DAVOS, Switzerland, 24 January 2008 — Dismissing fears that the topsy-turvy global stock markets could lead to worldwide economic recession, US Secretary of State Condoleezza Rice said yesterday that the US economy was resilient and would remain an “engine of growth.” Addressing an audience of chief executives, politicians and others in the opening day of the annual World Economic Forum, Rice said the $150 billion (103 billion euros) stimulus package proffered by US President George W. Bush would “boost consumer spending and support business investment this year.”
Her remarks held great significance as it came after two days of oscillating markets worldwide and the surprise announcement by the US Federal Reserve on Tuesday that it lowered its benchmark interest rate to 3.5 percent from 4.25 percent, before its planned meeting next week.
“I know that many are concerned by the recent fluctuations in US financial markets, and by concerns about the US economy,” she said. “President Bush has announced an outline of a meaningful fiscal growth package that will boost consumer spending and support business investment this year.” She said US Treasury Secretary Henry Paulson, who canceled his own visit to the World Economic Forum annual meeting at the last minute, was “leading our administration’s efforts and working closely with the leaders of both parties in Congress to agree on a stimulus package that is swift, robust, broad-based, and temporary.”
She touted the US economy as “resilient, its structure sound, and its long-term economic fundamentals are healthy.” Rice also said the US would welcome foreign investment and free trade.
“And our economy will remain a leading engine of global economic growth,” she added. “So we should have confidence in the underlying strength of the global economy — and act with confidence on the basis of the principles that lead to success in today’s world.”
Rice, who had earlier met separately with Presidents Pervez Musharraf of Pakistan and Hamid Karzai of Afghanistan, acknowledged that she was appearing before leaders at a time when “what comes front and center is the turbulence in the world today.” She cited violence in Kenya, the assassination of presidential candidate Benazir Bhutto in Pakistan, and problems of creating “peaceful, functioning governments” in Iraq and Afghanistan.
Former British Prime Minister Tony Blair, among others, toed much the same line. “This is a moment of greater insecurity and challenge in the world today, but it makes a meeting like this all the more important,” he said.
In a session devoted to the Middle East, most agreed that Palestine is the core issue at the heart of the trouble. But it was clear the world now is facing a clash of civilizations and religions, and it is time to seek a serious resolution.
Some looked back to the Carter era and the Middle East peace accords that were never completed. Neither side has gained anything in the three decades that have followed except death, violence and instability. Delegates from around the world said it is time for these great religions to promote tolerance and inspire millions of young people to do the same across the region and around the globe. To ignore this situation any longer is an invitation to madness and greater instability worldwide.
“I would like to see participants addressing the issues of peace and climate change as well as the issue of inclusive growth,” said K.V. Kamath, managing director and chief executive officer, ICICI Bank, India. “How can we innovatively collaborate to meet the needs of poor people around the world? I will work collaboratively to see how we could do more.”
“In spite of the economic crisis, we can look beyond that and view Davos as a collection of minds to address issues that can be addressed,” said session co-chair Indra K. Nooyi, chairperson and CEO of PepsiCo. “My hope is that we are here not only with a can-do spirit, but with a must-do spirit.” Her focus is on the Millennium Development Goals (MDGs) and water, in particular. “It would be wonderful if we could assign an owner to each MDG to move them forward,” she said.
James Dimon, chairman and CEO of JPMorgan Chase & Co. and co-chair of the session, agreed with Blair that making progress to resolve the Middle East conflict and world peace are at the top of his agenda. “The second would be energy and the environment. The third is education, and the fourth is a global system which promotes growth in a fair way,” he said.
Responding to questions about the current economic instability, he said: “The world economy is extremely complex, and I’m not sure the tools policymakers have can solve all these problems. People are doing all they can to mitigate any negative effects of a downturn.”
“I know there’s a lot of concern about the economic situation, but looking at the long term, I’m here to talk about energy,” said David J. O’Reilly, chairman and CEO of Chevron. As more people are lifted out of poverty, demands on energy are only going to increase, he explained. Finding solutions to this challenge “tests the theme of the conference — ‘The Power of Collaborative Innovation’ — it’s going to take both,” he said.
“This is not a great year in the US for far-sighted and imaginative economic policies,” said former US Secretary of State Henry Kissinger . He said he feared more “protectionist talk” coming from the US. “We need to activate world trade talks and strengthen the global international system, and I believe that the existing (US) administration will do the best it can, and the new administration will take a broad view of the issue.”
“The focus on collaboration and innovation in 2008 underscores the opportunity for the world’s leaders to use the World Economic Forum’s multistakeholder platform in Davos to collaborate and take action to tackle the world’s most pressing problems,” said Professor Klaus Schwab, executive chairman of the forum.
More than 2,500 participants from 88 countries are in Davos, including 27 heads of state, 113 cabinet ministers, along with religious leaders, media personalities and heads of non-governmental organizations. Around 60 percent of the participants are business leaders drawn principally from the Forum’s members — 1,000 of the foremost companies from around the world and across all economic sectors.
The panelists said a newfound spirit of pragmatism has emerged in Asia as economies in the region continue to grow at decent rates despite recessionary pressures from the West. The financial crisis in the US and Western Europe is not expected to shake Asia, and the good news is that growth in Asia will continue to stimulate other continents, including Africa.
Participants said Asian countries in recent years reduced their dependence on the US as an export market; though a recession in the US is likely to slow down growth in Asia, the impact is not expected to be as great as before. The recent phenomenon of Asian sovereign wealth funds bailing out struggling US and European financial giants underscores the region’s newfound confidence and a belief among the younger generation that Asian countries will reach developed status in a matter of time.
Meanwhile, the WEF warned that a stronger focus on turbulent financial markets and escalating geopolitical tension in 2008 could prompt governments and companies to neglect less immediate risks such as climate change and food security.
“Action to mitigate climate change, for example, may be put in danger should the global economy weaken substantially even though many of the ... decisions which will shape the future path of global climate will need to be made in the next five years,” the WEF said in a report published yesterday. “(Inaction) on long-term risks will only weaken the global capacity to manage future challenges.”
The Global Risks report, which forms part of the agenda for the Davos meeting, named four key issues for 2008: systemic financial risk, supply chain disruptions and energy and food security — a new addition. Systemic financial risk, it said, was the most immediate and — from the point of view of economic cost — the most severe.
“It is not the first time we have experienced a financial crisis, but it is (happening) in a system which has undergone substantial transformation,” said David Nadler, vice chairman of insurance broker Marsh & McLennan, citing deregulation, financial innovation and sovereign wealth funds.
The annual report outlined the risk of a recession in the US and said Britain’s dependence on the financial sector left it particularly vulnerable.
