FORMER government ministers Mariano Browne and Vasant Bharath do not believe a devaluation of the dollar would help the country's foreign exchange (forex) crisis.
Browne and Bharath expressed their opinions on Tuesday on questions raised by Pointe-a-Pierre MP David Lee about TT being in a forex crisis.
Lee recently based this question after Republic Bank decided last month to reduce the maximum US-dollar spending limit on credit cards from US$15,000 to US$12,000. The measure takes effect from January 20. Credit-card limits below this amount (approximately TT$81,000) will remain unchanged. The US-dollar spending cap will also apply to all transactions at merchants outside TT, including online transactions, even if the billing currency chosen is TT dollars.
Browne said the forex crisis "has never been far away." "We have a continuing forex crisis."
Since TT has a floating exchange rate, Browne explained, the rate adjusts in response to forex demand and supply issues. While there may be need for some exchange-rate adjustments over time, Browne said there is no need for a devaluation.
Browne said boosting TT's exports could increase the amount of forex in the system. But he added there remains a high dependence on imported goods. Until challenges such as these are addressed, Browne said TT's forex capacity will be challenged and there will only be temporary relief at times.
He said the limit on US expenditure on credit cards does not help or hurt the forex situation unduly. Browne explained that banks sign international agreements with credit card companies and must meet their commitments to them.
Restricting the spending limit on credit cards, Browne continued, means that people who bypassed the forex window in the bank must now return there to get the forex they cannot access through their cards, and this would make it harder for some businesses and suppliers to do business.
Browne also said efforts must be made to restore public confidence in the system to reduce the risk of hoarding of US dollars or turning to the black market to access them.
Bharath identified encouraging foreign direct investment through tax incentives, ease of doing business, public service reform, getting a handle on crime and creating a more facilitative and welcoming environment for FDI as possible solutions to TT's forex problems. In the short term, Bharath suggested the use of forex for luxury items like champagne and high-end vehicles "should be restricted by the imposition of additional duties."
He said Republic Bank's decision shows that "clearly the banks are not getting the amounts required to fulfil the needs of their customers."
Bharath said this is a direct result of reduced forex inflows as a result of depressed world prices. He said it also points to "reduced production and a lack of confidence – hence no FDI."