Let Central Bank manage exchange rate

Let Central Bank manage exchange rate
By VERNE BURNETT Wednesday, January 20 2016

ECONOMIST Dr Terrence Farrell is advising that the exchange rate be allowed to fall and the Central Bank to manage the rate to ensure it does not discourage exports and “effective import substitution.” He said that over the last 20 years, there had been real effective appreciation of the TT currency, “and that is part of the predicament we are experiencing now. So when we have all this talk about ‘buy local’, people all of a sudden are waking up and realising we have all kinds of goods in our supermarkets which are cheap.” Dr Farrell was one of the panellist on the subject “Energy Development in Trinidad and Tobago” during the afternoon session of the first day of the Energy Conference which ends today at the Hyatt Regency, Portof- Spain. He said one of his friends recently pointed out that local tomatoes cost more than imported ones, and this happened because the country has allowed the exchange rate to appreciate.

“We relate ourselves to the US dollar. When the US dollar is appreciating against other currencies we are also appreciating against other currencies.

When we are inflating faster than the United States, which is our main trading partner, we are in real terms appreciating and the extent of the appreciation has been phenomenal,” Farrell said.

Dr Farrell said the country has been using revenues from the energy sector to subsidise consumption for the population and this model was not sustainable whether the oil price is US$20; US$30 or US$100 per barrel. He said TT should have adopted a disciplined approach to fiscal management, increasing the level of savings coming from the energy sector.

He said the current situation presents a perfect opportunity to make the necessary adjustments because Trinidad and Tobago’s income had declined.

He said that in his address to the nation the Prime Minister gave a two year time frame for economic stability and this is a reasonable period. In the interim TT must do the things which would put the country into growth mode.

Professor Rampersad Motilal, Director of the Energy Institute at the University of Trinidad and Tobago agreed with Dr Farrell that the country should have been doing a better job of managing the revenues from the energy sector by, among other things, ensuring a higher savings rate and building the infrastructure which would have allowed the nation to manage the volatility which it is experiencing, diversifying the economy and having different sources of revenue to ride out any glitches.

“Commodity markets and prices are inherently volatile, that is a given,” he said, “whether it is at US$20 or US$100 and therefore we missed a golden opportunity over the last twenty years when we had almost a clear uninterrupted run to do some of those more difficult things.” He said almost sixty percent of the country’s revenues had been allocated to transfers and subsidies which he said was unusually high, adding that “that ramped up over the last six or seven years.”