Any attempt by the government to introduce foreign exchange controls would be a mistake that can end up distorting the system, former chairman of the Economic Development Advisory Board (EDAB) Dr Terrence Farrell has said.
Farrell spoke with reporters on Wednesday at an American Chamber of Commerce (AmCham TT) event at the Hyatt Regency Trinidad, Port of Spain – his first public speaking engagement since resigning as chairman of the EDAB last week because of the slow pace of public-sector implementation.
With his customary frankness, Farrell was adamant that exchange controls would be a bad idea.
“We had the (fixed) system for many many years. Those of us at the Central Bank at the time recognise how impossible a task it is to micromanage the access to foreign exchange, and (controls) just simply (do) not work. It ends up being inequitable. It is simply not an idea I would support,” he said.
Regardless, Farrell noted that in order to reintroduce exchange controls, there may be a need to return to the Exchange Control Act, most of which was repealed when the float was introduced in 1993. Farrell at the time was deputy governor of the Central Bank.
“They are trying to implement a system where the commercial banks can determine who gets forex without the Central Bank having that intervention ex ante (before the event) simply doesn’t work. It can’t work,” he said.
Under the old system, people would need to get approval from the Central Bank before commercial banks released funds to them. Now, under the managed float, that requirement no longer exists. The power to determine who gets foreign exchange, then, would lie solely with the commercial bank and, Farrell said that would be difficult for them to do, since it could be inherently unfair and cause resentment among customers. The only way he could see it being fair would be if the original system of Central Bank pre-approval were reintroduced.
Farrell also called out the government for its accounting system, which is basically just expenditure based on cash flow and is followed by no internationally recognised standard. That makes it difficult to keep track of payments and even suppress expenditure. Since there are usually no accounts payable, it’s hard to track how much money the government owes people – for example, the Prime Minister’s denial of how much money the government owed contractors, contrary to their $4 billion claim. Lower expenditure, then, needs to be taken in the context of liabilities, Farrell said, or else “we are fooling ourselves.” He suggested the government adopt the International Public Sector Accounting Standards, based on the accrual method of accounting.
Farrell did not want to talk any more about his resignation, saying his statement said it all, but he did say he would always be supportive of the government – any government – because the government is responsible for the country.
“I want any government in this country to succeed, and I am willing to support it, once my abilities are used in an appropriate fashion,” he said.