PORT OF SPAIN, Trinidad, CMC – The Trinidad and Tobago government Monday said it has no intention of devaluing the local currency, arguing that it would lead to increased inflation and “an immediate increase in imported goods.
In addition, Finance Minister Colm Imbert said that the seven-year-old Keith Rowley administration has no intention of going to the International Monetary Fund (IMF) for further assistance to boost the economy.
Speaking at a news conference on issues arising from the IMF’s 2023 Article 1V review related to last week, Imbert told reporters that any devaluation of the local currency would present a hardship for the population.
From 1972 to 1976, the Trinidad and Tobago dollar was floated against the British pound sterling. However, after 1976, it was pegged to the United States dollar. The first significant depreciation of the Trinidad and Tobago dollar since June 1976 occurred in December 1985, when the country’s currency was devalued 50 percent against the United States dollar.
In its latest report, the Washington-based financial institution encouraged the authorities to continue “maintaining sound and consistent policies to support the current exchange rate arrangement.
“The Central Bank of Trinidad and Tobago (CBTT) has maintained its repo rate at 3.5 percent since March 2020 to support the economy’s recovery. Increasing the policy rate should be seriously considered to contain inflationary pressures and narrow the negative interest rate differentials with the U.S. monetary policy rate,” the IMF said, adding, “this would also help mitigate potential risks of capital outflows and reduce incentives for excessive risk-taking that could threaten financial stability.”
Imbert told reporters that if, for example, the local currency had to be devalued at a rate of 10 to One, “which would be a 50 percent devaluation or a 40 percent devaluation, you would have an immediate increase in the cost of imported goods and you would have immediate demands from the labor unions, which would be very difficult to challenge, for increased wages.
“This in itself would have…a domino effect on inflation,” he said, adding, “I think any serious person would know that if we devalue the dollar, there would be significant inflation, and it would send our people into poverty.
“I don’t think you need to do the maths for that, but if you would like me to do a mathematical calculation as to what the estimated inflation would be if we did a devaluation of the dollar by 40 or 50 percent, I will ask the Central bank (of Trinidad and Tobago) to do that for me….”
Imbert maintained that “you don’t have to be a rocket scientist to figure out if you devalue the dollar significantly because we have a high import bill, because so many manufactured goods come from abroad, so much of our food comes from abroad, and also you would have demanded from the labor unions that there will be an inflationary increase that will be unsustainable. I don’t think we need to debate this point”.
The Finance Minister said that the government wants to avoid getting into an IMF program, especially given that the IMF is the lender of last resort.
“Countries go to the IMF when they can’t borrow from anybody else…so when they have nowhere else to turn, nobody will lend them money to balance their budgets, and it is also a country in distress whenever a country goes to the IMF.”
He said countries with a “currency crisis” also go to the IMF, but in the case of Trinidad, with an import cover of eight months, Port of Spain does not have the problem of countries with at least one month or even a week cover.
“Some countries, I am told, count the amount of money they receive every day, and when they figure out how much money they had today, they decide what bills they pay tomorrow. We are far from there.
“So we do not need to go to the International Monetary Fund. We have substantial financial buffers. We have significant reserves and foreign currency, which have stabilized at the 6.8 seven million dollar range for the last two years.
“Our public debt has stabilized at about 129 billion (dollars), and our debt to GDP (gross domestic product) is coming down, our current account is in surplus, and our balance of payment is positive. So we don’t need to go to the IMF,” Imbert said.
He recalled that Jamaica, which has an ongoing program with the IMF “being forced by the IMF as a conditionality to post a surplus. They had to cut their expenditure and reduce their spending on social programs by posting a rest.
“So one does not want to go there, and we have no intention of going there,” Imbert told reporters.
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