Economist Dr Dave Seerattan said the government was wise in holding firm with current foreign exchange rates, adding that the country would have been worse off if it adjusted the value of the TT dollar, especially in the middle of the covid19 pandemic.
Seerattan was speaking at the Ministry of Finance’s Spotlight on the Economy, at the Hyatt Regency Hotel in Port of Spain on Friday. He described government’s decision not to adjust the exchange rate as a critical one to the recovery of TT’s economy.
“Not utilising the exchange rate as the main mechanism for driving the stabilisation effort is hugely important,” Seerattan said.
“You don’t implement significant changes in the Foreign Exchange market in the midst of a crisis. Agents in the market will run for the hills.
"Imagine if we were in a regime where we had a more flexible approach to the exchange rate and covid19 struck. The minister would not only have to be dealing with recovery, but he would have to worry every Monday morning about what agents in the foreign exchange market would be doing to cause chaos in the market.”
He said the decision to use the exchange rates to anchor the expectation on prices was essential to the success of the government’s plans for recovery. He said adjusting the exchange rate was not only a bad move from an economic standpoint but from the perspective of one who understands how agents in the market operate and incentive structures for agents, it was also bad strategy.
“All you have to do is look north to Jamaica, or in Guyana and Suriname in terms of countries who attempted to use the foreign exchange as a major tool in their adjustment exercises.”
He said Jamaica, for example, had not been able to recover from the fallout of its foreign exchange adjustments for the past 20 years.
“People who talk about changing the exchange rate willy nilly either don’t know what they are talking about or have ulterior motives.”
Seerattan said TT was able to manage the shocks and volatility that came with multiple financial global crises that spanned over the past ten to 12 years, starting in 2007 when the US housing bubble burst, causing a chain reaction which led to a global recession.
Seerattan said that, from as late as 2018, countries in Europe were still struggling with legacy issues coming out of that crisis.
“Many countries in the Caribbean had their sovereign debt levels much higher because they had to deal with the global fallout from the crisis. It was only between 2017 to 2018 that the global economy began to have growth that was familiar to pre-crisis levels.”
Even as the world was recovering from the crisis, another one in the form of covid19 was looming. The covid19 pandemic also shuttered the world, causing businesses worldwide – especially those that depended heavily on face-to-face interactions – to close its doors.
Seerattan said it was through the assistance of multi-lateral institutions that many Caribbean countries were able to manage the economic crisis spurred on by covid19, but TT was more fort
