The Hon Minister of Finance of T&T presented the Budget for FY2023/24 on Monday. To me, one thing stands out more than anything any Minister of Finance in the Caribbean has said in years:
“WE INTEND TO MOVE AGGRESSIVELY TO DEVELOP STRATEGIES TO INCREASE THE REPATRIATION OF FOREIGN EXCHANGE EARNED OVERSEAS BY LOCAL AND FOREIGN BUSINESSES OPERATING IN T&T”
This, my friends, is Finance Minister ‘gun talk’. Not to be ignored or taken lightly. The Minister is finally unambiguous about his policy agenda, and for this we should be grateful. What we do with that information is now up to us.
As I and many others have explained over the years, demand for USD in T&T far outstrips supply because the Gov’t subsidizes USD, selling it below the (black) market price (of roughly TTD7.50–8.00:USD1.00), which drives demand for USD higher at the official price of about TTD6.78. This creates obvious arbitrage opportunities and therefore speculative demand. Also, anything that is subsidized is overconsumed because it has been made cheaper, so the Gov’t has amplified demand for USD and for imports far beyond what it would be if USD were not subsidized. Furthermore, the Gov’t restricts the supply of and access to USD, which then drives precautionary (fear-driven) demand and hoarding of USD, directly creating a perverse and harmful incentive to hold or transfer USD overseas.
Make no mistake — all of this could be resolved if the Minister of Finance simply reintroduces the auction mechanism in USD injections, as he promised to do in his FY2015/16 budget presentation. Instead, and interestingly, the Gov’t persists with its harmful FX policy, directly causing increasing USD tightness. Now, why would any Gov’t do this?
“WE WILL CREATE NEW ARRANGEMENTS FOR PREFERENTIAL ACCESS TO FX”
The Minister also stated: “we will create new arrangements for preferential access to foreign exchange for qualified small and medium enterprises.” Preferential access creates perverse incentives and corruption opportunities.
Finally, of concern also is the Minister’s definition and calculation of “our external fiscal buffers” of USD16.3 billion — the Heritage and Stabilization Fund of USD5.5 billion, Central Bank USD Reserves of USD6.8 billion, and Commercial Banks’ external reserves of USD4.3 billion. The Minister stated that this is an “adequate level to meet any emergency event which might arise.” Perhaps the Minister should be reminded that:
- The HSF “was established for the purpose of saving and investing surplus petroleum revenues to…provide a heritage for future generations of citizens of T&T” and only the ‘stabilization’ element of USD1.5 billion can be used for ‘emergency’ purposes. Or does the Minister plan to amend the HSF legislation again to give him greater access?
- Commercial Banks’ external reserves are the private assets of the Banks (and their depositors), not those of the Gov’t of T&T. On what basis does the Minister believe he can access these private assets for ‘any emergency event’? Does the legislation allow this, and if not, will it be amended? Globally, there is precedent (most famously in Argentina) where a Gov’t facing a balance of payments crisis (where their USD reserves have been depleted) actually seizes or confiscates USD deposits held by the domestic banking system, paying for it in local currency or Gov’t bonds, for example. In other instances, closer to home in Suriname for example, the Gov’t attempted to force banks to lodge their foreign currency reserves with the Central Bank.
The solution is simple, Honourable Minister of Finance. Just reintroduce the auction mechanism for USD, as you once promised to.
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