Friday, February 23, 2018

Foreign $$ problem rooted in trust issues

As they tilt against the Central Bank’s control of the foreign exchange share-out, local manufacturers have found an influential ally in the International Monetary Fund (IMF). 

The Trinidad and Tobago Manufacturers Association’s (TTMA) frustrations over having to wait and wait for foreign exchange, endangering credit with suppliers abroad in the process, have formed the basis of recurring complaints. In its latest April 2 consultation report, the IMF called attention to T&T’s “relatively tight” foreign exchange market, characterised by shortages which, “while temporary, have been fairly widespread”, are troubling enough to motivate hoarding. 

The TTMA voiced apprehension that the foreign exchange shortage could “destroy the non-oil manufacturing sector”, thereby negatively affecting economic diversification. The Central Bank, however, resists being scapegoated for the manufacturers’ money problems, even suggesting that, on April 28, the supply of foreign exchange had exceeded demand by US$38 million. 

It appears, therefore, that somebody is seeing reality through skewed lenses. If the Central Bank has indeed released sufficient funds to meet manufacturers’ obligations to foreign creditors, why is the TTMA still up in arms? Is it that the bank miscalculated or that the release of monies was hampered by red tape? Or is it that the manufacturers are asking for more than they need, either for mercenary reasons or because they are using the trade union strategy of overstatement so that a lesser disbursement would still be what they actually require?

At any rate, those who supply foreign exchange and those who urgently need it should seek a more effective meeting of the minds. The Central Bank must also say if and how it will implement the IMF recommendation for “a more flexible, market-clearing system” to address the foreign exchange shortfalls being experienced by manufacturers.

At the same time, such technocratic measures may fail to address the root of the problem, which is in part sociopolitical. After all, when business people hoard foreign exchange and deposit a significant portion of their profits in overseas bank accounts, that is rooted in a lack of trust in Government. Put another way, business people are hedging against the possibility that the Government will so mishandle the economy that a buffer laid down in developed nations will be needed in case of downturn or even collapse.

Hoarding, therefore, will not be solved only through efficient bureaucracy. At best, resolving the foreign exchange problems will mean only that business people will be hoarding a smaller percentage of their allocations. For the Government to increase trust, business people must feel that the system is transparent, fair, and subject to the rule of law.

Unfortunately, every administration has continually failed to lend such reassurance, which is one major reason why T&T always scores badly on international business measures.