Home' Trinidad and Tobago Guardian : December 15th 2016 Contents DECEMBER 15 • 2016 guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
BG VIEW ANTHONY WILSON
Chief editor business
Editing and design
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Should traders demanding US$
prove up-to-date tax payments?
In my humble opinion, one of the big-
gest business news stories of 2016 is
the fact that so many people in T&T
who want to purchase US dollars and
other foreign currencies to pay bills
for products ordered from overseas
have not been able to do so easily.
Several of the regional business organisa-
tions and commentators representing small-
to medium-sized retailers have complained
bitterly about the apparent rationing of foreign
exchange by Central Bank and by the country's
authorised foreign exchange dealers, which are
mainly T&T's commercial banks.
Let's be clear on one thing: the current short-
age of foreign exchange was not caused by the
decision of the previous Central Bank Gover-
nor, Jwala Rambarran, to change the allocation
system for foreign exchange on April Fool's Day
in 2014. And the shortage is not due to the fact
that the current Governor, Alvin Hilaire, has
apparently decided to limit the Central Bank's
sales of US dollars to the authorised dealers to
US$150 million a month.
A spokeswoman for the Central Bank told
the Business Guardian on December 3 that it
increased its sale of US dollars to the author-
ised dealers last month to US$225 million from
US$150 million in October---an increase of 50
per cent---as a result of "seasonal demand."
People cannot get the foreign exchange they
want because the country has suffered (and is
suffering) a sharp decline in foreign exchange
receipts in 2016 as a result of the precipitous
fall in the prices of its main oil, natural gas and
petrochemical exports, a contraction in the
output of oil, natural gas and petrochemicals
and tax incentives provided to suppliers of
natural gas, which ends in 2017.
So T&T is earning less US dollars, but the
consumption patterns of the country remain
largely unchanged. And the price at which the
Central Bank sells US dollars to authorised
dealers has not depreciated enough to curb
the consumption patterns.
The basic equation is that demand for for-
eign exchange exceeds the supply of foreign
exchange at the current Central Bank-dictated
market rate, which was $6.7983 to US$1 as of
Wednesday, December 14.
Instead of reducing the demand for for-
eign exchange by adjusting the price of it,
the Central Bank has chosen to limit how
much is dripped to the market every month,
which means those traders who want foreign
exchange are receiving less than half of what
So, here is an idea that the Central Bank is
free to implement:
What if the Ministry of Finance and the Cen-
tral Bank link the sale of foreign exchange over
a certain amount, say US$2,000, to those who
are able to produce not only legitimate identifi-
cation and an invoice but also a document from
the Board of Inland Revenue that the claimant
is up-to-date with their tax payments.
It seems to me that many of those who are
making the loudest noises about the inequity of
the current foreign exchange allocation system
used by commercial banks may be the worst
offenders when it comes to paying their taxes.
And surely there is software available some-
where in the world that would indicate if a trad-
er has only paid taxes on income of $1 million
in any one year, that trader is not entitled to
buy US$1 million from an authorised dealer
at the official rate.
In other words, why should a trader who
is up-to-date in paying the Board of Inland
Revenue corporate taxes, green fund and busi-
ness levy as well as the Value-Added Tax and
National Insurance dues have to be contending
with a delinquent tax payer for T&T's dwin-
dling stock of foreign exchange?
Central Bank: 99%
of reserves in US
On a related subject, the Central Bank dis-
closed on Monday that "almost all" of T&T's
foreign reserves are currently held in US dol-
lar instruments "reflecting the profile of the
country's external debt and the currency for
settlement of imports."
The Central Bank provided some details
of the composition of T&T's foreign reserves
in response to a request from the Business
The request followed an article headlined,
"Unrealised losses in T&T's reserves, HSF" in
the November 24 edition of this publication in
which the Central Bank revealed "there would
have been some unrealised losses in value (of
the foreign reserves and the Heritage and Sta-
bilisation Fund) to the fixed income portfolios
as treasury prices declined."
All of the analysts who were questioned for
that article---RBC Caribbean economist Mar-
la Dukharan, Guardian Asset Management's
CEO Brent Ford and investment banker Steve
Bideshi---revealed that they did not know the
current composition of T&T's foreign reserves.
The article was based on the premise that
the sharp rise in US Treasury yields since US
President-elect Donald Trump won the Amer-
ican general elections on November 8 would
have led to a corresponding decline in the prices
of those bonds.
In its statement explaining the composition
of T&T's foreign reserves, the Central Bank
"The investment strategy for the country's
official international reserves is based on the
anticipated usage of such reserves, in particu-
lar, almost all of the reserves are currently held
in US dollar instruments (99 per cent) reflect-
ing the profile of the country's external debt
and the currency for settlement of imports.
"The reserves are held in high-quality in-
struments which are mainly of short (approx-
imately 2/3) to medium-term duration. Part
of the portfolio is internally managed and a
portion of it is placed with external managers."
The Central Bank did not disclose the spe-
cific breakdown of the short-term US Treas-
uries held in the foreign reserves portfolio or
what percentage of the portfolio is internally
But the institution did assert that the fact
that 99 per cent of the portfolio is in US dol-
lars and that two-thirds of the instruments
in the reserves are short term "reflect the
overall framework for investment of the for-
eign currency reserves and are delineated in a
board-approved strategic asset allocation with
specific investment limits reviewed periodi-
cally based on market developments."
The precise nature of the framework for
investment of the foreign reserves was not
But the bank added: "Given that this may
be of wider public interest, the Central Bank
will aim to include more information on the
composition of reserves in its publications
At the end of November, T&T's foreign re-
serves amounted to US$9.55 billion, according
to the Central Bank's data centre. This means
that T&T's foreign reserves declined by US$527
million (5.5 per cent) between the end of August
and the end of November.
The reserves were pushed up to US$10.07
billion, which is the highest level for 2016, as
a result of the US$1 billion bond that the gov-
ernment issued in August. This was arranged
by Deutsche Bank.
Correction: In last week's BG View col-
umn, an incorrect exchange rate was used
for 2002, the year of the previous Cemex
takeover bid for TCL. It should have been
$6.14 to US$1 and not $4.25 to US$1.
Photo: Edison Boodoosingh
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