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Change and foreign exchange: Rowley’s Gov’t must lead economic adjustment

The great howl that goes up with every significant decline in foreign exchange income betrays the country’s dogged refusal to even entertain the option of adjustment until forced by the IMF.

Led by some of the most powerful forces of the business community the instinct is invariably to press the panic button which predictably sends the country goes into a mad scramble for foreign currency in which (s)he who shouts the loudest gains the most.

Photo: United States dollars. (Courtesy Shutterstock)
Photo: United States dollars.
(Courtesy Shutterstock)

You’d think that, by now, we would’ve been experienced enough in the ways of the global oil market to have finessed our response to the ups and downs of petro income. But no. Once again, with the tide against us and, once again, stranded without the lifeline of a diversified economy, the mad scramble is on with all logic pelted out of the window.

In response, the government is doing what governments have always done: appease and placate while scouring the horizon for signs of a price rebound.

Such illogic flies in the face of what the whole country already knows: that with a 60 percent decline in oil and gas prices since mid-2014, we must reduce our consumption of foreign exchange. Unless we’re willing to risk the possibility of not having enough foreign exchange to maintain critical imports, we have no choice but to rein in our appetite now and begin the adjustment to a lower level of available foreign exchange supply.

This is a moment for leadership. Judging from the scare-mongering that has already begun about possible shortages of prescription medication, such leadership is unlikely to come from the business sector.

In any case, it is the responsibility of the government to provide national leadership on the issue of national income and national expenditure priorities.

Photo: Oil prices remain a real source of concern. (Courtesy Earthtimes.org)
Photo: Oil prices remain a real source of concern.
(Courtesy Earthtimes.org)

It is true that with 10-11 months import cover we are a long way from the kind of foreign exchange crunch that had supermarkets rationing onions and potatoes in the 1970s. But it is equally true that reserves are less than those of a year ago with the likelihood that choices are being made to protect the rate of forex flow to the market at the expense of other national priorities and of future generations.

In terms of the latter, official figures for the Heritage and Stabilisation Fund up to June this year indicate that no payment has been made to the fund since December 2013.

In effect, we’re stealing from our own children and grandchildren to maintain today’s lifestyle—including the waste and corruption—underscoring, once again, why heritage funds should be separated from stabilization funds.

Even if oil and gas prices were to rebound tomorrow the imperative of economic transformation remains given the geo-politics and other variables of the global energy market and, most importantly, the stark reality of T&T’s declining and finite petro reserves. High oil prices might temper the urgency of adjustment but it will not change the fact that we must adjust to survive.

This is why the government needs to abandon its defensive posture in response to the indiscriminating demand for an inexhaustible supply of foreign exchange. In this time of challenge, leadership requires that the government signal the need for change and not pander to special interests.

Photo: PNM supporters celebrate the September 7 election results at Balisier House. (Courtesy Allan V Crane/Wired868)
Photo: PNM supporters celebrate the September 7 election results at Balisier House.
(Courtesy Allan V Crane/Wired868)

The government must bring all representative interests to the table and negotiate an adjustment that evenly spreads the burden of adjustment to lower foreign exchange earnings.

Small business as well as people looking for foreign exchange for their children studying abroad or needing to meet overseas medical expenses or to holiday abroad should not be left to the mercy of a market in which big business, irrespective of whether exports, imports or foreign acquisitions are involved, has first call on public reserves.

This is a matter not only for the government, bankers and big business interests but for the entire country. Politics fall back on defensiveness and manipulation  when politicians lack the confidence of their own ability to persuade people and influence outcomes with the facts.

The most persuasive argument the government can make to the country is to begin the adjustment by curbing its own appetite for foreign exchange. That would be leadership.

In urging the public to buy local and accept less foreign exchange at the teller, the government must first evaluate its own foreign exchange consumption profile with a view to reducing and/or eliminating the purchase of non-critical imported products.

Photo: President Anthony Carmona (right) swears in Prime Minister Dr Keith Rowley. (Copyright Reuters)
Photo: President Anthony Carmona (right) swears in Prime Minister Dr Keith Rowley.
(Copyright Reuters)

Although private suppliers can be relied upon to kick up a fuss, such a move will send a much-needed signal that they, too, must adjust if they are to do business with the state. Here, again, is the case for a local content policy to guide government expenditure.

Despite its expansion to the point of crowding out the private sector, the government remains supremely unaware of its own power as an economic force and, consequently, as a force for fundamental change.

