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Central Bank’s transparency, credibility
Why is transformation of the financial, economic, and social sector, as advocated in my column last week, so vitally important? Because, given the structure of our economy and the historical tastes for imported goods and services acquired over a few centuries, even if there were to be another boom in oil, gas and petrochemical prices, the foreign exchange earned in rents by the Government will once again filter out of the economy through the existing systems (human and physical) designed for foreign consumption.
The malls, the commercial sector will boom and expand; online purchases will escalate; the business community that thrives on the import trade will do no more than is necessary in the circumstances to return huge profits, and stash away large chunks of forex abroad.
In turn, the Government will stand on the sidelines for the river flow to run its course erecting no impediments in the way of the ordained “market forces.”
In its spending portfolio the Government will increase social welfare to secure the votes of the marginalized, to win the next general election.
That is the nature of the economic, social, and political structures, and little else different can be expected to emerge from the systems. Soon enough energy prices will fall, and even if production of the vital commodities increases—that would mean that there were even larger sums to filter into the non-productive spending–and in “two twos” the economy would be back to its preordained condition.
The historical pattern developed in slavery and indentureship was preserved and built during colonial and the post-colonial eras; the merchant and commercial agents have changed, replaced by a local cadre with similar objectives.
Credit must, however, be given to the manufacturing sector, the medium and small producers; they, however, have not impacted the larger merchant class, inclusive of the financial institutions which have grown up in the post-Independence period.
I return now to the functioning of the Central Bank and specifically to an observation of the regional Economic Outlook of the International Monetary Fund (Western Hemisphere) which was presented here last week.
In its study the IMF agency finds that the quality and transparency of the communication of central banks contribute significantly to the credibility of central banks:
“Transparency provides the public with a better understanding of the central bank’s objectives and the factors that motivate its monetary policy decisions. This, in turn, enables public accountability of independent central banks, and greater credibility over time.”
Compared with a previous era, the Central Bank of T&T has been communicating more frequently and openly. News conferences to announce monetary policy decisions, interest rates, inflation, supervision of the financial institutions, and statements on the general performance of the economy have increased.
Generally speaking, governors have facilitated questions about the performance of the economy. Governor Ewart Williams initiated a programme of financial education that went into the community, and Governor Rambarran carried a few news conferences outside of Port-of-Spain. The CB has also been making its reports available online.
But those can be termed the basic requirements. I would argue that to advance the communication link to engender meaningful public education, and therefore the ability of the public to participate productively in the decisions of the Central Bank and the functioning of the economy, the communication links have to be widened, and the quality of that communication has to be enhanced.
The reports of the TTCB are written in thick economic jargon. The bank, therefore, has to decide on the “publics” it wants to interact with: does it want to reach only those in the economic and financial industry, or does it want to reach out to the wider community to inform on the state of their financial and economic matters?
Moreover, the Central Bank has to utilise modern telecommunications mechanisms to reach different populations in their zones of communication comfort, ie, where they get their communications and the manner in which they prefer it.
The objective of enhanced and widened interactive communication between the bank and the population on the state of the economy and perspectives on the economy can engender more enlightened participation in the economy by a far wider group of citizens that is now the case.
The state of the society and the economy requires that a new mandate is established for a proactive central bank to engender change.
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