
to be processed and re-exported. Manufacturers need
canned products, citrus and other agro-processing
goods. Of course, we need foreign exchange for these
Ramdeen maintains there is no foreign currency
shortage in the banking system.
"If you go to the bank for US dollars they say there
is none, but if you buy euros and then you go to
change it to US dollars then they change it. So where
are they getting the US dollars from? But the consumer
is paying a double cost. This is what is happening.
There are no shortages in T&T but the problem is
in accessing it. The system needs to be revamped."
He said the TTMA wants the Government to create
a facility---maybe using the Exim Bank---that will
allow manufacturers to pay their suppliers.
"They can bring their invoices and present them
to the Exim Bank and the Exim Bank will release the
funds accordingly. Outside of the oil and gas sector
in T&T the manufacturing sector contributes to the
earning capacity of foreign exchange in T&T," he
Innovation and industrialisation
Dr Rikhi Permanand, executive director, Council
for Competitiveness and Innovation at the Ministry
of Planning, who also spoke at the workshop, said
for companies seeking external markets they need
to look at the benefits and drawbacks of globalisa-
He said during the early 1990s there were signs
that globalisation and market-based economies were
successful as Singapore and the Asian economies
were all growing, and in Latin America Brazil and
Mexico had become industrialised.
However, by the late 1990s problems arose as
Japan s economy went into deflation, by the early
2000s, Argentina s economy had exploded and the
US after the 2001 terrorist attacks went into decline.
In 2015, he said economic problems continue with
Russia s invasion of Ukraine, slowing growth in China
and Brazil s collapse.
He said innovation now is important in developing
a competitive economy.
"Firms competitiveness is the ability to provide
goods and services more effectively and efficiently
than the competitors and, at the same time, to generate
returns on investments. Measurements of compet-
itiveness at the firm level include profitability, cost,
quality, productivity, export sales and market share.
National competitiveness is the ability of the nation s
firms to sell goods and services to meet the quality
standards of local and world markets at prices that
are competitive and provide returns on the resources
employed to produce them."
He said the trend among Western nations is to
return to manufacturing as a pillar of the economy
rather that rely on the services sector.
"It creates skilled jobs and generates revenue for
He said for T&T manufacturers the "critical issues"
include labour and materials and these must be
addressed to allow the sector to grow.
"But we have to innovate our way around this.
The manufacturing sector of T&T is an important
one and contributes 10 percent to GDP, but it must
become an even larger perhaps even doubling its
contribution to GDP in the next five to ten years,"
On December 1, 2014, Central Bank Governor Jwala
Rambarran made a comprehensive presentation on
the foreign exchange situation at the third Monetary
Policy Forum, which was hosted by the Chaguanas
Chamber of Commerce, an excerpt of which is carried
I would now like to turn to another murky matter that has
grabbed headlines for most of the year--foreign exchange, but not
just foreign exchange, everyone s needs for precious US currency
being unfulfilled, from the vacationer wanting US$500, to you,
the business community being unable to pay for goods, and seeing
your credit standing being affected. Foreign exchange has been
turned into a murky matter by some with agendas and others
who pretend to be ignorant about how our system works.
I m sure when the business reporters write the 2014 year in
review, they will probably say the so called, "foreign exchange
shortage" is the business story of the year and perhaps it is; but
there are always three sides to a story...yours, mine and the truth...
and may be after a year and more, some of you will see the truth
Let s start at the beginning. As banker to the Government, we
receive the country s revenue from the energy sector through the
taxes energy companies are required to pay every quarter in US
dollars. That money forms most of the country s "Official Reserves."
Central Bank invests the reserves and we use the interest income
we make from those investments to fund the operations of the
bank itself. Central Bank is not funded by the taxpayer, and we
do not receive funding from the Government. In fact, it is the
other way around. At the end of the fiscal year, we send our
surplus to the Government.
We also use the reserves to service government s external debt
payments and to sell foreign exchange to the banking system to
meet shortfalls in supply. Through our sales of US to the financial
system, we foster orderly conditions in the foreign exchange
market, thereby maintaining exchange rate stability.