In political terms, the Dr Keith Rowley-led administration has until March to get the whole country on the road to adjustment.

The multiple sectoral reviews that have been initiated are already testing many who had expected the PNM’s “government-in-waiting” to hit the ground running given its experience in government and the party’s assumed superior level of internal organisation.

Even so, Christmas followed by an early Carnival invariably buys time for all T&T governments. By then, the Minister of Finance should be ready to present his real 2016 budget in the context of the Prime Minister’s broad roadmap to the future.

About Sunity Maharaj

Sunity Maharaj
Sunity Maharaj is a journalist with 38 years of experience and the managing director of the Lloyd Best Institute of the West Indies. She is a former Trinidad Express editor in chief and TV6 head of news.

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54 comments

  1. As I said, credit card purchases are not a significant issue in regard to our foreign exchange usage. If people were not buying direct from the foreign suppliers, they would buy from the retail sector who are purchasing from foreign suppliers.

    I find it curious that he didn’t address the issue of capital flight. That is a serious threat both from the foreign exchange perspective as well as the impact of the local economy with the removal of wealth.

  2. Addressing the long-standing complaints by business people and members of the public about foreign exchange shortages which have lasted more than a year, Rambarran said some of the businesses complaining the loudest were in fact among the biggest consumers of US dollars.

    He said the retail and distribution sector is the heaviest consumer of foreign exchange and had swallowed up almost US$4.5 billion, or nearly a third of all the foreign exchange sold over the last three years.

    He listed the biggest users as: PriceSmart with US$507 million in the last three years; Courts — US$198 million; Smith Robertson and Company — US$169 million; AS Bryden — US$153 million and Massy Distribution US$136 million. Rambarran said the manufacturing sector is the second largest user of foreign exchange, and the major players were: Nestle — US$194 million; West Indian Tobacco Company Limited (WITCO) — US$129 million; Carib Brewery — US$107 million; National Flour Mills — US$102 million; Caribbean Bottlers Limited (Coca Cola) — US$94 million, all over the last three years.

    Rambarran said the increasing popularity of online shopping was another culprit, with purchases being paid for by credit cards.

    “Commercial banks must make payments to the Visa and Mastercard, before satisfying any other source of foreign exchange demand.” He said car dealerships were the next large consumer of foreign exchange, listing the major users over the last three years as: Southern Sales — US$275 million; Massy Motors — US$251 million; Toyota — US$245 million; Diamond Motors — US$59 million and Lifestyle Motors at US$36 million. The Central Bank Governor said the Telecommunications sector was the fifth largest consumer of foreign exchange. They used up close to US$900 million between 2013 — 2015. Rambaran said the major users were: TSTT — US$294 million; Digicel — US$263 million; Columbus Communications — US$250 million.

    http://www.newsday.co.tt/news/0,220871.html

  3. Both Singapore and Finland count their human capital as their natural resource and all developmental indicators show the fruits of that investment. Singapore became independent after us. 365 days of sun but you will never see a “Made in TnT” solar panel. We had a rail network connecting the east-west corridor also central and south had rail lines. This was shut down and paved over in the late 1960’s. 54 years later we want a $B mass transit system. What kind of people make such decisions?

  4. these credit card purchaces have to be reconciled by banks

  5. Smart people buy online and cut out the middle man

  6. The appetite exists also in large part due to the business sector’s use of credit cards to pay for imports.

  7. lasan,the problem most nations face lies in the instrument of gov’t

  8. crafty enough to have .5 mil tt in his house

  9. Colm is a crafty fellah. Who knows. I’d rather limits on spending than a tax or block on online shopping though. If it comes to that.

  10. I doubt that because banks would honour payments to merchants before they sell over the counter, so unless they plan to revoke already issued credit cards to stop issuing new cards I can’t see that happening Lasana Liburd

  11. most people dont want to make any adjustments…they know we needit but dont want to make the necessary changes that are needed..some want quick fixes, others know exactly the mess the PP govt made of our economy, the squandamania they went on, our foreign exchange system theymessed up yet pretend otherwise….I said it before September 7th that the adjustments that have to be made will ultimately require major changes for us as citizens…if not then what?…leave us to fall over a precipice????

    • How do you think we should start? Somehow, I suspect online shopping might come under the microscope eventually. 🙁

    • yes I heard about that…alot of people shop online but dont realise the cost attached to it…thats foreign currency leaving your country…it was only the past 2 years I realized the real fallout of this practice

    • But it is the business community that rape consumers that prompt it. So the problem is deep. I’m sure many people would rather walk into a shopping centre and be able to try on their stuff before buying.

