Port-of-Spain, Trinidad (Guyana Guardian); – On Thursday last, Guyana’s central bank (the Bank of Guyana) made a decision not to accept the Barbadian and Trinidad Dollar for conversion into U.S currency after accusing traders from both Caribbean countries of currency dumping and gouging. (See that story here)
In essence, traders from Trinidad and Barbados were using their local currency to buy up millions of U.S currency in Guyana, since there is currently an evolving shortage of Forex in Barbados and Trinidad.
And in a bid to overcome this challenge, many of them had turned to Guyana’s foreign exchange market.
But the quantity of US currency that they have siphon out of Guyana in the past few months alone have ignited a sudden panic among local businesses and commercial banks who were worried about a run on Guyana’s foreign exchange pool; – Hence the reason for the central bank’s decision.
This decision has since prompted several commercial banks and license currency dealers in Guyana to no longer accept the Barbadian or Trinidadian dollar for exchange, while a few others who opted to accept it, offered traders rates that were way below the market value.
This move also saw an immediate slide in the value of both currencies which went on to lose as much as 1.7% and 2.4 percent of their respective value by the close of business yesterday.
However, while Barbados is blaming its foreign currency challenges on low tourist arrivals this year, compounded by a slowing global economy, one of Trinidad and Tobago’s leading financial minds attributed several factors to this development, which he suffice could have been avoided altogether.
In an exclusive interview with the Guyana Guardian, Mr. Vasant Bharath (Trinidad and Tobago’s former Minister of Trade, Industry, Investment and Communications , under the Kamla Persad-Bissesar’s People Partnership Government), told this publication that the current currency choke that is being experienced by many small to medium scale businesses in Trinidad are as a result
of the perceived current unfair currency policy in Port of Spain, and the fallout from reduced exports of the country’s oil and gas, which is the Island State’s main foreign exchange earner.
According Mr. Bharath,Trinidad and Tobago’s revenue stream has been severely curtailed by both the Island’s reduced production levels (150,000 barrels a day in 2005 to approx 65,00 barrels per day today), compounded by a 25 percent gas shortage to meet demand, as well as reduced international pricing.
He added that such a scenario would mean that as a country TnT’s demand for foreign exchange has now exceeded the country’s ability to effectively replenish its forex reserves; thus sowing the seeds for potential foreign exchange hoarding (as might be the case now).
“Our forex reserves, which currently stands at a very healthy 10 months supply, are being used to meet some of the shortfall but as you would appreciate, this can only be a short term measure and we need to exercise extreme caution” he said.
He told this publication that the real issue for the current government of Trinidad and Tobago is what forms of revenue other than that from the traditional oil and gas sector can be used to generate a competitive volume of foreign exchange; – while adding that the thought would obviously give rise to the long held idea of diversification of the economy which had started in earnest under the People’s Partnership (PP) regime.
According to the respected accountant and economist, who had also served as Minister in the Ministry of Finance, the areas that had been identified and targeted under the PP Administration were: Financial Services, ICT, Tourism, Creative Industries, Agro processing, Maritime, and Business Process Outsourcing in the Financial Services sector which started in the eTeck Park in Wallerfield with a first employment batch of 350 people.
He further explained that (the now stalled) work had begun in every sector and funds had been allocated through the Exim Bank of China to begin work on 7 Industrial Parks across the country as well as a transshipment port and dry docking facility in LaBrea (the south of Trinidad).
With some optimism he is of the view that a foreign currency choke could have been avoided if the prior mention People’s Partnership projects were allowed to reach fruition.
And while he is optimistic that diversification would have potentially averted a currency crisis, he also blamed the policies of many local banks regarding the currency allocation treatment being meted out to small and medium size businesses in their quest to acquire foreign exchange to trade.
“The current situation in TnT has now reached chronic proportions where many small and medium sized businesses believe that they are being starved of forex because of the method of allocation by the commercial banks. There is currently a lobby by several Chambers of Commerce to have an equitable sharing of the pie as well as equal treatment as far as fees/interest rate spreads/prime rates/service charges etc are concerned” said Mr. Bharath
He concluded that, the current foreign exchange issue will become increasingly complex if it is not addressed by the government in the shortest possible time, since such a situation will encourage hoarding and capital flight as well as an uncontrolled black market for foreign exchange.