Introduction to the Forex Crisis
The solution to the foreign exchange shortage in Trinidad and Tobago seems straightforward: the country needs to earn more US dollars and spend its existing funds wisely. However, the issue is more complex, involving not just economic but also political challenges.
The Debate Around Forex Cartels
Much of the discussion has focused on the role of forex cartels, although the newly appointed Central Bank Governor, Larry Howai, has stated that he lacks concrete data to confirm the existence of these cartels. This statement has led to pushback from the United National Congress (UNC) administration and criticism from former finance minister Colm Imbert, who has been using social media to score political points. Despite the criticism, Governor Howai has proposed a strategy to address the problem, including higher interest rates to attract more US dollars into the system.
Strategies for Fixing the Problem
Higher interest rates may help, but they must be accompanied by complementary policies such as open capital accounts, ease of investment, and flexible capital controls. The government has announced plans to introduce legislative measures to deal with the forex issue in 2026, which should provide clarity on whether the government supports the Central Bank’s measures. Devaluing the Trinidad and Tobago dollar has been suggested as another potential solution, but this approach has been rejected by leading economists and businesspersons due to concerns about its impact on the cost of living, particularly for poorer citizens.
The Impact of Devaluation
While devaluation may cause short-term pain, it can help reorient the economy and import patterns in the long run, ultimately benefiting the poor. The main issue with devaluation is that it interferes with monetary market forces. A floating exchange rate is also unpopular, as politicians and bankers prefer a managed float, which allows them more control. However, this approach can create a more severe future crisis.
Lessons from Jamaica
Jamaica faced a similar challenge in 1992 and was able to stabilize its currency with the help of entrepreneur Gordon "Butch" Stewart, who injected US$1 million a week into the banking system. Over the next 30 years, the Jamaican government made tough choices, including interest rate hikes, devaluation, and liberalizing the economy, which paid off in the long run. The question remains whether Trinidad and Tobago has the business leaders and politicians willing to make similar hard choices to confront the current crisis.
Conclusion
The foreign exchange shortage in Trinidad and Tobago requires a multifaceted approach that involves both economic and political solutions. While there are no easy answers, it is clear that the country needs to earn more US dollars, spend its existing funds wisely, and implement policies that promote economic growth and stability. With the right leadership and a willingness to make tough choices, Trinidad and Tobago can overcome its current challenges and build a stronger economy for the future.