    • furthermore, we in a real bad place, economically it might take this preset govt their entire 5 years to make any significant changes, which might not auger well with most of the pulation..which is history repeating itself likew with the NAR govt…one thing is I dont agree with the govt going to spend $milions to finish the BC Lara stadium…in a financial crisis that we are in and would be for several years to come that is not good prioritizing…that is like the NAR govt building the Jean Miles monument….

    • Lasana Liburd I agree completely the business community rips us off but who is stopping them?? which govt makes the effort the stop those corrupt practices???

    • I agree on all three counts. We tend to try to deal with things only on a superficial level and not from the roots.
      Definitely these austere times will be a real test for Rowley and the public. In theory, a united opposition can benefit or even possible enemies within the PNM.
      But UNC is cursed once it keeps the faces who put us in this mess in the first place.
      It would be nice if the public is patient in the circumstances. But that is always asking a bit much.

    • for most parts I agree with some of the changes that should be made but if this govt feel the population is going to accept everything that they dish out at us, they have another thing coming!!!..we got rid of the PP we willl get rid of them!..at the same time as noted by Winston Dookeran, “we are living in a choiceless democracy”!

    • Lasana Liburd in a politically charged society that has temporary amnesia when it suits them, I think not!..this govt talking about freezing wages, it makes sense to do that, but dont forget what happened under the NAR with that idea…in my opinion it should be, however, Im not sure if legally they can or have the right to..I feel they should because the govt is the major employer in this country..the recurrent budget is extremely high….the revenue earned cannot supplement the expenses we have so what should we do?..we are a society that dont understand sacrifices…we only want “spending power”thats why the commercial banks rip us off!!!!!!

    • So ironic that Dooks said that. Lol. But I agree.
      I hope the PNM appreciates that its plans must be properly articulated to get buy in. Nothing sneaky please.
      Let us know how we must sacrifice, why and what the end game is.

    • lol yes he did hahaha… Beyund the choiceless democracy [Article] / auth. Dookeran Winston // Trinidad Express. – Port of Spain : Trinidad Express, 2008.

    • I feel that BC lara id a bit sneaky in my view, appearing on the PNM campaign trail somehow I knew there was a reason behind it,…the PP had Bravo and mr own goal so why not the King of Pos for the PNM hehehe

    • You’re being generous in your assessment. He is a Merc. And there is plenty business for them in the land of “Eat ah Food.”

    • hahaha ….yea true that…plenty “eat eh food” people we got here.

    • Online shopping is not an issue. There is no difference between an individual importing for themselves and a business importing the same item for resale except the extortionate markup.

      Capital flight and corruption are a far bigger issues where the money leaves to avoid local jurisdiction. The ridiculously high food import bill is another major problem.

      If we address those problems, I guarantee that the foreign exchange shortfall will reduce significantly.

    • And it is not the government’s place to prevent price gouging by businesses. Consumers have the power to affect prices and service but choose not to. We continue to buy at inflated costs and complain that the government is at fault.

      Here’s a novel idea – DON’T ALLOW YOURSELF TO BE RIPPED OFF.

      Eggs go up to $30 a dozen? Don’t buy it. Groceries cannot hold stock indefinitely because it will spoil resulting in total loss.

      Use your consumer power to make a difference. You’d be surprised at what we can accomplish if we refuse to accept the status quo.

    • Completely agree about consumer power. But let;s not forget that the govt is also a consumer, the biggest consumer, not just policy maker.

    • Kendall Tull I agree with onine shopping is not thev real issue I replied to Lasana’s mention of it…I commented because 1 it is in the public domain right now as the minister of finance spoke about it, maybe he is grasping at straws..this topic came up in one of my lectures 2 years ago..I’ve done some research on it but its still new …your 2nd point that the govt does not have a role to play in consumer prices I do not agree….govt has a role to play for its citizens in protecting us against corrupt business practices committed by the business community…however, your point about consumer power, you are right it is our decision to make on whether to buy or not to buy, we have the power to!.thats why when certain food prices escalateI dont buy, I wait until the prices drop…thirdly, you spoke about the high impoet bill…do tell us where are we going to get the labor from in order that we grow our own foods?,, how many young people you know are interested in agriculture?.as a society we are not really into agriculture..growing our own foods…to many people that is for uneducated people, school drop outs, people who dont have a sound ed because we are of the view that duncy and uneducated people do that work, why you think we moved away from that more than 2 decades ago?..decades ago we fed ourselves, Caricom territories…its a cultural notion ..our culture today is burger king, wendy’s. check e cheese and others…do its not quite as simple as you say…within Caricon states we can meet the labor shortage that exist but it would take caricom leaders to allow that so called “free movement of people” amongst its people..globalization has not fully hit the Caribbean, Caricom states…you want our food bill to decrease how about buying local products, most people run for foreign..

