Overseas spending sprees are knocking the legs out from under the Island's retail sector, business and political leaders said last night.

In the midst of the deepest recession since the Second World War, local retailers in August saw more than $2.7 million in potential sales disappear overseas.

It was the third straight month the dollar drain to overseas stores rose.

Declared purchases abroad by residents rose 15.8 percent in June, 5.1 percent in July and finally 20.5 percent in August.

The total value of declared overseas purchases in those months was $5.76 million.

Finance Minister the Hon. David Saul last night said he thought residents were suffering from a "travel sickness'' which is causing them to buy things they didn't need.

"It's very disturbing,'' he said. "I'm very sympathetic to the local retailers. I don't know whether I should make a plea to residents not to buy abroad if they don't need to.'' Interviews indicated local retailers were in direct competition with high-volume, low-priced foreign stores, particularly in the US. Bermuda's electronic goods stores were seen as particularly vulnerable.

"The figures continue to go up and I think the reason is that stores in Bermuda are competing with places like Wal-Mart in the US,'' Chamber of Commerce president Mr. Louis Mowbray said.

To address its growing vulnerability to overseas low prices, the Chamber has set up a special committee headed by volunteer Mr. Cuong Nguyen of Exxon Financial Services.

The committee is issuing detailed questionnaires with plans for follow-up interviews.

"We don't know the extent of the problem,'' one member said. "We have to identify areas of weakness and strength. We hope to find out why and how bad it is, and where and how we can strengthen things. We want to learn whether we're selling the right kind of things and about the cost structure behind the prices.'' Mr. Mowbray indicated serious examination will be given to the impact of customs duties and sales taxes on the depressed business picture.

He added that the Chamber would in a few weeks launch an advertising campaign to counter overseas spending sprees. Its message will emphasise that local purchases protect local jobs.

The one silver lining in the spending picture is that Government customs duties are up nearly 14 percent. Total overseas purchases since the April start of the fiscal year to August are $9.1 million, or 11.2 percent more than the same period in 1991. Total purchases abroad last year amounted to $20.8 million.

Dr. Saul said the ravages of the recession overseas had led to massive mark downs on prices and, apparently, early Christmas gift trips for locals.

"Because of the recession, there are tremendous sales in New York and Boston,'' he said. "They're not giving things away, but prices are way down, particularly in electronic goods. The word has got around.''