BRIDGETOWN (The Barbados Nation):
SHOULD WORLD oil prices break the US$90 or US$100 a barrel barrier, Barbadians might have to brace for a tight Government squeeze on the money supply.
And, this would likely include raising interest rates once again, according to governor of the Central Bank, Dr. Marion Williams.
"On a general level, in terms of what we see ourselves being able to do and the decisions we would have to make in that context, I think that we would have to cut costs at the fiscal level, at the private sector level, generally a cutback in costs, [and] a reduction in spending probably through having to increase interest rates again," Williams said as she took part in a panel discussion on the most indebted Caribbean economies on the first day of the sixth Euromoney/LatinFinance Caribbean Investment Forum last Tuesday.
While saying she did not like to speak for Government, Williams said taxes would likely have to be increased and wages controlled because all costs would have to be reduced to curtail the burgeoning current account deficit.
Although Luther Miller, director of finance and resource management at the Caribbean Tourism Organisation, challenged her during the question-and-answer period to find a better alternative to raising interest rates, Williams was emphatic in her defence of that strategy.
"I disagree with you that raising interest rates does not dampen spending.
"It does, because the income available to you is reduced; that means you're not able to spend as much as before, you're not able to import as much as before, therefore the current account deficit will shrink and it will become more manageable," she said.
The governor added that it was either that or return to quantitative controls when imports were rationed.
"Unfortunately, unless we go back to what we had in the 1980s - when we had physical controls at the port, when you could only get 12 bags of cement today and five chickens - if we go back to that, then we could achieve what you are speaking of ... reducing the import bill without raising interest rates, but I think we have moved away from that," she said.
Last month, world oil prices topped US$70 a barrel, sparking speculation that Government would soon be looking to raise fuel prices here.
