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Letter: TT dollar another casualty of the Rowley PNM
Published on February 22, 2016 Email To Friend    Print Version

Dear Sir:

The Trinidad and Tobago dollar has now depreciated to its lowest level in the 23 years since it was floated by the Patrick Manning PNM administration in 1993.

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In just five months, the TT dollar has lost approximately seven percent of its value, going by the now standard US dollar selling rate of the Unit Trust Corporation (UTC).

The TT dollar has fluctuated over the past years owing largely to market conditions, adjustments to global FOREX prices, and demand and supply.

Today’s weakened value, however, points to larger symptoms of this country’s increasingly unstable economic position.

TT dollar fluctuations in the past

During the 1991-1995 Patrick Manning administration, the TT dollar’s value suffered tremendously because of the resurgence of corruption and mismanagement by the PNM, very similar to the conditions being created today by the same party over two decades later.

Some would recall the stringent structural adjustment policies pursued by the NAR government of 1986-1991, which were intended to repair a badly battered economy that was rapidly collapsing after almost 30 years of PNM stranglehold.

Despite the at times harsh conditions, the NAR managed the economy back to growth by 1991 at 3.5 percent, for the first time since the crippling recession of the 1980s.

This growth was short-lived, as when the PNM took office the economy slipped back into decline with negative growth of 1.6 percent in 1992, and 1.5 percent in 1993.

One of the most significant indicators of the lethal impact of a return to PNM mismanagement, corruption and abuse of power was the fact that the TT dollar value collapsed by some 41 percent in the period 1991 to 1995.

By 1995, the United National Congress (UNC) took over government and the following years saw a return to economic growth, expansion of industry, lowering of food price inflation, increased standards of living and stabilisation of the exchange rate.

The exchange rate saw a further decline of approximately five percent, before being stabilised at a level that held for a number of years into the 21st century.

Today’s worsening conditions

Perhaps out of chronic short memory, the Trinidad and Tobago population allowed the PNM back into office by 2001. The PNM held office under Patrick Manning until 2010.

In almost a decade, the TT dollar again declined 14 points from TT$6.28 to TT$6.42 to US$1. In addition:

• Food price inflation skyrocketed, in some cases more than doubling;

• Crime rose by almost 400 percent;

• The cost of living increased every year;

• The economy tumbled into decline and negative growth;

• The budget was in deficit;

• Oil production had collapsed by 37 percent;

• Almost every major state project was incomplete and over budget;

• Over $20 billion was sunk into a poorly managed bailout of CL Financial and the HCU; and

• Debts to contractors in state projects stood at over $7 billion.

The enormous task of once again having to clean up widespread debris from the PNM’s wild mismanagement, rampant corruption and serious abuse of power and the Treasury was taken up by the UNC when it came to office in 2010.

By 2012, economic decline was halted and growth was restored, in addition to a number of debts being cleared, better management being brought to the CL/HCU bailout and the oil exploration sector being revived with over US$2 billion in new investments.

Indeed, foreign investment increased by over 400 percent, and Trinidad and Tobago’s trade position made it an economic powerhouse in the Caribbean and Latin American region.

What is important is that the TT dollar held strongly to its value during the period 2010 (where it stood at TT$6.37 to US$1) to 2015 (where it stood at TT$6.36 to US$1).

The population’s chronic short memory, however, persisted and by 2015 the PNM returned to office with Keith Rowley as its leader.

The danger of today’s depreciation

The facts point to the woeful inadequacy of the PNM’s past and present leadership when it comes to managing the affairs of a nation.

And short of asking the EBC for a refund because of the huge mistake made at the 2015 general election, the more pertinent question is – what is causing the devaluation of the TT dollar and how will it impact on us?

A devaluation occurs when a nation begins racking up heavy imbalances in trade. A trade imbalance is where the value of our imports dwarfs the value of exports – where we are buying more than we’re selling.

As recently as December 2015, when Standard and Poor’s changed the long term outlook for our sovereign credit rating to negative, they were careful to highlight the fact that Trinidad and Tobago has typically had large trade and current account surpluses in previous years.

Further, a currency deemed to be weak jeopardises the strong position Trinidad and Tobago regained in the global economy since 2010. It causes uncertainty in global markets that can negatively impact our foreign assets and trigger recession.

Further price increases

One of the most important outcomes of a weakening currency is that costs of food, clothing, furniture, electronic items and personal products will increase. Importers will now have to pay more for US dollar denominated purchases.

What makes this particularly dangerous for citizens is that we will be paying more for items whose actual values have not fundamentally changed, after already facing higher prices by the PNM applying VAT to thousands of food items previously zero-rated.

Cheaper exports

Some might argue that a depreciated currency will make the value of the goods we export cheaper for foreign buyers, so it is good for trade. Unfortunately, such basic reasoning cannot apply to Trinidad and Tobago.

A decrease in the value of our exports come a time when manufacturers are grappling with a recession, a decrease in investment spending and a government that is yet to make its economic plan clear. In addition, a large portion of inputs for the manufacturing sector are imported, so the sector could be hurt on both sides.

Therefore, exporting more will not mean increased revenue. Exporting more will mean that foreign buyers can now get extra of what they purchase at a relatively cheaper price, at our expense.

Inflation

Some also argue that currency devaluation will force consumers to switch their spending to locally produced goods. Again, this cannot be applied to Trinidad and Tobago as a large portion of what we import is not and perhaps cannot be produced locally.

Trinidad and Tobago does not manufacture laptops or mobile devices; we do not manufacture motor vehicles or spare parts and we do not publish or print the majority of textbooks required by some secondary and more tertiary institutions.

Even if we did, a number of inputs for these sub-sectors would still have to be imported.

Any suggestion of a weakened TT dollar helping in keeping inflation down is therefore terribly misleading.

Increased debt burden

It might be argued by some that a weakened dollar could cause higher spending on more locally produced items and therefore impact the national debt through higher government revenues. But this as well cannot apply to Trinidad and Tobago, for two main reasons.

The first is that Trinidad and Tobago manufacturing is still evolving to a point where we can meet both food and technological equipment needs.

The second is that recently the PNM forced approval for increased borrowing limits through the Parliament and of the $50 billion increase, a substantial portion will be in foreign currency.

This is how methodical the madness has become.

The PNM will spend US$1.5 billion out of the Stabilisation Fund, and also intend to increase foreign currency borrowing, in an environment where our dollar is weakening.

This would mean that our debt burden could well increase, with us having to pay more without any additional value benefit.

More trouble ahead

Under the burden of a PNM government determined to repeat its mistakes and then praise themselves for it, the prognosis for Trinidad and Tobago is not good at all.

The people of Trinidad and Tobago now find themselves in a position of having to pay more for food, directly because VAT was used as a revenue generation mechanism instead of policies that could have stimulated investment, small business growth and industrial expansion.

In some cases, families are paying as much as $500 more for basic food items, up to $400 more in motor vehicle fuel and varying levels of increased prices for household items.

Now, with the PNM again being at the centre of conditions that are causing our dollar to lose its value, anxiety in the business community can be expected to increase and families can expect to pay even more for the same things.

The dangerous cycle that can emerge is where we will be continuously paying more for items whose values are not concurrently changing. If that cycle is not quickly broken, the value of Trinidad and Tobago will find itself permanently shrunk.

That means that directly because of the wanton incompetence by the PNM, all 1.3 million of us are being made poorer because the values of our income, our assets, our retirement savings, our share holdings and our investments are diminishing.

Gerald Vincent
 
Reads: 3773







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