Af­ter a week in which con­cerns over the avail­abil­i­ty and dis­tri­b­u­tion of for­eign ex­change have risen, it has emerged that the In­ter­na­tion­al Mon­e­tary Fund (IMF) has cau­tioned T&T in all of the last three Ar­ti­cle IV con­sul­ta­tions with the Min­istry of Fi­nance and Cen­tral Bank that T&T “main­tains an ex­change re­stric­tion and two mul­ti­ple cur­ren­cy prac­tices sub­ject to the Fund’s ap­proval un­der Ar­ti­cle VI­II, Sec­tion 2(a) and Sec­tion 3.

The IMF lan­guage is record­ed in the Ar­ti­cle IV con­sul­ta­tions with the T&T Min­istry of Fi­nance and Cen­tral Bank in re­ports

The state­ment that T&T “main­tains for­eign ex­change prac­tices that are sub­ject to the Fund’s ap­proval un­der Ar­ti­cle VI­II, Sec­tion 2(a) and Sec­tion 3” is found in the March 2022 Ar­ti­cle IV Con­sul­ta­tion staff re­port. The state­ment is re­peat­ed in the May 2023 Ar­ti­cle IV staff re­port, but is ab­sent in the June 2024 re­port.

In the three Ar­ti­cle IV re­ports, un­der the head­er Ex­change Arrange­ments, the IMF says T&T has ac­cept­ed the oblig­a­tions of Ar­ti­cle VI­II, Sec­tions 2, 3, and 4 and that this coun­try’s de ju­re ex­change rate arrange­ment is float­ing, while its de fac­to ex­change rate arrange­ment is a sta­bilised arrange­ment.

Ar­ti­cle VI­II 2 (a) states that no IMF mem­ber “shall, with­out the ap­proval of the Fund, im­pose re­stric­tions on the mak­ing of pay­ments and trans­fers for cur­rent in­ter­na­tion­al trans­ac­tions.”

Sec­tion VI­II 3 re­quires mem­bers to avoid dis­crim­i­na­to­ry cur­ren­cy arrange­ments or mul­ti­ple cur­ren­cy prac­tices, while sec­tion VI­II 4 re­quires IMF mem­bers to main­tain the con­vert­ibil­i­ty of for­eign-held bal­ances.

The IMF states:

“The ex­change re­stric­tion aris­es from the au­thor­i­ties’ re­stric­tion of the ex­change rate (ie, by re­strict­ing the max­i­mum mar­ket buy and sell rates, and pro­hibit­ing for­eign ex­change trans­ac­tions be­yond the max­i­mum rates), while not pro­vid­ing enough for­eign ex­change (ie, through the Cen­tral Bank’s for­eign ex­change in­ter­ven­tions) to meet all de­mand for cur­rent trans­ac­tions at that rate.

“The Cen­tral Bank al­so lim­its sales of its for­eign ex­change in­ter­ven­tion funds to meet­ing on­ly “trade-re­lat­ed” de­mand, which do not in­clude non-trade trans­ac­tions that are, how­ev­er, cur­rent in­ter­na­tion­al trans­ac­tions as de­fined un­der Ar­ti­cle XXX(d) of the IMF’s Ar­ti­cles of Agree­ment and en­cour­ages au­tho­rised deal­ers to sim­i­lar­ly pri­ori­tise sales of for­eign ex­change ob­tained from oth­er sources.

“Fur­ther, the au­thor­i­ties pri­ori­tise pro­vi­sion of for­eign ex­change to cer­tain man­u­fac­tur­ers and im­porters of ne­ces­si­ties (foods and med­i­cines) through spe­cial for­eign ex­change fa­cil­i­ties with­in the Ex­im Bank. These ac­tions re­sult in un­due de­lays in ac­cess­ing for­eign ex­change to make pay­ments or trans­fers for cur­rent in­ter­na­tion­al trans­ac­tions and ex­ter­nal pay­ment ar­rears.

“The two mul­ti­ple cur­ren­cy prac­tices arise from the ab­sence of a mech­a­nism to pre­vent the po­ten­tial de­vi­a­tion of more than two per­cent at any giv­en time among sev­er­al ef­fec­tive ex­change rates reg­u­lat­ed by the au­thor­i­ties, for spot ex­change trans­ac­tions; name­ly:

• The po­ten­tial 2 per cent de­vi­a­tion be­tween:

(i) On the one hand, the Cen­tral Bank ’s in­ter­ven­tion rate and the au­tho­rised deal­ers’ sell rates (the max­i­mum of which is an­chored on the in­ter­ven­tion rate plus fixed mar­gins), and

(ii) On the oth­er hand, the au­tho­rised deal­ers’ buy rates (the max­i­mum of which is lim­it­ed at the pre­vi­ous day’s mid-rate).

