Little change in forex woes

IN THE last budget, Minister of Finance Colm Imbert announced a multi-pronged plan to address the demand for foreign exchange and set a timeline of six months to implement some of it.

Six months later, how well has the plan worked?

In October, Mr Imbert set out his intention to “aggressively” repatriate foreign exchange earned overseas and to facilitate preferential access for small and medium enterprises (SMEs).

He followed this up the next month with a proposal to open a special window for SMEs at the Eximbank. Commercial banks also seemed keen to assist.

But the claims made this week by lawyers acting on behalf of local beverage producer Ramsaran Dairy Products, as well as the concerns that have arisen over the use of foreign exchange by conglomerates such as Massy (currently embroiled in a controversy over “bizarre” and expensive training rituals) return to the fore the issue of disequilibrium in the market.

According to Ramsaran, which wants to import paper cartons, “Some companies appear to be gaining liberal access to foreign exchange while others are being unjustly denied.”

Lawyers for the company, which a few years ago was also at the centre of controversy, over the remarks of a former employee, have not yet provided details to substantiate such claims.

The company has been seeking, through legal means, to get information from authorities on Central Bank policies governing the distribution of foreign exchange at commercial banks.

Foreign exchange operations – and matters pertaining to financial institutions under the remit of the Central Bank more widely – are traditionally confidential. However, many aspects of state policy in relation to such matters are already on public record.

For instance, the window announced by Mr Imbert last November was not entirely new. He had announced, in May 2018, the same basic Eximbank facility.

But back then, it was geared towards assisting and enabling local manufacturers generally with export promotion. In other words, exporters were meant to be given priority.

In 2020, this was widened to facilitate the importation of essential items, including food and pharmaceuticals.

Since inception, the Government has allocated US$1.3 billion to these Eximbank facilities.

In theory, hundreds of millions are or have been available for drawdown.

Yet while the 2023 Review of the Economy suggests purchases of foreign exchange by the public fell by 3.6 per cent to US$4.7 billion last year, the scale of that figure alone still shows how whatever measures are in place are likely being dwarfed by demand, even after cuts in credit-card limits by banks.

The IMF continues to call for a more efficient market infrastructure and the removal of restrictions.

Its March Article IV report suggested much of the State’s helpful management of this matter does not yet fully address “the underlying structural foreign exchange shortfall.”

Mr Imbert must comprehensively address these concerns in his mid-year review.

While the Government has been loath to usher in inflationary changes, it must tell us how well its plans have or have not been working.