Economist Gerard Pemberton said yesterday that a liberalisation of the exchange rate could see the value of the TT dollar fall to between $8 to $13 to one US dollar. Pemberton, the former Chief Executive Officer of Development Finance Limited (DFL), added that it would probably settle at a rate of TT$10 to US $1.
He recalled that this value for the TT dollar was also the same ballpark value suggested by the International Monetary Fund (IMF) in its 2017 Article Four consultation with the Government. As it has been doing for the last several years, the IMF team led by Elie Canetti was in TT from July 20 - August 2, to carry out consultations as an obligation of membership in the IMF.
It called for “greater flexibility”, code for floatation of the currency, in the operation of the foreign exchange market. The IMF mission team noted in its final report that while this country still has “healthy levels of international reserves”, the inflow of foreign exchange into TT had fallen because of the drop in global energy prices and declining volumes of oil and gas production.
Pemberton said the suggestion by local manufacturers that the TT currency should be devalued, so their products would become cheaper than similar goods produced in other Caricom countries, was a “fast fix” for the real problem which the manufacturing sector faces, which is one of low productivity and inflation.
He said that “fast fix” would only work for a short while unless the manufacturers and the government fixed the underlying problem. He said that a devaluation for the reasons suggested by the manufacturing sector would have violated the agreement which all IMF member countries have to sign.
“We must fix our problems of low productivity and inflation. Ironically, there are urgent and compelling reasons for correcting the over-valuation of the TT dollar. The conclusions shown in the 2016 IMF report would lead to a calculation that indicates a range of US$8 to US $13 based on data at March 2016.
The Economics lecturer at the University of the West Indies (The UWI) said that in presenting the Budget, Imbert could not state clearly what government wanted the exchange rate to be because, “it would then become a self-fulfilling prophecy. If they are too clear, then it could be very misleading to the market.
“He was very general as to what he would like to happent o the rate, which is understandable but what is clear, however, is that he is not going to support a depreciation of the rate just like that so there has to be some element of market forces to determine the rate.”
He said Imbert intended to continue with the “managed float” which the country currently operates but not with the same level of aggressive support provied by the Central Bank to stabilise the value of the TT dollar.