The global crisis and economic consequences of the axis-of-evil

The global crisis and economic consequences of the axis-of-evil Guyana and the Wider World
By Dr Clive Thomas
Stabroek News
March 2, 2003

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Contrasting responses
In reviewing the Bush Stimulus Plan over the past few weeks I was at pains to emphasize the contrasting responses to crisis one observes in developed capitalist states as against backward capitalist ones. As the global recession deepens and fears of war and anxiety over terrorism continue unabated, thereby depressing investor outlook and spending, we find that in most backward capitalist states (like Guyana and the wider Caribbean) it is still 'business as usual' on the economic front. On several occasions in these columns I have made the dramatic claim that our Region now faces its worst economic crisis since the 1930s. To date no one has sought to challenge this judgement. My concern is that if there is only a hint of truth in this judgement, shouldn't we at this point in time be in the midst of a massive national effort designed to respond to, and deal with, the deepening crisis? Clearly to remain passive and do nothing in these circumstances is to invite economic collapse, breakdown, disorder and chaos.

What has tended to characterise backward capitalist states is what is happening in Guyana - a reflex denial of crisis by the political leadership. One has come to expect this immaturity and insecurity where like the proverbial ostrich with its head stuck in the sand the leadership hopes that the crisis goes away by itself or through the efforts of others, with minimal local damage. Unfortunately, a crisis of the magnitude and complexity we face in Guyana and the wider Caribbean will not simply go away.

Apart from the complex political, security and other such dimensions of the crisis in Guyana, there is the backdrop of the long slowdown in economic activity, which has been occurring since 1998. As we have noted on previous occasions the growth rate of output per head between 1998 and 2002 has averaged only 0.5 per cent per annum. This is catastrophic to say the least, particularly when one takes into account the immiserizing growth, de-capitalisation, capital flight, blackmarket activity, migration and other wastage of productive factors, which the Guyanese population had to endure for most of the 1980s.

A plan is not enough
These observations apart, however, I do not want to leave readers with the belief that simply having a plan to deal with crisis is enough. Indeed we critiqued the Bush Plan as lacking in fiscal discipline and biased towards giveaways for the investor class in the hope of a stockmarket rally, which it is anticipated would lead to an economic recovery. In the Bush Plan the interests of middle class America and its working class are secondary priorities. These critiques that I have offered echo those being made by the Democrats, and these appear to have gained some ground in the USA, raising at this point in time concerns that the Plan may not be adequate for the task at hand.

One significant adverse impact of the Bush Plan is likely to be its effect of pushing the federal budget into massive deficit - now being projected as rising to the huge total of US$300 billion. As I have already pointed out if this occurs it would not only undermine a tremendous achievement of the Clinton presidency, but it would also fuel financial uncertainty and anxiety in the very stockmarket, which the Bush Plan is seeking to bring on board with a turnaround and recovery. In spite of the best efforts so far the stockmarket continues to suffer from very deep uncertainty and fears over the future, all of which has been reflected in the fall in stock value over the past week.

The war cry and the stockmarket
In the midst of these concerns what remains the most troubling issue facing America and the rest of the World is 'the looming war with Iraq.' Since Bush's "axis-of-evil" speech there has been a steady build-up to war and there is in my view little likelihood that this can be called off at this advanced stage. In the process of the build-up President Bush's war cry has begun to emerge more and more as an independent factor depressing American and global business outlook and the stockmarkets. This situation has not gone unnoticed, and over the past week many analysts have been addressing it and making some important connections.

One such connection is that since the axis-of-evil speech stockmarkets in North America, Europe, and Asia have declined by about 18-50 per cent. It would of course be unfair to attribute all of this to the anxiety created by Bush's speech, as clearly the fraud and corruption revealed in some of the largest US corporations (Enron and World Com) have contributed substantially to this outcome. However, today more and more investors are portraying this speech as having added to an atmosphere of anxiety and fear about the future. To this extent, therefore, it acts as a depressive factor on stock market behaviour.

One certain sign of the level of investor anxiety is the behaviour of the price of gold and oil, which in recent weeks have risen sharply. In fact oil prices are expected to rise as high as US$45 per barrel if the war threat to Iraq continues! For countries like ours highly dependent on oil, this is proving to be catastrophic.

Already the public utility (GPL) has begun to cut back on production in order to conserve foreign exchange and operating expenses. All this, however, is to be 'penny-wise and pound-foolish.' Cuts in fuel consumption not based on improved productivity, conservation, and reduced distribution losses, will affect output, which in turn will impact adversely on economic growth. The issue therefore, is not whether we can afford to import oil, but whether we can afford not to do this.

Anticipation
What is regrettable in all this is that it does not take a 'see-far' person to have anticipated all that has been unfolding in Guyana. Many have long recognised GPL's ineptitude, mismanagement, and 'carpet-bagging' attitude to its investments in Guyana, even if a few decision-makers continue to be unable to recognize foreign perpetrated misuse and abuse of Guyanese resources. Crunch time with the company was bound to occur, as it has persistently failed to perform and meet its contractual obligations. Similarly, the growing confrontation with Iraq (and its certain impact on oil) has been long in the making. With prudent management of the economy there is no excuse whatsoever for these events to have come upon us as a surprise or an unexpected economic shock.