    • Ms Maharaj you are also right..the govt too is also a consumer..hence the issue of public procurement is not to be taken lightly because as citizens we must get value for our monies spent..transparency and accountability must be adhered to

    • Ju Li – The Minister of Finance did not speak about it. He responded to a question about taxing same which he dismissed.

      The is a difference between corrupt business practices and pricing. Businesses that price exorbitantly are breaking no law that I am aware of in Western society anywhere. Prices are supply and demand driven and businesses will price as high as they can get away with. It’s neither illegal or corrupt.

    • I never said it was easy Ju Li. I said that addressing the issues I flagged would be the most effective way to address our foreign exchange problem. The government definitely has a role to play in food security for our nation.

    • There are aspects about it that are corrupt Kendall Tull. Setting a price for 100 grams but packaging 80 grams, fake sales, imitation goods and so on.
      And price rigging is definitely an issue in even capitalist societies.
      Yes, consumers can help. But why should we need to be able to scientifically tell the difference between fakes and authentic goods when we go to shop?

    • But we might be taking the topic off course here eh Sunity Maharaj? 🙂

    • We are mixing a host of issues, some of which are tangentially connected to what I commented on which was the fallacy that online shopping plays a significant role in our dwindling reserves and the insistence that government should control pricing.

    • Eko Watts pointed out that many in the business sector use credit cards to pay for imports. I can’t confirm. But that is an interesting addition I think.

    • I never said that business corruption didn’t exist Lasana. I said pricing is not a corruption issue. True price rigging can be a concern but that is not the major driver of high prices here.

    • Using credit cards is merely a payment method. Why is that an issue?

    • Because the banks then have to pay the foreign supplier in US dollars

    • Colm imbert’s suggestion to charge a fee might regulate this form of foreign exchange leakage to an extent

    • As an example – I needed to buy a washing machine and dryer. Prices for front loading HE models here are ridiculous. Research eventually led me to a seller who’s prices were comparable to US retail prices plus shipping and duries so I bought locally. However, many people were happily buying ar inflated prices when cheaper alternatives exist locally.

      It’s akin to shopping in Hi-Lo when you can get the same itmes cheaper by Foodmaster.

    • There is no difference in how you pay for imported goods and the impact on our foreign exchange Eko Watts.

    • What suggestion did Imbert make? I am not aware of any statement to that effect. Please post the relevant link if you can.

    • Foreign suppliers are ALWAYS paid in foreign currency regardless of the method of payment.

    • Yes but the use of the credit card as a method of payment not only incurs additional charges but it also circumvents central bank’s allocation constraints thereby creating a certain level of unpredictability to determning and rugulating existing demans for foreign exchange.

    • But the payment to the Credit Card company is done by hard currency which does come from the bank’s reserves as far as I am aware. Credit card usage merely creates a liability. On the face of it, I cannot see how this could be a major issue in terms of unpredictability because the level of importation is known and that drives the demand for forex. I will look into this further.

      Eko Watts – you didn’t provide a reference for Imbert”s comments that you referenced.

    • Kendall Tull he was asked a question to which he responded which is what I meant he spoke nothing more or less…

    • In economics it is called “the invisible hand” ..we hv plenty invisible hands in this country!

  12. And in my view the country needs to be made to see what our immersion in the present is doing to our future. Left to me, these two paragraphs would appear on billboards all over the country for those with consciences to be able to make judicious choices:
    “In terms of the latter, official figures for the Heritage and Stabilisation Fund up to June this year indicate that no payment has been made to the fund since December 2013.
    In effect, we’re stealing from our own children and grandchildren to maintain today’s lifestyle—including the waste and corruption—underscoring, once again, why heritage funds should be separated from stabilization funds.”

  13. Sunity, If you are able to walk the talk half as well as you talk the talk, you should give serious consideration to starting your own party, well, to formalizing it because those thinking citizens who read your weekly columns are already to all intents and purposes in your party.
    But there’s many a slip between the cup and the lip so be careful how you proceed.