DOMA president worried about US$ shortage, TT$ weakness

DOWNTOWN Owners and Merchants Association (DOMA) president Gregory Aboud has welcomed the re-opening of the EximBank forex window, but had deep concerns about the state of the Trinidad and Tobago dollar.

He spoke to Newsday on November 3, just hours after Finance Minister Colm Imbert said the window would be reopened, but with just US$25 million per month (down from US$30 million) and be used for zero-rated items that are not made in TT, such as essential foods, pharmaceuticals and sanitary pads.

He said any injection of forex, such as via the EximBank, to "those privileged enough considered to be vital to the economy" was welcome. Such an injection increases the supply of US dollars in a market that is not only starved but also acting under distorted conditions, Aboud said.

He made the point that no one knows how the EximBank works except those applicants deemed to be more vital than others.

"In normal economic theory, it is the market that is determining what is vital and attempting to manipulate the operations of the free market will always cause the kind of chaos the country is now experiencing.

"Added to the confusion which is created by the fixed exchange rate, the allocation by the banks according to some unknown formula and an obvious increase in demand because of the scarcity, we are now on the brink of a full-scale lack of confidence in the TT dollar."

Aboud said with the control being exerted over forex allocations, there has developed a private parallel market in which US dollars are being traded at a rate that is more accurately reflective of the truth worth of the TT dollar.

He said this reality was robbing the banking system of its traditional money inflows, thereby making the problem worse.

"There is also an unknown element to all of this: What percentage of forex is actually being consumed by the Government and government agencies?"

He said the Government was a major consumer of US dollars on items such as payment for the Tobago ferries, the cost of certain construction projects and the cost of certain equipment.

"The Government has access to forex that others don't have in the circumstances of a crucial scarcity and it is time all the economic cards were placed on the table.

"One of the worst aspects of the current scarcity of forex is the finger-pointing that has resulted, in which various sectors of the society accuse others of receiving favourable treatment and especially in circumstances in which more than 80 per cent of the economy are facing the same severe scarcity as each other."

He said no finance minister could navigate through the present situation without noting the basics of market economic theory. He hoped better sense would prevail in the coming weeks in the management of forex as a resource in a situation that is now starting to "haunt TT in many ways."

Newsday asked about a possible devaluation of the TT dollar.

Aboud said, "The word 'devaluation' is somehow seen as inimical to the interests of the average citizen, but it is obvious that the TT dollar is already de facto devalued, has already been devalued, because in the open market, nobody who has US dollars is willing to part with it at the current rate of exchange.

"Attempts to try to control forex will only make that situation far worse than the situation we are now facing."

He rejected the idea that some people want devaluation because they have US dollars to change for TT dollars, preferably at a handsome rate.

"Many of those persons already have more holdings in TT dollars than they have in US dollars. An adjustment in the rate of exchange would damage them economically because of their TT dollar holdings.

"That sort of innuendo is one of the greatest dangers of a market which has been disrupted by attempts to control.

"There is no need to be fearful of it (devaluation), because it has already happened."

He said the best defence against inflation and price rises was to encourage a healthy, competitive market.

"The Ministry of Finance should be collaborating more closely with the Ministry of Trade and Industry, where there appears to be the most...knowledge of the operations of a market economy."