ECONOMIST Dr Vaalmiki Arjoon on Monday said the decision by Republic Bank to lower the maximum US dollar spending limit on credit cards from $15,000 to $12,000, "signals a deepening of the forex (foreign exchange crisis that we have been facing since 2015."
Arjoon expressed this opinion as he weighed in on questions raised by UNC MP David Lee about whether the bank's decision suggested that TT is facing a forex crisis. "The bank is essentially rationing their supply of forex," he said.
Arjoon said such a measure will primarily hurt small and micro-sized enterprises (SMEs) like boutiques and cell phone merchants since "they are the ones that rely on credit card transactions to purchase items when they shop online or abroad for local resale."
But he added, "This, however, does not mean that the demand for forex will materially fall in the short run." Arjoon said forex is "a necessity because we are not well-diversified."
Because small retailers cannot switch to the local market to access items for resale, and small manufacturers cannot source machinery and parts locally, Arjoon said, "Since it is a dire necessity, slowing down the forex tap means that many in the short run will turn to the black market to source the additional forex whenever it is needed."
He also opined that the less available foreign exchange becomes over time "it is possible that prices on the black market could even rise over time."
Arjoon said many people will recognise this as a clear signal of a continued depression in forex earnings, and "may opt to increase the level of US dollar hoarding."
This, he continued, would be "an indication that confidence in our forex earnings have been shattered even more. "The solution is not a devaluation of the TT dollar. This will not eliminate the necessity for forex, given that the non-energy sectors are nowhere near mature enough to render us with greater self-sufficiency."
He suggested a series of policies be created "to boost non-energy business activities especially for SMEs thereby increasing our forex earnings." Arjoon also said measures such as fixing the ease of doing business locally, attracting further foreign direct investment in the non-energy private sector and lowering the level of corporation taxes that SMEs have to pay could help to boost forex earnings in TT.