America under attack

"America Under Attack" blazed the banner on CNN since the fateful September 11 day, when terrorists hijacked four US commercial airlines and flew them into the World Trade Centre -Twin Towers in New York, and the Pentagon in Washington; the latter after an apparently failed effort to target the White House and Air Force One.

The combined scale, scope, complexity, coordination, intensity, and violent outcome of these acts is historically unprecedented. The global reach of terrorism into the bosom of the greatest military power ever to have existed, as demonstrated by these acts is mind-boggling. A Hollywood movie with these ingredients as its plot would have been considered as a work of such pure imagination as not to be credible. And, moreso, because the terrorists, in all probability, came from some "dirt poor Third World country", armed with knives and cardboard cutters, and their native tongue not being English.

Yet this did happen, as fact surpassed the wildest fiction. With shock and horror, the US leadership and media have compared these actions to Pearl Harbor and described them as a pure, unadulterated act of war against the mighty US.

These actions and their simultaneous 'live' portrayal on perhaps a billion televisions worldwide, show how much of a global village the world has become. Information spreads around the world at the speed of light. Neither natural nor human-made barriers can effectively prevent this flow. This is the power of globalisation at work before our very eyes. Indeed, most of us, have come to accept this, as the normal state of the world in which we now live.

Economic impact

Globalisation, however, has not only turned the world into a global village where information flows are concerned; it has also strengthened the economic basis of all our actions, including terrorist ones. What has occurred may well turn out to be a tragic example of what this series has always been advancing. That is, globalisation affects every dimension of our lives, with the economic, in the broadest sense of the term, leading the way.

Immediate effects

The immediate economic effects of September 11 are already apparent. Some will be transitory, others will not. The nerve centre of the US, and indeed global financial, currency and commodity markets, has been struck a tremendous blow. Financial and commodity markets in the US have been forced to close, and the spillover effect of this onto other financial centres was felt immediately. Currency markets plunged into turmoil, as exchange rates showed signs of panic and desperation. This is not surprising as the capitalization value of stocks traded in the US markets is about US$13 billion, by far the largest worldwide.

At a broader level, commercial life in the United States has also been badly damaged. This is not only the result of the contagion from the disruption of financial, commodity, and currency markets, but because of the temporary cessation of commercial air traffic and other activities dependent on it. Passengers are stranded. The travel industry is seriously affected. Merchandise and mail flows by air within the US, and between the US and the rest of the world, interrupted on an unprecedented scale.

In less than 24 hours US speculative increases in gasoline prices became the order of the day. In some instances prices more than trebled, but these have since subsided. Meanwhile, the deaths and injuries arising from these events are placing enormous strain on the health care and safety services of the affected areas, with ripple effects throughout the country.

Given the high number of casualties and the targets of these attacks, the loss of intellectual capital, particularly financial expertise, will be extremely difficult to replace. So too will be the loss of financial records, without which the smooth operation of markets is not possible. Congress has already committed US$40 billion, and expects this to rise, to the budgetary cost of dealing with the damage.

Short-term effects

Over the short-term, some of the immediate effects are likely to persist. For one, difficulties in financial markets, which are largely speculative-based, will persist. Investors will continue to seek refuge in government bonds as private stocks and shares become more uncertain. If this happens, the "business outlook" in the US will become more cautious, dampening investment and capital expenditure. In the overall state of uncertainty, consumer confidence, which has held more or less firm over the past year, despite challenging circumstances, could falter.

Long-term effects

In such a scenario, the terrorist actions of September 11 could well trigger a US-led global recession. As we have noted in this series, there has been definite evidence of a US and global "downturn" over the past several months. Indeed, US economic growth over the last concluded quarter was a miserly 0.2 per cent. Additionally, because the terrorist attack is likely to be linked to events in the Middle East, the impact on oil prices could be, over the large term, catastrophic. The initial speculative price increases at the pump might well become the forerunner of a sustained global rise in oil prices, induced by fears over the security of supplies and driven by panic demand to build stocks, in the event of global hostilities.

Of course, the Economic authorities around the globe will seek to prevent this development. For one, central banks are certain to provide liquidity to financial markets in order to prevent their collapse. Other high powered political coordination of global economic policy will also take place. There is, however, no certainty that these efforts will be successful.

Caribbean effects

Such developments could have serious adverse effects on the Caribbean. Because of the threat to airline transportation, the travel and tourist industries on which we depend will be badly affected. If a recession starts in North America and Europe this would significantly reduce demand for the region's products, particularly its already high-priced tourist product and commodities. Furthermore, if oil prices rise, their impact on the balance of payments, domestic costs and prices, and economic growth in the oil-importing countries will almost certainly precipitate a major economic decline in the Caricom region. At the same time, with a global recession, capital flows to the region are also certain to go into further decline.

None of this takes into account the short-term losses carried by the region. Particularly losses associated with the halt to commercial airline traffic to and from the USA and fear US and European citizens will now have about travelling. Tourism, which is really based on elective travel could well go into decline, with or without a recession.

The above analysis shows not only the potential far-reaching economic consequences of the actions of September 11, but also shows how events, occurring elsewhere, and hardly connected to the direct interests of Guyana and the Caribbean, can in fact impact on all our lives, in this age of globalisation.