The year was 1998 and the world economy was in deep recession caused by the Asian bubble burst, the Latin American debt burden and the Russian economic meltdown.
The Asian crisis started with the devaluation of the Chinese currency in order to cheaply sell its products overseas and to attract foreign investors. The ripple effect had reached major Latin American countries led by Brazil, Mexico and Venezuela. Russia’s economic slump was the last straw on the ailing world economy.
Under Boris Yeltsin, the Russian government was unable to pay its foreign debt, the Russian investors lost confidence in their local market, and the inflation was as high as 40 percent. The International financial institutions like the IMF and the World Bank were running out of cash to bail out Russia as well as the Latin American countries. The 1998 crisis was dampened by the falling oil prices as well as by profit losses of the leading multinational corporations like Coca Cola, IBM, Microsoft, ABB, Shell, Alitalia, Peugeot, Uniliver, among others.
On the bullish side, the US stock market was at its highest and America was self-sufficient. It imported only 15 percent and exported 85 percent. America, under Clinton, had many allies including Venezuela. The American dollar was the leading currency, and the US was the world’s favorite destination for tourists, students, and businessmen alike. In short, it was the American economy that held the world economy from a total collapse.
Ten years later, those days are now history. Today, China is the fastest growing economy in the world and is bailing out the US government Treasury bonds for not requiring higher dividends to offset the low exchange rate value of Uncle Sam’s greenback. China is becoming the most envious foreign direct investment (FDI) destination. The Chinese economy is healthier than that of America and its growth rate tripled reaching 9 percent by 2007 as against 3 percent for the US economy.
Latin American countries are among the top emerging nations.
Russia is stronger than ever before under Putin and the Russian stock market is planning to join the world’s major financial hubs like New York, London, and Tokyo. The old Europe is becoming new Europe with one currency and having the world’s highest spending consumer market of 450 million citizens.
Today, the global economic downturn is caused by the American housing bubble burst under the pressure of mortgage frauds and financial credit scams. For a while the US economy was floating on the so-called FIRE service sector (Finance, Insurance, and Real Estate), which according to a Merrill-Lynch study accounted for fifty percent of US economic growth.
For the first time in modern US history, there are no new economic innovations at all. The last real engine was the Internet that has now reached maturity with marginal players being weeded out. Even the oil prices, now at their highest, had no stabilizing effect. In fact, they are speculatively manipulated and induced a two-fold negative impact on the world economy. Firstly, those prices do not reflect a real market value to the producers. Secondly, the poor nations are suffering from the overwhelming hike in the cost of energy consumption like gasoline and heating oil.
Meanwhile, US President George Bush’s policies have added fuel to the anti-American sentiment and created many enemies led by the outspoken leader of Venezuela. President Chavez’s nationalization of Venezuela’s oil sector had ended the golden era for Exxon-Mobil drilling activities. As a tit for tat move, the US Government tried to freeze trillions of Venezuela’s cash assets in order to compensate for Exxon-Mobil losses due to the forced withdrawal. After 9/11, the US xenophobia led to more rigid immigration policies and caused major US companies, in the tourism and education sectors, to lose billions of dollars to other world destinations. Today, America’s hope lies in changing its short-sighted leaders and getting rid of its unreasonable fear of other cultures, especially that of the Arab— Muslim world. America must work hard to bring back its glorious past of opening up its commercial borders and its higher educational institutions to other nations. American military spending should not be at the expense of its healthcare system and its poorly managed lower-level educational sector. Americans must elect a new visionary leader who can empathize with the plight of others and be able to answer that 3 a.m. call by not worrying about their own children who were soundly sleeping under the fluffy gifts of Toys R US, but indeed determined to put an end to the massacre of our children who are killed and buried under the rubbles of Khan Yunis, Karbala, and Kabul.
American financial institutions must lead the world in corporate ethics and introduce new financial instruments based on their market values and not on the insider trading practices of its greedy financial managers from Enron, WorldCom, Tyco to Adelphia, among others. American film industry must radically shift its movie production based on bloodthirsty plots to new Oscar-winning themes of cultural rapprochement, strength in diversity, clean environment, and basic respect for mankind who deserves better rights for life, liberty, and pursuit of happiness.
— Dr. Chadli Belarbi is faculty member, Al-Yamamah College, Riyadh.
