Sunday, October 30th, 2005

The year is far from over but it has been one of the worst in the last fifty years, at least in res-pect of natural disasters across the world. In our hemisphere, the 2005 Atlantic hurricane season has been record-breaking, and every day you wonder whether the end is really in sight. Twenty-three named storms, 13 hurricanes, billions of dollars in damage and of course, the displacement of hundreds of thousands of people.

The wealthy and mighty United States can hardly pick itself up from one hurricane only to find another on its way, leaving a trail of death and destruction and a people struggling for explanations. For President George Bush whose vision of a democratic Middle East in the image and likeness of the West has all but evaporated, the nightmare now must be how to declare victory and leave. The US economy is now the largest debtor nation and the well-known hubris of the American is muted.

Nicaragua, Guatemala, Mexico and Cuba reel from one hurricane while dreading the next. Having lost a large part of Montserrat, the Caribbean saw Grenada suffering more than 70 per cent damage to its building stock in the wealthier half of the island; the largest region of Guyana - the land of many waters - was under too much water for several weeks; Barbados and Trinidad and Tobago have been brushed by some strong winds and unexpected waves, while high tides have recently threatened most of the Caribbean.

No explanation:

Despite all the advances in science, there is no generally agreed explanation for these many natural disasters. Some say it is Global warming while others say it is a punishment on America for its immoral and illegal war in Iraq, but then are unable to explain the earthquake in Pakistan or the tsunami in the largely non-Christian South East Asia, BSE and foot and mouth in cattle, the current threat of a bird flu pandemic, the apparent incurability of HIV/ AIDS and the recurring man-made crises in Africa. Add to this the fact that international terrorism is now part of the armoury of powerful, if evil men, and we have a world that is facing one of its worst crises in recorded history. Iraq has exposed America's strategic deficiencies, and Katrina its managerial capabilities. The UN is embroiled in its own domestic shortcomings, while Germany, one of Europe's most powerful states is struggling to have a stable government. On top of this, Iran, one of Islam's most powerful countries is challenging Israel's right to exist, President Chirac of France threatens to derail a world trade deal and the oil price continues its inexorable rise. America has become a recipient of emergency aid; Cuba finally is accepting assistance from the US; Pakistan, OXFAM, the Red Cross and other international agencies are complaining about the inadequacy and speed of international disaster relief efforts, and the demand for personnel outstrips supply. If you are still optimistic please do not be embarrassed to show it by raising your right hand.

Outlook:

Yet for all the bad news there is still the consolation that the world survived the depression of the Twenties and Thirties, two world wars, the oil crisis of the seventies and the threat of wars between the then two super powers. Indeed, the world not only survived these challenges, but in most cases actually became stronger. What then is the outlook for the next year?

Managing Director of the International Monetary Fund Rodrigo de Rato, in remarks made at the Spain-US Chamber of Commerce, Miami, Florida, last month said that the consensus of the management of the IMF based on all the reviews, studies and discussions with policy-makers from all the countries of the world was that not only was the state of the world economy good, but "indeed so good that it presents a great opportunity to make reforms that would improve prospects further - because it's usually less politically painful to make policy adjustments when economies are strong."

He noted that the global economy has been strong over the past couple of years with growth in 2004 being the highest in three decades. He predicted that growth would continue at a "good pace in 2005 and 2006, despite a number of recent shocks, including higher oil prices and two hurricanes in the United States." Global real GDP is expected to grow by over four per cent in 2005 and 2006.

Weeds in the garden:

Not everything in the garden was rosy, as economic performance had not been even across the world, while global inflation had picked up slightly but remained moderate despite higher oil prices. The USA which continues to drive the world economy has shown remarkable resilience, and is expected to recover from the effects of Katrina and Rita within a short period as reconstruction efforts pick up, and the profits of US corporations both inside and outside of America remain steady. Mr De Rato added, however, that unless the major economic powers took appropriate policy action, "there are serious risks that the world economy will not stay in such good shape for much longer." He identified the following among the measures having "general consensus":

1) the US needs to reduce its budget and current account deficits but he stopped short of calling for the reversal of the Bush give-to-the-rich tax policies which have exacerbated the fiscal situation;

2) other large countries need to make reforms to increase productive investment and demand in their economies; and

3) some countries in emerging Asia need increased flexibility in their exchange rates.

Other risks would include the continuing rise in oil prices, major terrorist activities, the continuing civil strife particularly in some countries in Africa and Asia and further natural disasters.

Perhaps the worst risk is the likelihood that the necessary structural reforms will not be undertaken with the commitment and timeliness which is so necessary. But even with all the natural and man-made dangers, the world's economy is likely to perform well in 2005 and 2006. Next week we will look at how the Guyana economy has underperformed under then Finance Minister and now President Jagdeo, and the urgent need to have major changes at the level of the political management of the economy.