When it all heads south
Sunday, 11 July 2010
Mahmudur Rahman
IT'S all going horribly wrong. There is almost a tragic element to the sad grimness with which European governments are doing a double take by scrambling to reign in fiscal debt. Specialists who have for many decades come out strongly against developing countries for their inability to balance their books, cut subsidies and propel growth have either not been heard, or have not spoken vocally enough or simply have missed the plot when it comes to home turf. The Batton-Woods institutions are almost muted in their public statements.
Economic theory is all about balance whereby deficit, surplus and growth must all be checked and monitored to ensure neither goes out of hand. The long-standing argument about not chasing profit without sustainability appears to have fallen foul of one of the basic and ingrained human instincts of greed. The short term is dictating how the mid- and long-term approaches are to be implemented and it looks like an unholy mess. To add to all this there are just too many holier-than-the-bible analyses and growth indicators that only serve to confuse matters further.
A year ago the message was spend, spend and spend to swim out of the sea of economic despondence. No one was looking at the impact of sops and stimulus as it sent burgeoning debt out of control. Trillions of dollar losses later, govern ments are finding out there isn't money easily available to be borrowed anymore from investors shy of having their fingers burned again. Currency values are spinning out of control and while everyone is at wits end China is being asked to re-value its Yuan so that its huge imports from the developed world become cheaper.
President Obama pumped in a trillion dollars in stimulus packages to shore up the flagging US economy and he is clearly troubled with the rate and extent of cuts being proposed. India has joined him in suggesting that such packages need to be slowly phased out and cuts set in motion gradually. For both countries, these cuts will mean a slowing down of their exports and subsequently further pressure on their economies and growth.
Europe quietly disagrees with the US on too much speed. They have seen the tendency of giant US corporations willing to throw caution to the winds and bet on thin air. And it isn't without reason that Fareed Zakaria has proposed a new set of economic policy that he feels needs to be pressed in. The combination of a second but targeted stimulus propped up by sales and other taxes may be realistic but goes against the US voter ethos of 'no new taxes'. Maybe they can take a leaf out of Bangladesh where the statement is 'without taxes, development can't happen'. As for debt? The Americans are encouraged to be in debt for most of their lives. No wonders that famous concluding line from 'Gone with the Wind endures: "Tomorrow is another day". (The writer is a former Head of Corporate & Regulatory Affairs of British American Tobacco Bangladesh, former Chief Executive Officer of Bangladesh Cricket Board and specialises in corporate affairs, communications and corporate responsibility. He can be reached at e-mail: mahmudrahman@gmail.com)
IT'S all going horribly wrong. There is almost a tragic element to the sad grimness with which European governments are doing a double take by scrambling to reign in fiscal debt. Specialists who have for many decades come out strongly against developing countries for their inability to balance their books, cut subsidies and propel growth have either not been heard, or have not spoken vocally enough or simply have missed the plot when it comes to home turf. The Batton-Woods institutions are almost muted in their public statements.
Economic theory is all about balance whereby deficit, surplus and growth must all be checked and monitored to ensure neither goes out of hand. The long-standing argument about not chasing profit without sustainability appears to have fallen foul of one of the basic and ingrained human instincts of greed. The short term is dictating how the mid- and long-term approaches are to be implemented and it looks like an unholy mess. To add to all this there are just too many holier-than-the-bible analyses and growth indicators that only serve to confuse matters further.
A year ago the message was spend, spend and spend to swim out of the sea of economic despondence. No one was looking at the impact of sops and stimulus as it sent burgeoning debt out of control. Trillions of dollar losses later, govern ments are finding out there isn't money easily available to be borrowed anymore from investors shy of having their fingers burned again. Currency values are spinning out of control and while everyone is at wits end China is being asked to re-value its Yuan so that its huge imports from the developed world become cheaper.
President Obama pumped in a trillion dollars in stimulus packages to shore up the flagging US economy and he is clearly troubled with the rate and extent of cuts being proposed. India has joined him in suggesting that such packages need to be slowly phased out and cuts set in motion gradually. For both countries, these cuts will mean a slowing down of their exports and subsequently further pressure on their economies and growth.
Europe quietly disagrees with the US on too much speed. They have seen the tendency of giant US corporations willing to throw caution to the winds and bet on thin air. And it isn't without reason that Fareed Zakaria has proposed a new set of economic policy that he feels needs to be pressed in. The combination of a second but targeted stimulus propped up by sales and other taxes may be realistic but goes against the US voter ethos of 'no new taxes'. Maybe they can take a leaf out of Bangladesh where the statement is 'without taxes, development can't happen'. As for debt? The Americans are encouraged to be in debt for most of their lives. No wonders that famous concluding line from 'Gone with the Wind endures: "Tomorrow is another day". (The writer is a former Head of Corporate & Regulatory Affairs of British American Tobacco Bangladesh, former Chief Executive Officer of Bangladesh Cricket Board and specialises in corporate affairs, communications and corporate responsibility. He can be reached at e-mail: mahmudrahman@gmail.com)