Dookeran: Projects and banks exposed to oil ‘price risks’

He was speaking yesterday to the American Chamber of Commerce at the Chamber of Commerce building in Westmoorings.

Dookeran said the banking sector is vulnerable in this process, not only because of the inflation attached to the real estate sectors, but because numerous loans had been made to finance energy projects that can only be justified by continued high energy pricing. "In other words, these projects and indeed the banks are exposed to price risks," he said. Dookeran said the energy boom, which is fuelled by speculation to some extent, has created short-term production bottlenecks in the global energy sector.

He said as crude prices reach $70 per barrel and natural gas at $15 per million cubic feet, local banks have been caught up in this "mania." "They have lent millions of dollars to the energy sector indiscriminately, in search of higher returns, without even the realisation of risks or consequences. One banking institution raised $300 million several times for energy projects in the Caribbean. It even provided a guarantee to the bondholders for this debt," he stated. He asked, "Was this bank guarantee necessary because the project was not bankable without this guarantee, or was the borrower not credit worthy?"

Dookeran also raised the issue of competitiveness and productivity, saying that there had been a decline in the productivity of the Caribbean economy during the period 1981-2000, according to a World Bank report. The report stated that the rate of growth productivity dropped from 2.06 percent to 1.09 percent between the periods 1981-1990 and 1991-2000.

"It is no wonder the World Economics Forum report continues to show sharp decline in growth and business competitiveness in TT over the last few years," he said. In addition to the overall average which had been declining sharply, Dookeran noted the public institution index and the innovation index had dropped significantly since 2002. He said if this matter was not properly addressed, it would negatively affect the country’s future economic success.

Dookeran said given this country’s energy profile, it should have been in the first cluster of technologically-driven countries. "Unless and until we can seriously belong to the first cluster of the technology clubs of the world, our quest for development status will be illusive," he said.