Sep 2005 Financial News

US$ CRUNCH-Banks turn away customers

Sep 23, 2005

There is an acute shortage of US dollars on the local currency market.

Massive infrastructure projects, heavy consumer spending and a degree of capital flight masking itself as overseas investment have contributed to a US$120 million shortfall of money available for customers, top bankers disclosed yesterday.

Even a US$75 million injection by the Central Bank earlier this month -50 per cent more than what it would normally supply to commercial banks-has not been enough to satisfy the demand or ease the cash crunch.

Scotiabank's managing director Richard Young confirmed the shortage yesterday, saying: "The current position is that there are no available US dollars for sale at this juncture."

Approximately US$120 million is required to meet the current demand by customers at the country's commercial banks, Young said.

As of yesterday, the country's six commercial banks did not have the cash to compensate for the outflow of US dollars.

Several factors have depleted the foreign exchange sources, according to Young.

A slew of construction projects including new car parks, the waterfront project, government campus, the new Customs and Excise building as well as the National Housing Authority ramping up home developments have absorbed US dollars to pay for material and resources.

Another reason is that in a thriving economy like Trinidad and Tobago's, there is "still a penchant for consumer spending and imported stuff", Young said.

Trinidadians are spending money on cars as well, he added.

"I also get a sense that there is a migration of funds and there is a clearly a concern in society," Young, who is also a member and former president of the Bankers' Association, said.

"There is not strong evidence of capital flight," he said, but was quick to point out that investors could be removing US funds from their accounts and pumping it into overseas facilities like mutual funds.

This could be done for investment purposes as well as a security reasons, Young said, noting that there were concerns in society about security.

Chamber of Commerce president Christian Mouttet admitted yesterday that members had complained about the liquidity problem.

"We have been made aware of the shortage over the past two business days but it's also been an ongoing problem," Mouttet said.

It's not just a recent phenomenon, he noted, adding that big capital flight movements regionally would have been a contributing factor to the lack of available US currency.

Business people have been feeling the pinch.

One Port of Spain importer admitted yesterday that he had been turned down by a bank when he wanted to purchase US$50,000 to pay his suppliers.

He said it was not the first time he had been refused because the bank did not have the cash available.

The problems come at a time when Government's foreign currency reserves stand at close to US$4 billion.

Deputy Central Bank governor Joan John pointed to the country's strong reserve position yesterday.

She noted that the Central Bank had met with the commercial banks and agreed to inform the bankers when they would inject money into the financial system.

John said it was a case of demand and supply and from time to time, there would be days when the Central Bank would have to intervene.

But with a strong reserve position, the Central Bank would put money into the system to regulate the demand.

Regular retail banking customers will not have immediate problems getting cash at the banks, a forex manager at a Port of Spain bank said yesterday.

US dollars held steady at the close of business yesterday, trading at US$1 to TT$6.29 on the open market.

Curtis Rampersad
The Trinidad Express
Friday, 23rd September, 2005