Linda Hutchinson, Business Writer

Thompson

Current trends in the global economy including the increase in the price of oil and imported food are threatening the economic survival of the Caribbean, according to Barbadian Prime Minister David Thompson.

He also said that if oil prices were to cross the US$200 per barrel mark, it could derail some small island-state economies.

"Speculation in relation to further increases continues and world demand for oil remains high. In fact, some major oil traders have gone as far, over the last two weeks or so, to predict that oil prices will rise in excess of US$200," Thompson said while speaking at the Euromoney Caribbean Investment Conference 2008 in Trinidad on Wednesday.

"One would hope, however, that this is just speculation. For, if this is to occur, it could spell doom for some small developing economies in the region."

Significant portion

Noting that oil represents a significant portion of the import bill of the Caribbean oil importing countries, he said as prices continue to increase, more and more of the economic wealth of the countries will be shifted to the oil producing countries.

"It is very likely that if the current trend continues, the balance of payments position of most of the affected economies will be pushed further and further into an adverse position," he added.

Within the Caribbean region, Trinidad and Tobago is the only significant hydrocarbon exporter, while the remaining CARICOM countries in total, are heavily dependent upon imported petroleum as a primary source of energy.

Four years ago, the Caribbean region was consuming as much as 2.6 quadrillion British thermal units (btus) of total energy with petroleum accounting for 77 per cent. This has increased dramatically.

In 2007, Barbados spent US$208 million on oil imports, representing seven per cent of its GDP. At the end of 2008, Barbados petroleum import bill is expected to reach US$275 million.

Thompson told the large audience that the devastating effect the high oil prices can have on Caribbean oil importing countries should not be taken lightly.

"We only have to observe the negative impact that it is currently having on the cost of doing business in our respective countries," he added.

"Direct production costs in both manufacturing and agriculture have soared over the past year and have been a major challenge to many producers."

Caribbean countries, as net importers of inputs to production are not only facing increases in the cost of core inputs, but were facing increases in costs associated with the shipment of the input from the exporting country.

The Barbadian leader said that while most of the domestic inflation is driven by external forces, there are some domestic factors that are contributing heavily to the rapid rise in prices.

However, he said the economic challenges facing Caribbean economies may be of great proportion, but not impossible to handle.

Priority

"I also believe that to avert any major injury to our economies in the like of rising stagflation, severe deterioration of the balance of payment situation, or even a recession, regional governments must first see as a priority, the need to put in place proactive measures at both the national and regional levels to cushion the impact of any negative fall-out that may ensue from a worsening of current global economic conditions," according to Thompson.

"We cannot afford to wait until crises occur and economies are severely damaged to react. We need to use the expertise in the region that can enable us to constantly read signals, make assessments of the regional and global economic environments, and design short-term to long-term plans to avert economic crises."

Thompson also called for serious consideration of a common energy policy since greater effort must be made to reduce or contain the energy bill to levels that would not compromise the balance of payments position or the stability of economies.

He noted that some governments in the Caribbean have already embarked on a search for alternative energy sources while Barbados has started an initiative that could soon lead to an increase in the use of solar energy and photovoltaic technology as well as the use of bio-fuels.