##ony ( the energy sector ). for most developing countries, foreign exchange is a major developmental constraint. for trinidad and tobago, the constraint has been temporarily eased but it is there and it behoves us to use foreign exchange in a way that best benefits the economy and facilitates sustainable development. there is a limit to which this economy could sustain the current level of foreign investments, overseas land purchases and the like, and still meet our normal consumer and production needs. of course, you could ration through the exchange rate but in a small market like ours with institutional concentration ; this carries serious volatility risks. notwithstanding liberalization, we need to carefully manage the foreign exchange market. the best way of doing this is through a proper balance of market discipline and stakeholder collaboration. all the stakeholders need to play a part. specifically : • the fiscal authorities need to reduce the non - energy fiscal deficit to help contain excess liquidity ; • the central bank needs to intensify liquidity absorption ( and this would imply higher interest rates ) ; • the bank is committed to increasing foreign exchange sales subject to the maintenance of an adequate level of official reserves ( between 6 and 7 months imports ) ; and • the private sector and the banks need to play their part by recognizing the priority to be given to trade and smaller foreign exchange transactions, even if it means occasionally queuing large capital market transactions. it is certainly not in the country ’ s best interest for banks to have to put limits on foreign exchange sales for trade and service transactions while investors amass large sums for offshore portfolio investments. some closing comments on the stock market … one reason advanced for the increased outflow of financial capital is the shortage of investment opportunities locally. the government securities market has been expanded and with a new auction system has been made more transparent. there is no doubt that the stock market has not expanded as envisaged, either in terms of the number or range of offerings. but this is another area where collaboration is essential. to me it is not enough simply to say that the government should seek to privatize certain assets through the stock exchange, as indeed they should. the private sector can also contribute more to expanding stock market activity through debt issues and through new listings. i know this could mean a dilution of control and having to adhere to new disclosure requirements, but these are the inconveniences that we would need to face in order to make that next leap towards development. the stock market displayed robust growth between

in 2003 to 6. 0 per cent in 2005. here in trinidad and tobago, against a background of very robust economic growth, estimated at 7 per cent, inflation rose from 3. 8 per cent in 2003 to 7. 0 per cent in 2005. in most of the other economies, the main driver of inflation was the substantial increase in international oil prices. in trinidad and tobago it was the sharp increase in food prices – a phenomenal 24 per cent increase in 2005 ( year - on - year ). food prices have always registered ( inexplicably ) strong increases in trinidad and tobago – an average of 12 percent or so in the period 1995 - 2000. this climbed to 14 percent in 2001 - 2004 and to a whopping 24 percent in 2005. analyzing the index shows a significant jump in the prices of fruits and vegetables, influenced no doubt by the severe floods in 2004 and 2005 which worsened an otherwise structural decline in domestic agricultural production. the continued strong increase in food prices at the supermarket level is perhaps more difficult to explain given trade liberalization. it may have to do with the oligopolistic structure of the distribution sector which facilitates high profit margins. from my vantage point, more than the current level of inflation, i am concerned about indications of growing inflationary psychology. and the signs are there. for example, ( i ) even before it has stopped raining you can bet on hearing some knowledgeable analyst predict a hefty rise in fruit and vegetable prices ; ( ii ) similarly, the slightest congestion on the ports also brings a prediction of large price increases – even though port charges may be a miniscule share of the product prices. drawing from the experience of the last oil boom, an even greater concern is the potential for intensified wage pressures. in this regard, i hope i am misreading the current industrial relations climate. i would now like to make some comments on the recent developments in the foreign exchange market ( in which the chamber has, not unexpectedly, an intense interest ). trinidad and tobago adopted a liberalized foreign exchange regime in 1993. at that time, we liberalized both current and capital transactions ( unlike several imf members, who still maintain some controls on capital transactions ). when we liberalized it was recognized that given the small market and the concentration in the financial system, we could not have a fully market - determined system, because of the potential for exchange rate volatility and overshooting. we realized that while the system should