UWI economist, Dr Valmikki Arjoon, is reported as saying that the depreciation of the TT$ to TT$6.5948 to the US$ will in the short to medium term do more harm than good and this will make imports more expensive.
By now most of us are aware of the horrendous drop in export earnings from the energy sector. This is expected to last for some prolonged period of time. Hence the aggregate demand for imported goods and services has to/must be reduced—the reduction transient can be controlled by a judicious use of our foreign reserves.
We can reduce this demand for imports by either allowing the TT$ to depreciate on its own in the market (or by a devaluation), use fiscal methods or both to force price increases on imported items.
Our Government has not moved to use fiscal methods to reduce this demand given, for example, its intent to spend some TT$63 bilion this year in the largest Budget ever. By default, then, it appears that the Government intends to let the economy find its new equilibrium via a market depreciation.
However, it is difficult to understand Dr Arjoon’s point about this depreciation doing more harm than good since with reduction on the supply of foreign exchange our economy has to adjust either by the deliberately moving the aggregate demand curve by fiscal means or a market depreciation of the TT$—a dynamic of our plantation economy, one which cannot respond in the short to medium term in a supply drop of export revenue by increasing exports or substituting for imports.
Mary K King,
St Augustine