Tuesday, February 20, 2018

Poor handling of US dollar problem

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Mark Fraser

 Weeks of irritation and frustration over unavailability of foreign exchange appear to have finally been relieved. The much-needed respite is a good time for the Central Bank and relevant parties to review all aspects of the disruption, their handling of it and their responses to it to ensure it is never again repeated.

The solidity of T&T reserves, the reliability of replenishment from US dollar-earning energy companies and the adequacy of import cover were never in doubt. What appears to have triggered the prolonged incident was the Central Bank’s decision to change the foreign exchange allocation and auction system. The number of financial entities allowed to participate in the system was increased from eight to 12 under a changed formula by which they will now secure 50 per cent of their demand via allocation and 50 per cent via auction. 

With public anxiety rising to new levels on a daily basis, the responses from key players in the system left a lot to be desired.

The utterances from Central Bank Governor Jwala Rambarran were patently unable to calm public distress. In the face of the barrage of complaints about tight foreign exchange availabi­lity, marked by a particularly scarce supply of US dollar notes, Mr Rambarran kept insisting, rather bemusedly, there was no crisis and no shortage, pointing to the fact the Central Bank had pumped an additional $250 million in response to unusual demand. In the face of the reality being experienced by individuals and business people, this was a particularly disingenuous position. 

Equally unconvincing were the responses of the Minister of Finance, whose somewhat evasive comments left many wondering whether he had been briefed on the changes at all or was simply not supportive of them.

The bankers, too, failed to provide an acceptable public explanation for why the additional infusions were not loosening supply conditions, leaving the public to wonder just where the money was going. 

Public anxiety was not helped, either, by the Opposition Leader’s decision to use the People’s National Movement platform to challenge the new system and castigate the Governor. Though his statements might have been good fodder for whipping up sentiments on the campaign trail, Mr Rowley should understand the dangers of undermining confidence in any part of the financial system. If the Opposition Leader has differences with the Governor’s actions, he has a responsibility for making them known but in such a way that he does not damage the institution of the Central Bank in the process.

Now that the Central Bank’s release of an additional $30 million into the system has brought some calm, and with energy-secto­r taxes imminently due, all these parties have the responsibility to review their actions to pre-empt the possibility of it resurfacing again. If the shortage was the result of inadequate consultation between the Central Bank and the banks, then this is the time for discussions and review. Public confidence, once damaged, is very difficult to rebuild.