Home' Trinidad and Tobago Guardian : November 5th 2015 Contents At a public meeting at Pig-
gott s Corner in Belmont
last week, Finance Minister
Colm Imbert told members
of the ruling People s
National Movement (PNM)
in attendance and listening on the radio that
the Government intended to protect the
exchange rate. He also told the audiences
that all those who were hoarding US dollars
in the expectation of making quick profits
were wasting their time.
It is noteworthy---and not just a matter of
semantics or parsing the minister s words---
that in his 2016 budget presentation, the
minister spoke about that the Government
also intended "to take the necessary steps to
protect our exchange rate from external pres-
sures," but that the mechanism for doing so
would be a request to the Central Bank to
"ensure the stability of the exchange rate."
The country now knows that the minister s
"requests" in his October 5 budget speech
were in fact special directions that he gave
to Central Bank Governor Jwala Rambarran
in a meeting on October 26, in accordance
with section 3 of the Exchange Control Act,
which states that the Central Bank "shall
conform with any general or special directions
given to it by the Minister," in the exercise
of its powers and the performance of its
duties under the Act.
As was noted in this space last week, the
Central Bank statement, which outlined the
fact that the institution had to conform with
the minister s special directions, made no
mention of the need "to ensure the stability
of the exchange rate."
It could be that the issue of ensuring the
stability of the exchange rate did not form
part of the discussions that Mr Imbert held
with Mr Rambarran and/or that the exchange
rate stability did not form part of the special
directions that the minister conveyed to the
If either situation is the case, it seems to
me that the minister has left the issue of
exchange rate stability up to the governor.
Firstly, given the words that Mr Imbert
has used to describe Mr Rambarran in the
past---and given the notions that the governor
seems had about the policy and operational
independence of the Central Bank---one would
suspect that there is little love lost between
the two men.
Secondly, if the minister is committed to
protecting the exchange rate from external
pressures, can he do so without the coop-
eration of the Central Bank or does this require
another special direction?
Thirdly, from June 12, 2014 to October 29,
2015, Mr Rambarran s idea of exchange rate
stability was to keep the exchange rate
between $6.33 and $6.37, while intervening
in the foreign exchange market by selling US
dollars to the authorized dealers---both by
way of an auction system and an allocation
system based on market size. It appears that
he has a new idea of what constitutes
exchange rate stability---allowing the TT dollar
to slip from $6.36 to $6.43.
Since the Central Bank sets the exchange
rate, by the price it sells foreign exchange to
the authorized dealers, can someone indicate
to me what is to prevent Mr Rambarran from
deciding that an appropriate exchange rate
is $8 to US$1 or even $10 to US$1?
Fourthly, it seems obvious that one of the
ways in which ministers of finance can "pro-
tect" the exchange rate of a country is by
engaging in prudent fiscal policies, including
ensuring that the fiscal deficit is as small as
In the context of the T&T budget for the
2016 fiscal year, this would have meant a
substantial increase in taxation and reduction
in aggregate expenditure.
Mr Imbert chose neither of the fiscal meas-
ures available to him to curb demand.
He delivered on a PNM campaign promise
to reduce the VAT rate from 15 per cent 12.5
per cent (albeit with some vague language
on the possibility of extending the VAT net).
And he in setting T&T s 2016 expenditure
at $63 billion---which is a little more than
the revised estimate of expenditure for 2015
left by the former Minister, Larry Howai---
it seems to me that Mr Imbert signalled to
the population that the Government was not
interested in immediately requiring them to
adjust to the sharp reduction in energy rev-
The 15 per cent increase in the price of
diesel and regular gasoline---because it has
not had a consistent pass through impact on
the price of transportation---also does not
require significant adjustment by the pop-
ulation. And those businessmen who are
inclined to pay the Green Fund and Business
levies are probably in the minority, so not to
much adjustment there.
I need to add---as has been articulated in
this space previously---that it may not be
excellent or even good economic policymaking
to impose a significant reduction in govern-
ment expenditure--- in a country that is driven
by government and state-sector spending---
at a time when that country is in recession
or may be in recession.
And surely we would all agree that what
is needed is to protect the exchange rate is
either a significant reduction in government
and state-sector spending AND an increase
in taxes OR a significant adjustment in the
price of the foreign exchange---by way of a
The fact that Mr Imbert wants to protect
the exchange rate but does not propose sig-
nificant fiscal consolidation or an exchange
rate adjustment strikes me as a little...strange.
Here is a quote from the Central Bank of
Barbados 2014 annual report in which Dr
Delisle Worrell, the governor of that insti-
tution, outlines the fiscal option for restraining
foreign exchange demand.
He wrote: "The Barbados strategy for main-
taining external balance involves containment
of foreign expenditures in the near term, and
increasing foreign earnings in the longer run.
"In the short term, spending is reduced
by curtailing the ability to spend, by increasing
taxes, and reducing Government purchases
of goods and services.
"This reduces the disposable income of
individuals and companies that sell to the
"As a result, they will buy less of everything
While I am clear that the Barbados policy
would be a disastrous for T&T---mainly
because we are in a recession or on the brink
of one---at least Barbados has a policy that
is coherent and which can be implemented
because of the country s social cohesiveness.
The prime example of that was the fact
that the Barbados Minister of Finance and
the country s Central Bank governor shared
the same head table at the Hyatt on Wednes-
day as they sought to promote the country
as an investment destination.
There is very little social cohesiveness in
• there are class divisions (think about how
Ancel Roget, the president general of the Oil-
fields Workers Trade Unions, would react if
in March, 2016 the Government decided to
reduce spending and increase taxes.
• There are also ethnic divisions and it is
well known that a group of businessmen and
lawyers were strong financial supporters of
the previous administration. Would some of
those same businessmen and lawyers now
be willing to convert their TT dollars out of
NOVEMBER 5 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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Can Mr Imbert "protect"
the exchange rate?
Minister of Finance and Economic Affairs of Barbados Christopher Sinckler, left, and the
Governor of the Central Bank of Barbados Dr. Delisle Worrell at the Barbados Investor Forum at
the Hyatt Regency Port of Spain yesterday. PHOTO:MARCUS GONZALES
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