PORT-OF-SPAIN: In response to opposition legislators accusing the government of “failing to deal effectively with the current foreign exchange crisis”, Finance Minister Larry Howai declared that there is no foreign exchange shortage in Trinidad & Tobago.
Howai, a former banker, told Parliament last week that there is no “foreign exchange crisis.
“Let me repeat that, there is no foreign exchange crisis and I’m not just talking about U.S. dollars,” he said. “I’m talking about Euro, Yen, Sterling, whatever currency you are looking to acquire. There is no foreign exchange crisis. There are some issues around the timing of getting funds which is something that has been ongoing over the past 20 years. It is not something that is new that didn’t exist that suddenly is appearing on the horizon.”
The opposition had filed a motion on the “government’s failure to deal effectively with the current foreign exchange crisis” and former minister Colm Imbert called for an explanation as to why persons were unable to acquire United States dollars at commercial banks despite ongoing injections by the Central Bank of Trinidad & Tobago.
“I am speaking the truth and going to take full responsibility for that,” said Imbert. “The Governor of the Central Bank has introduced a system where 90 per cent of the available foreign exchange is auctioned to 12 foreign exchange dealers including foreign exchange dealers who have a very small customer base…giving large sums of foreign exchange to financial institutions that don’t need it.”
Imbert called the bank’s governor, Jwala Rambarran, an on-the-job trainee with no experience managing a large organization.
In an interview published in the Sunday Guardian newspaper, Rambarran defended the new policy, saying “the foreign exchange auction system for U.S. dollars has not been changed. It operates under the same mechanism since its inception in May 2012, prior to my appointment in July 2012. Improvements were made to the Central Bank’s foreign exchange allocation system, not the auction system.
“The improvements were introduced to realign the Central Bank’s foreign exchange allocation system to match expanding imbalances in the domestic foreign exchange market. In 1993 when the market was liberalized, the shortfall stood at US$44 million. By 2003 this shortfall had widened to US$600 million.”
Rambarran said that one decade later, in 2013, the gap had further widened to US$1.2 billion.
“Given the economic recovery underway and the anticipated acceleration of economic growth in the next few years, we expect the imbalance in the foreign exchange market to further increase,” he said.
Rambarran said that based on these trends, the Central Bank made changes to its foreign exchange allocation system.
“Only eight of the 12 licenced authorized dealers were part of the 20-year-old system that was being used when I came into office,” he said. “Now, based on the improvements implemented, all 12 authorized dealers are included and can access the allocation system. Two of the newly included authorized dealers form part of the country’s two largest conglomerates. This means the combined foreign exchange demand of these two conglomerates can now be met by the authorized dealers within their group.”
Rambarran said the improvements made to the 20-year-old foreign exchange allocation system have not failed.
“If these improvements were not made there would have been insufficient supplies to meet growing demands in the U.S. dollar market,” he said. “This is presently not the case. The U.S. dollar market is currently in excess supply and can meet demand. The factors contributing to rising demand for foreign exchange will only continue to increase exponentially. Pair this with a 20-year old system and what do you think would have been the natural outcome?”
Rambarran said that an examination of a US$200 million intervention made on May 27 shows that 231 companies in the retail and distribution sector obtained 38 per cent of the funds, while 79 companies in the manufacturing sector obtained 25 per cent of the funds. He said 14 automobile companies got 11 per cent of the funds.