• The po­ten­tial 2 per cent de­vi­a­tion be­tween:

(i) on the one hand, the buy and sell rates for for­eign ex­change trans­ac­tions be­tween the Cen­tral Bank and the gov­ern­ment, and

(ii) on the oth­er hand, the au­tho­rised deal­ers’ sell rates.”

Far­rell dis­agrees with IMF

Promi­nent econ­o­mist, com­men­ta­tor and for­mer deputy Cen­tral Bank Gov­er­nor, dis­agrees with the IMF’s as­sess­ment that T&T main­tains an ex­change re­stric­tion and two mul­ti­ple cur­ren­cy prac­tices.

Far­rell, who served for 15 years on the board of Re­pub­lic Fi­nan­cial Hold­ings Ltd and its pre­de­ces­sor com­pa­ny, Re­pub­lic Bank Ltd, said in an emailed state­ment to the Sun­day Busi­ness Guardian:

“Hav­ing re­viewed the Ar­ti­cle IV con­sul­ta­tion re­ports for 2022 and 2023, I main­tain that the coun­try has im­posed no mean­ing­ful re­stric­tions on pay­ments or en­gaged in any mean­ing­ful mul­ti­ple cur­ren­cy prac­tices such as would leave it in breach of its Ar­ti­cle VI­II oblig­a­tions.

“The re­stric­tions cit­ed in the re­port are de min­imis and in­deed, as I have in­di­cat­ed, the lim­i­ta­tion on ex­change rate buy­ing and sell­ing rates by au­tho­rised deal­ers has been in place since 1993 and the ‘re­stric­tion’ of us­ing Cen­tral Bank-sup­plied for­eign ex­change for on­ly ‘trade-re­lat­ed’ trans­ac­tions is de fac­to un­en­force­able and a ‘dead let­ter’.

“It is in­struc­tive that the Ex­ec­u­tive Board of the IMF has not­ed these prac­tices but has not sought to sub­ject this coun­try to any cen­sure.

“What has hap­pened since 2015 is that the Cen­tral Bank in­ter­ven­tion rate has been fixed where­as be­fore, the Bank would have ad­just­ed the in­ter­ven­tion rate de­pend­ing on the evo­lu­tion of the re­al ef­fec­tive ex­change rate and on mar­ket con­di­tions. As a re­sult, the ‘queues’ have got­ten longer and the frus­tra­tion of buy­ers of for­eign ex­change has grown deep­er and loud­er.

“I would add that while I think the poli­cies are not in breach of the IMF Ar­ti­cles, I main­tain that the pol­i­cy of for­eign ex­change man­age­ment adopt­ed since 2015/16 is mis­guid­ed and the cur­rent anger and frus­tra­tion of the pub­lic is symp­to­matic of the ef­fects of those poli­cies.”

In its 2024 Ar­ti­cle IV staff re­port, the IMF states:

“Di­rec­tors un­der­scored the im­por­tance of main­tain­ing sound and con­sis­tent macro­eco­nom­ic poli­cies to sup­port the cur­rent ex­change rate arrange­ment.

“They en­cour­aged the au­thor­i­ties to re­main vig­i­lant and stand ready to in­crease the mon­e­tary pol­i­cy rate should po­ten­tial cap­i­tal out­flow risks in­ten­si­fy.

“Di­rec­tors stressed that ad­dress­ing for­eign ex­change short­ages re­mains a pri­or­i­ty and en­cour­aged adopt­ing a more ef­fi­cient and mar­ket-clear­ing in­fra­struc­ture for al­lo­cat­ing for­eign ex­change. They not­ed that re­mov­ing all re­stric­tions on cur­rent in­ter­na­tion­al trans­ac­tions and greater ex­change rate flex­i­bil­i­ty over the medi­um term would help meet the de­mand for for­eign ex­change....

“A more ef­fi­cient for­eign ex­change in­fra­struc­ture and greater ex­change rate flex­i­bil­i­ty over the medi­um term would help ad­dress FX short­falls and im­prove the busi­ness en­vi­ron­ment.”