An­drea Perez-Sobers

Se­nior Re­porter

an­drea.perez-sobers@guardian.co.tt

Float­ing the T&T dol­lar will cause more harm than good in help­ing to ad­dress the cur­rent for­eign ex­change short­fall, ac­cord­ing to Uni­ver­si­ty of the West In­dies econ­o­mist Dr Vaalmik­ki Ar­joon.

Dr Ar­joon was di­rect­ly re­spond­ing to a re­port re­leased by the T&T Cham­ber of In­dus­try Com­merce last week, which de­tailed chal­lenges be­ing faced by the lo­cal busi­ness com­mu­ni­ty due to the for­eign ex­change cri­sis.

The re­port high­light­ed that out of the 111 busi­ness­es sur­veyed 26.1 per cent of re­spon­dents strong­ly agreed with float­ing the ex­change rate to ad­dress the short­fall in for­eign ex­change sup­ply rel­a­tive to de­mand, while 18.9 per cent mod­er­ate­ly agree.

“An­oth­er 27 per cent re­main neu­tral, sug­gest­ing that a por­tion of the pop­u­la­tion is un­cer­tain about the po­ten­tial ef­fects of this mea­sure. On the oth­er hand, 10.8 per cent are slight­ly against the idea, and 21.6 per cent strong­ly dis­agree. These re­sults in­di­cate a clear di­vide in opin­ion re­gard­ing the fluc­tu­a­tion of the ex­change rate,” the re­port out­lined.

Speak­ing on CNC3’s Morn­ing Brew yes­ter­day, Ar­joon said, “As a re­sult of how high the de­mand for for­eign ex­change is in Trinidad and To­ba­go, be­cause of how im­port in­ten­sive we are and be­cause of how lim­it­ed our earn­ings are, what is go­ing to hap­pen if the dol­lar is float­ed is you will have a sharp de­pre­ci­a­tion of the ex­change rate.”

Ar­joon al­so high­light­ed that the rate is go­ing to far ex­ceed the black-mar­ket rates.

“The black-mar­ket rate is an ad hoc rate that is pegged at a pre­mi­um above the of­fi­cial rate. I mean when you look at Ja­maica's ex­pe­ri­ence when they float­ed their dol­lar back in the ear­ly 1990s in one month...And of course, some may think lo­cal­ly that if the rate be­comes very high by a free float It be­comes too ex­pen­sive to im­port,” he ex­plained.

The re­al­i­ty, the econ­o­mist said, is that this coun­try does not have much ca­pac­i­ty to switch to lo­cal com­modi­ties be­cause T&T does not pro­duce much of what it con­sumes, due to the coun­try not be­ing well di­ver­si­fied.  

Al­so speak­ing on the mat­ter was Con­fed­er­a­tion of Re­gion­al Busi­ness Cham­bers chair­man Vivek Char­ran who some mea­sure of float­ing is not go­ing to solve the forex prob­lem.

“It is treat­ing the symp­tom and how it treats the symp­tom is very sim­ple. It in­creas­es the cost of pur­chas­ing forex to the busi­ness or the in­di­vid­ual by in­creas­ing the price of forex in terms of pur­chas­ing forex. It makes it more dif­fi­cult for peo­ple to af­ford pur­chas­ing forex, so they have to re­duce how much forex they want.”

Fur­ther, Char­ran said if the gov­ern­ment does de­val­ue or if the ex­change rate de­pre­ci­ates, the price at which the bank pur­chas­es US dol­lars from the pub­lic or the price at which busi­ness­men sell US dol­lars to the bank will al­so in­crease.

“The on­ly ben­e­fit that can hap­pen is if it in­creas­es to $7.50 or $8 to US$1, then peo­ple may have more con­fi­dence in go­ing sell­ing their US dol­lars or con­vert­ing their US dol­lars.

"This is just the gen­er­al pub­lic who earn their forex and that would be a good thing be­cause that's the sec­tor that the black mar­ket caters to,” he em­pha­sised.