Devaluation of the TT dollar a no-go

THE EDITOR: This is what I would term a commonsense approach to the matter of the devaluation of the TT dollar, an issue which has been advocated in certain quarters recently. In so doing, I have avoided the more sophisticated textbook arguments which are available .

What does devaluation entail? I venture to suggest that, simply put, it is a mechanism whereby governments seek to regulate national commercial activity by lowering the par value of the country’s currency in order to meet a situation which may have arisen because the country had been experiencing an assumed chronic deficit in its payments relative to its trading partners. Such deficits tend to be related to the fact that the country’s factors of production have not been able to compete successfully with its trading partners.

In this regard, the Government, through manipulation of the currency perspectives, seek to reduce such perceived “chronic” balance of payments deficits.

It should be noted that such action will not necessarily be positive unless the resulting demand/supply equation in the factors of production becomes “elastic.”

One major result of a devaluation is to change the relative price/income relationships within the “operating” economy, resulting in “gains” and “losses” which are generally not related to economic effort as such, and are therefore not merited. These tend to be usually invariably unfair and unwarranted in terms of the country’s social structure.

Of course one of the inevitable byproducts of a devaluation has been an increase in inflationary pressures due to a possible two-way increase in the prices of necessary imports on the one hand, and a “push” associated with increases in demand for exports on the other. Needless to say, governments are inevitably forced to take corrective measures which tend to bear most severely on the relatively poor.

It may be said that the TT economy has been based on a relatively successful period of laissez-faire since the floating of the TT dollar several years ago. It is clear that our economy has not been experiencing a “fundamental disequilibrium” and therefore what is required is for our production processes to seek out and to capitalise on those areas where a comparative advantage appears to exist.

I therefore see no need to tinker, at this time, with the exchange rate by way of a devaluation, the benefits from which tend to be short-term and the level of which may, in effect, be arrived at by way of a “guestimate,” and the result of which will not be able to be determined with any degree of confidence.

I venture to suggest also that, given our heavy dependence on the vagaries in the international gas and oil markets, where we have no influence in price determination and are therefore “price takers,” benefits from a devaluation of the TT dollar may, at best, be doubtful. I however leave this to be determined by those in this area who are better qualified than I am.

In any event, it should be noted that, given the lopsided nature of our economy, the influence of a devaluation on our non- energy sectors will be relatively insignificant within the context of the economy as a whole.

ERROL OC CUPID, Tacarigua