Jun 2016 Financial News

The Brexit effect on T&T

Jun 27, 2016

T&T will be affected by the instability and volatility caused by Britain's vote to leave the European Union. That is the view of two former finance ministers who said this country could feel the effects as the referendum has already sent global stock markets into a tail spin.

Winston Dookeran, who served as Finance Minister in the People’s Partnership administration of Kamla Persad-Bissessar, said there could be repercussions from political uncertainty resulting from the development. Mariano Browne, who held the portfolio in the People’s National Movement regime of Patrick Manning, expressed concern about the effect on this country from turmoil in world markets.

Dookeran told the T&T Guardian while there might not be a short-term impact, “in the medium to long-term there could be a situation where the UK economy would have to find a new place for its own recovery.”

“A fragmentation process could emerge, given the politics of the situation. In that sense there is going to be a high level of political uncertainty in the major countries in Europe.”

Dookeran said British nationals are reacting to discontent and to some extent “have blurred the logic of their own future.” He is predicing that the impact on T&T and other countries in the Caribbean may be from depreciation in exchange rates and market volatility.

“There is going to be uncertainty in Europe and that is going to affect the tourism market. People are going to— for some time in the short-term—try to see if they can regain some confidence before they start travelling,” he said.

Dookeran said he was surprised by the outcome of the vote but noted a “level of discontent” in global democratic populations, resulting in changes in the United States, Austria and the Phillipines.

Browne said trends show that investors prefer order and certainty, so there is the possibility of weaker economic growth in the EU and the UK which is “not a positive development for world growth.”

He said T&T has to be concerned about the impact of Brexit on the price of oil and gas. He said any hint of a recession in the UK “will lead to a decline in market prices and therefore our foreign exchange earnings and a worsening in our current account position.”

Browne said because the TT dollar is pegged to US currency, “any movements will be reflective of comparative movements in the US dollar.”

He explained: “The US dollar is the world's reserve currency and more than 80 per cent of the world's reserves are denominated in US dollars. As such we can expect a flight to quality—sale of other currencies, for example the pound sterling and Euro—and therefore appreciation in US.

“All things being equal we can expect the TT dollar to strengthen against sterling and Euro and remain relatively unchanged against the US.

Browne said while Caribbean countries trade with the UK, that country is not a dominant trading partner. This is mainly a US dollar region so there should not be much dislocation with trade.

Source:
Trinidad Guardian, A13
Saturday June 25, 2016