As you are well aware, demand for foreign exchange from the
business community and the public is perennially high, but
supplies come to the market at discrete intervals, usually when
energy sector companies convert foreign exchange with the banking
system to pay local bills.
So foreign exchange supplies to the country come in two ways:
• Directly to the Central Bank when energy companies pay
their quarterly taxes in US dollars and;
• When energy companies convert US dollars through the
banking system year-round to meet local commitments.
However, demand is always higher than supply and these gaps
result in shortfalls in the system. It is at these points when Central
Bank steps into meet the shortfalls by selling foreign exchange
from our stock of official reserves.
Therefore, Central Bank only enters the system to meet shortfalls
in foreign exchange supply, not to provide the entire supply to
the financial system. Right now, we account for just over 25 per
cent of the total foreign exchange supply while the money that
comes directly from the energy companies account for the rest.
What then, based on this structure, has created all the noise
in the past year?
There was a time when shortfalls would occur seasonally, close
to Christmas and the hectic August travel period. Over the last
two decades, demand for foreign exchange not only expanded
but its composition has also changed to reflect new patterns of
consumer spending, for example, use of credit cards for making
online payments. Today it s now known as "Cyber-Monday" in
the United States and many locals will flood US retailers Web
sites from the comfort and warmth of their homes in T&T thanks
to the Internet, credit cards and US delivery addresses.
Foreign credit card purchases devoured US$570 million for the
year so far. That excludes today s Cyber-Monday sales and upcom-
ing Christmas purchases. Last year, foreign credit card payments
consumed US$530 million. That is more than US$1 billion spent
foreign credit card purchases in just two years. Commercial banks
must meet these credit card payments before they meet any other
foreign exchange demand. That s one source of demand, then
there s that double-digit growth in sales of new cars, many of
which are higher-end luxury vehicles. For the year so far, we ve
spent US$205 million on purchases of new cars; last year that
figure was US$340 million. That is nearly US$750 million on pur-
chases of new cars in two years.
Foreign currency deposits are another source of foreign exchange
demand. Currently, we have US$3.3 billion in foreign currency
deposits in the banking system.
Here s where it gets interesting, and the foreign exchange story
gets a bit murkier. There are many business leaders who often
give their opinions freely on foreign exchange, many go the media
and have been extremely vocal on the matter.
Many businesses have legitimate requests for foreign exchange
and we acknowledge your requests are not always met on time,
and it is for this reason Central Bank has taken US$1.7 billion
from our reserves for the year so far to help meet your unsatisfied
However, we ve noticed a trend, where businesses make noise
for foreign exchange to pay bills for trade-related purposes and
actively lobby the authorized dealers and Central Bank for US
dollars. When the money is provided, the funds are promptly
deposited in their foreign currency account and left unused and
the noise about not being able to get money for business continues.
I do have one tip for businesses trying to get foreign exchange;
it helps if you don t conduct business with companies with
terrorist links as we have strict laws on anti-money laundering
and combatting the financing of terrorism.
As I indicated before, Central Bank steps into the market to
meet the shortfall in foreign exchange supply and that presently
accounts for just over 25 per cent of total supply. So why can t
we supply 50 per cent or 80 per cent, or even all? Why must
we ensure that we have enough official reserves put aside?
Well, let me ask you this: what if the global financial crisis
goes on for another five years? What if the Fed raises interest
rates faster and more than expected next year and causes tremen-
dous volatility in global currency, stock and bond markets? What
if the Ebola virus spreads to the Caribbean region?
When we factor in the chance of these external events happening,
we have to ensure we have enough official reserves as insurance
just in case something does happen.
The plan is to ensure we don t deplete these reserves, as we
once did in the late 1980s, because it took us 30 years to finally
reach to today s US$11 billion.
And yes, this US$11 billion includes US$1.175 billion from
proceeds from the sale of MHTL.
In benchmarking, we have just over one year s worth of official
reserves. This means if I took all the official reserves and gave
it to the business community, you would actually be able to buy
everything you need for a year. Is that enough?
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