RBTT economist: TT may have to help regional economies

In the aftermath of the Iraq war, one economist says Trinidad and Tobago may be called upon to assist in the stabilisation of other regional economies.

That’s the view of RBTT economist, Kelvin Sergeant, on the topic, “The Price of Oil and the Caribbean Economy,” at one of RBTT ROYTEC’s lunchtime series. Sergeant said now is a good time for TT to expand its economic and political influence throughout the region. “I am not sure that our leaders are up to or committed to the task, but I think that it is an excellent opportunity for TT to do so.” He said TT will be in a position to help other countries of  the region because of its oil reserves.

Sergeant said although TT is an oil exporter, the rest of the Caribbean is not, noting that as a result this can have a direct impact on fuel prices and other oil- and gas-based products.” He cited September 11, as an example and noted that the price of airline tickets skyrocketed because of price increases in jet oil and security. Sergeant added that higher oil prices can also negatively or positively affect Government revenues. He said in TT higher oil prices will always positively impact Government revenues, but noted that other Caribbean countries have to spend more money on energy products. “There are implications for these countries that import oil. There are implications for wages, price levels, economic growth, inflation and the overall balance of payments. There are macro-economic effects that we cannot forget because there are ripple effects when oil prices are high.”

He explained that people will demand more wages if they have to pay more for electricity and other oil- and gas-based products. He said before the war started, oil prices started to go up and then fell to about US$24 per barrel when coalition forces invaded Baghdad. He noted that the volatility in oil prices will depend on the length of the war, the signals which are sent from the coalition forces, supply and the Organisation of Petroleum Exporting Countries (OPEC). “As long as Baghdad is invaded and US-led forces appear to have command of Baghdad, oil prices could fall below current prices which range from US$28 to US$34 per barrel.”

With regards to the length of the war, Sergeant said before the US forces invaded Baghdad, he had already concluded that the war in Iraq will be short. “I did not expect the war to be a long drawn out war. I think that the world economy has too much to lose from a long war and therefore I do not think the war will last much longer, maybe two more weeks.” However, he said notwithstanding the length of the war, there will be a significant impact on all econo-mies around the world and the Caribbean region is no exception. He noted that OPEC, which controls about 40 percent of global crude exports is expected to meet on April 24 to discuss output cuts after prices fell about 30 percent in the past month. “OPEC knows that if they do not sit down and discuss output cuts, the price of oil could fall even further because there is an over-supply in the market.” He explained that when the US forces invaded Iraq, oil producing countries thought that the Iraqi oil fields would have been destroyed and as such started producing more oil which led to an over supply and downward trend in prices.”

Another issue, he added which will affect the price of oil, is whether there will be closure with respect to conflict in the Middle East in the near future. He said the Middle East continues to be an area of conflict and tension. Venezuela, he noted, is also an important factor and country with respect to oil production and prices and can have some influence in the price of oil. “My own view is that oil prices will continue to hover between US$20 to US$25 per barrel over the next couple of weeks. OPEC will meet and there will be an agreement to cut production to let prices remain at that range. It is in their interest to keep prices at that level.” Additionally, he said the war will have other significant impacts on other sectors of the region’s economies.

Sergeant said countries like Barbados, Jamaica, Aruba, the Netherland Antilles and in particular St Maarten can face a situation of decreasing tourist arrivals from the US, because people are not travelling. “People from the US and European regions are not travelling. Tourist arrivals are down in almost every country of the region.” He noted that some of the small countries in the region like St Lucia, Grenada and Antigua depend on the tourism product for their very survival. “In an attempt to move away from the traditional exports of banana and sugar, most Caribbean countries have gone into tourism in a big way. They have moved away from their traditional exports and are now heavily involved in tourism.”

He warned that if the arrivals are not there, governments will have a problem with revenues and by extension expenditure.” According to the World Travel and Tourist Council, the war in Iraq can create a situation where US$3.5 trillion or ten percent of the world’s GDP would decline and 195 million jobs or 7.6 percent of total global employment will be lost. Sergeant said the future of the region’s airlines is also cause for concern. He said airlines around the world are facing difficulties because they cannot match revenues and expenditures. “Air Jamaica, Liat and BWIA are all facing difficulty and something has to be done to address the situation if we are to save this industry.”