Imbert's forex fumbles

Paolo Kernahan

WHAT DID we learn this week? When you’re eating humble pie, it’s best to let it cool before wolfing it down; lest it burns your treacherous lips.

Within a week of slating Express coverage of forex shortages, questioning the intellect behind the reporting, implying mischief was afoot, and attacking the integrity of a businessman referenced in those stories (among other tweets and red-herring press releases) Finance Minister Colm Imbert had to boil down like bhaji – one of a mere handful of commodities we don’t need US to buy.

The once-closed EximBank window has been reopened, no doubt because of the #metoo movement triggered by the initial news report on the scarcity – which Imbert strenuously derided as inaccurate. A US$25 million monthly allocation for the importation of non-essential goods, however, doesn’t come close to addressing the fundamental problem: we’re consuming more foreign exchange than we generate.

Naturally, the business community has heralded this move. Their primary interest lies in keeping their money spigot flowing. They’re quite happy to see the bigger, looming problem kicked as far down the road as possible.

In the past nine years, absolutely nothing has been done to increase our earning capacity even as the main generator of forex – the energy sector – continues its irrevocable decline. Borrowed funds to maintain import cover and continued HSF (Heritage And Stabilisation Fund) drawdowns is like treating diabetes with cake.

Economist and former finance minister Mariano Browne floated the idea of letting supply and demand take the wheel. The US dollar remains fixed at around $6.80; a mechanism to artificially maintain the devalued TT dollar. Browne believes market forces should hold sway; demand should be tempered by an increased price on forex. If businesses have to pay more for the currency they’ll simply have to raise their prices to account for the adjusted expenditure: “You could either buy it, or you can’t buy it. That’s the way the world works.” The word “works” is perhaps misapplied here. Venezuela and many other collapsed economies around the world can attest to that.

You see, the exchange rate isn’t the only thing that’s fixed in this country. So too are salaries for the most part – and they’re low. Dramatically increased costs would trigger a cascading effect of business closures and job losses as ordinary citizens would see their purchasing power go from vapour to thin air.

Economist Marla Dukharan recalls that between 2008 and 2014, the overvalued TT dollar gradually depreciated, owing to a Central Bank US auction mechanism. She says at that time there were no shortages, at least nothing on par with what obtains today. Not so long ago, you could have withdrawn US from bank machines at the airport and other select locations.

That all changed in 2014 when energy prices collapsed and forex inflows began to dry up. Dukharan says the Central Bank, during the PP administration, ditched the auction system in 2012 and appreciated the TT dollar in 2014, making it cheaper to buy US dollars – just as forex scarcity was becoming a problem.

She sees a return to a “managed float” as the ideal recourse to stabilise forex convulsions and questions why this hasn’t been done. Dukharan believes if we continue on the present course, which is a de facto fixed rate and tightly controlled access to forex – the Venezuela model for choreographed chaos – we will share their fate.

Still, the fundamental problem endures: insufficient sources of earned forex. This country is specifically engineered for consumption, not innovation. It’s a political imperative as parties have traditionally been hyperfocused on attaining power rather than figuring out what to do with it. That’s why agriculture is always sidelined and we now rely almost exclusively on food imports to survive.

Government agencies seem to exist just to create government jobs rather than generate the productive output that stimulates an enhanced investment environment. That’s why TT scores consistently poorly on ease of doing business indices.

There's a clear disconnect between revenue and investment, with most of that investment going to putting up the curtains of economic development – bloated contracts that can be converted to political favour and jobs for life in the public service which can be leveraged as votes for life.

Some sectors can be harnessed to become significant contributors to the forex pot in the shorter term – the yachting industry, shipping, niche agriculture, and tourism. These have been pursued with either limp enthusiasm or incompetence and ravenous graft.

So another window has opened, even as the house continues to collapse around our ears.