Taking on the IMF

Of course, when questioned further, he admitted that the analysis that was conducted, was really on the Latin American region, not the Caribbean. However, he stated that if the analysis was extended for the Caribbean the results would be the same. Is that really a correct statement? Should he not first conduct the analysis on the Caribbean to determine its relevance? We must be far more assertive and objective in our approach to comments made by the IMF. Too long the IMF has lumped Small Island Developing States (SIDS) with other countries. Here it has applied the same criteria to assess all countries, and imposed the same solutions for the myriad problems that we face. To date the arguments that we should be treated differently from other groupings of countries, because of particular vulnerabilities of the Caribbean region and other SID groups to extreme events (e.g hurricanes), are yet to gain traction with the IMF. Adopting a solution to the indebtedness of the region to lower the debt/GDP ratio and so create the fiscal space to allow for the pursuit of development and growth using local financing has just reached drafts of proposals by agencies such as ECLAC but has gone no further.

To hear an IMF spokesman talk about flexible exchange rates as the solution and then say “we do not prescribe any particular exchange rate regime for any country. It is a choice that countries make” is cause for great concern. There are a number of persons, including former Permanent Secretaries, Finance Ministers and Governors of the Central Bank who have had to both argue that such a regime may create far more problems than solve them. Indeed, many an IMF team have had to be “counselled” on how our economy works. We have lumpy capital inflows. Every quarter the main source of our foreign exchange, which are the energy sector companies, pay their taxes which come to the Central Bank who then converts these to T&T dollars and places them in the government accounts.

The Central Bank’s role is to smooth the foreign exchange (forex) inflows to the public by providing the forex markets with periodic sales of forex during those times when there are no inflows of forex.

In addition, our economic history has thought us that we cannot just sell all foreign exchange that we get into the forex market because that results in volatility in the forex markets which is not healthy for trade or commerce. Of course, fixed income earners and pensioners will be greatly affected by a sudden depreciation when shortages occur on the forex market if a free float was adopted. Lastly, it is the pools of reserves and HSF funds that have been highlighted by Standard and Poor’s as strengths in this economy and have allowed us to face these difficult times. That comes from a managed, not free, float.

Even in our managed float, when a large influx of forex hits the market (a la the sale of Royal Bank shares), there was very little appreciation of the TT dollar. A managed float has served us well- we need to now develop other policies such as strong fiscal policies to curb aggregate demand and import demand.

Articulating the nature of our economic space to external parties such as the IMF is a good sign of a maturing, confident people.