order to keep inflation at reasonable levels and fostering stability in the financial system that would be conducive to growth.
In the foreign exchange market, we similarly take the long view, assessing
our international reserve adequacy and intervention programs (how much
foreign exchange we buy and sell) over a 2 to 3 year horizon. While we do
not target a specific nominal exchange rate, we do aim to limit exchange
rate volatility (wild swings in the rate). Operationally, we currently intervene
at least on a bi-weekly basis, with the volume of foreign exchange sales (or
purchases) determined by estimates of current and prospective foreign exchange flows. With the Bank’s longer run view we accept that in the short
run each intervention may not result in complete balance between forex
supply and forex demand — some of which would be precautionary in nature
during this economic adjustment period.
Ultimately, macro policies must be aimed at supporting a larger role for the
private sector and businesses should gear up to fill this role. As the Government rationalises its functions in the context of lower tax revenue, opportunities open up for non-public sector entities. Competition will be stepped up as
consumers demand better service and shop around more for greater value
and cheaper options — we have already seen how some 2016 Carnival fetes
were cancelled as partygoers calculated which activities they would retain on
a more limited entertainment budget.
This approach to more careful spending is likely to continue more broadly
and businesses will be forced to sharpen their service and work more diligently to remain profitable. One benefit of this set of dynamics is that the
firms that hone their skills and thrive in this tougher environment would be
much better placed to deal with international competition. In this regard,
measures already being taken by some business organisations to extend
deeper into CARICOM markets and wider towards Latin America and further abroad are steps in the right direction. Such efforts have been in the
works for some time, and in the present circumstances a redoubling of energies m a coordinated fashion could lead to substantial dividends.
Uncertainty does not provide an excuse for policy inertia; macroeconomic
actions should be built on the information available with a view to addressing
long-term priorities. Trinidad and Tobago’s current economic problems are
not new, nor are they unique to this country. But because no one knows
exactly how long this shock will last, the prudent stance of macro policies
should be to develop strategies and action plans as if it were permanent. The
three stands of policy — on the fiscal, structural, and monetary sides — need
to be coordinated and the private sector should prepare to assume a larger
role. Important lessons from our own earlier boom-bust experiences as well
Dr. Alvin Hilaire is the Governor of the Central Bank of Trinidad and Tobago,
[email protected]. tt, www.central-bank.org.tt
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