Oil hits 14-month low; T&T government not changing course

Oil prices rose to around US$71 a barrel Friday after hitting a 14-month low of $69.85 at the close of trading Thursday. The decline comes as investors back away from commodities, fearing that an impending global recession will devastate crude demand. It's a dramatic fall from a record US$147.27 on July 11.

The falling oil prices is bad new for Trinidad and Tobago, which based its 2008-09 budget on US$70 a barrel for oil.

At the time the minister of finance presented the budget that looked like a conservative estimate but the global financial crisis changed the whole economic landscape.

Still top government officials don't appear to be spooked and they are adamant that there is no reason - at least for now - to review its budget.

Works and Transport Minister Colm Imbert told reporters Thursday the local economy is not in trouble. And he slammed those who raised concerns about a possible deficit in the next fiscal year.

"I find that the tone of the conversation in Trinidad and Tobago is highly irrational, and that some of the commentary we are getting from people who know better is hysterical," Imbert said.

Reporters wanted to know how the changing economic fortunes would affect the country's Heritage and Stabilisation Fund (HSF), which Imbert said now stands at $18 billion.

Not to worry was his response. He said there there is nothing to suggest that the government would have to pull money out of that "rainy day" fund to support its programs and expenditure for 2008-09.

"There are other credit balances if required, and if they need to be dealt with, that can be dealt with at any stage of the game. These things are not at the table at this time," he said. "The sky is falling," he added.

But Minister in the Ministry of Finance Mariano Browne was a little more realistic in his assessment of the situation.

He explained that under the Audit and Exchequer Act, "at any stage of the game the Minister of Finance has the authority to review or stop expenditure as required".

And speaking specifically on the Heritage Fund he had a different approach to Imbert who said the act allows withdrawals from the fund if there is a deficit. However, Browne assured reporters that the government only take such action in a "worst-case scenario".

Browne also extended an invitation to businesspeople who have invested abroad to bring home their US money. He said he understands why they would be nervous because of the hit investors are taking from the global financial crisis. But he insisted that the Trinidad and Tobago economy is strong and the financial sector is secure.

But the minister did not address the questions about reduction in projected expenditure and the danger of overspending in hard times which the the opposition and the business community have raised. Would government create the "worst case scenario" by its refusal to adjust its spending?

Economist Subhas Ramkelawan also expressed concern Thursday about the fiscal situation noting that it cannot continue to be business as usual.

Ramkelawan said government must adjust or it would face the same peril of the 1970's and 1980's in the bust that followed the energy boom.

He said there must be a change in the attitude to spending pointing out that the mistake the government made in that period was to borrow to finance its spending, which let to an intervention by the International Monetary Fund (IMF).