The Governor of Trinidad and Tobago's central bank told reporters Tuesday the country suffered a run on its reserves in the first half of the year.But Ewart Williams said the bank injected several hundred million dollars to deal with the high demand for foreign currency. And he insisted again that the country is not in a recession.
Williams said statistics from the banking sector and the Central Statistical Office show a dramatic slowdown in imports to nearly half its value in 2008, while demand for foreign currency rose to more than US$1.1 billion for the first seven months of 2009.
He told journalists and special interest groups attending a news conference on the economy the non-energy imports for the first two months of the year declined by more than 50 per cent to US$911 million from US$1.55 billion last year.
And he pledged that the Central Bank is prepared to defend the TT dollar since the currency's stability is important for future growth and confidence in the local economy.
"The Central Bank can confirm that we have more than ten months foreign reserve coverage and we are prepared to provide the support that was needed to ensure the business community has the confidence to invest," Williams assured his audience.
He explained that much of the increased demand for currency resulted from the reduced foreign currency earnings from the energy sector. He said commercial banks normally buy currency from the energy sector, but with the slowdown there they turned to the Central Bank.
"Whether the current situation is a recession or a slowdown is less important than making sure that we adopt the right policies for our specific circumstances," he said.
He also seemed to disagree with Prime Minister Patrick Manning's invitation to citizens to loosen their belts after a period of restraint.
“The U.S. and other advanced economies may be able to spend their way out of recession...(but) most developing countries, including T&T, lack this luxury and need to be more aware of the implications of the demand stimulus, on inflation, foreign exchange, public debt and medium-term sustainability," he said.
Williams noted that while there appears to be the start of a turnaroud in the international economy, there is no sign of it in Trinidad and Tobago - at least not yet.
He said in the first six months of this year, the economy continued "to degenerate rapidly," citing several indicators:
- The number and value of new real estate mortgage loans approved in the first six months of 2009 were 29 per cent and 20 lower, respectively, than in the similar period in 2008
- New vehicle sales plummeted by 41 per cent in 2009, compared to 2008
- The number of job layoffs continued to rise in the second quarter of 2009, with almost 1,000 people retrenched between April and mid-July
- Imports have come down since the start of the year by about 50 per cent compared to 2008
He pointed out, "If this occurs, it would be the first annual decline in real GDP since 1993."
And he said there's also a risk that unemployment could increase to between six per cent and seven per cent this year. Wiliams also warned that food prices could remain high.
"Lagging consumer and business confidence could make for a slow recovery in private sector credit demand," he added.
He said the downturn may also result in a fiscal deficit, the second for the country in consecutive years. It could be in excess of $1.6 billion by the end of Government's fiscal year in September, he said.
The economic outlook will be the government's guide for its next budget in which it would have to assess if it wants to continue with its generous subsidies and mega projects.
Williams anticiptes the "economic slowdown" is likely to last to the end of this year and even after that, recovery would be slow.
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