Record-high oil prices are exacting a pound of flesh from Central American countries that are fully dependent on oil imports and principally export agricultural products. Last week, eight Central American and Caribbean presidents launched an initiative to appeal to OPEC oil producers to stabilize and
reduce prices. They also sought support from the international community to adjust to shocks and to denounce the negative effects of capital transfers from the poorest countries in the region to oil exporting nations.
Nicaragua, one of the four poorest Latin American nations, offers a dramatic example of the wreckage that high oil prices can wreak on energy importers. "With every $10 increase in the price of oil, we lose 1.5% in GDP and inflation increases by 1.5% to 2%," Mario Alonso, central bank governor of Nicaragua, tells Emerging Markets.
The Central American and Caribbean oil importing nations will wage a two-track campaign to achieve adjustment to the new reality of super-high oil price. Region-wide pro-active lobbying will take place as well as specific actions by each country to keep their economic variables in order.
As central bank governor, Alonso will wage a campaign to try to forge adjustments with the international financial community that will allow the Nicaraguan economy to accommodate the oil prices. Discussions with the IMF will be important for Nicaragua as "the leading organization for [economic and financial] shocks must be the IMF" he says. "There is a double problem, not only one of financing but also that the public sector must operate within the limits set by the IMF," Alonso adds.
The current agreement between Nicaragua and the IMF assumes an oil price of $32 for this year. "If the price of oil is $53, Nicaragua will need $50-$60 million to help its current account and meet IMF targets and [still] be able to use fiscal resources for financing budgeted projects," says Alonso.
The oil importing nations will accelerate the search for alternative sources of energy including gasohol (gas mixed with alcohol) and wind power, though in Nicaragua's case they could take two years to develop.