“There is no light at the end of the tunnel; this may be a very long passage”
The current global crisis is a stubborn one. It has not shown any end to its sojourn in the world economy yet, despite every country in the world is crafting all sort of stimulus packages to rescue its respective economy, or in the case of some Eastern European countries, their call to the IMF door. In fact, they can expect some long and painful road ahead complying with IMF notorious conditionality.
Optimism is not dead, but we just have to be realistic.
The impact of sub-prime crisis has not reached its deadliest plane. The fall of big financial institutions in the US and, few in Europe, at the end of last year was just the beginning. Their global presence means that the fall of the institutions in their home base will eventually affect each and every country they operate, in one way or another.
Eastern Europe, Japan, Asian emerging economies are seeing their capital and financial markets more volatile these days, and no body is certain whether the markets is behaving normally (en route of recovery) or erratically (a sign of prolong bearishness, with profit taking activities in between).
With the exception of China, India and Indonesia – and few other smaller economies, Asia is already in recession since Q4 last year. The year of 2009 is even gloomier. The worst hit so far is Eastern Europe. This week cover story of the Business Week captures the phenomenon so well.
How did this crisis, which seems to be well contained by the US treasury and the Fed, in addition to the rejuvenated White House with well-advised new President, came out persistent and stronger?
The answer is yet to be known. The crisis, at first seemed to live only for a year; marked by the fall of Fannie Mae, Merril Lynch and early casualties and ended with multi billion stimulus package. Also the crisis seems to be limited in the US economy, as it only affected its ill governed financial sector. It looked devastating, but well contained. The US economy is not going down into chaos nor its economic system collapsing.
Compare this with the Asian Crisis in 1997/1998. It brought several countries to a level of humiliation, riot, surrender to IMF; and in the case of Indonesia, brought down a three decades old regime. However, the severity of the Asian crisis also meant it stroke hard but only for a short while (depending on how we see it, two years may be a short one). And the remedy was pretty much known.
This is not the case with the present situation.
No body is certain when will the crisis end. Only last week, Serbia came to IMF and seeks a stand by facility of $2 billion. And it may not be the last country to surrender itself to the IMF. The Business Week cover story suggests that most markets (emerging and developed) are suffering from the unknown plague. Late last year, markets were recovering – or so the data seems to suggest.
However, once the New Year celebration ends, and just after valentine’s mood swings to the other end, boom! The markets are rallying to the south. One thing is certain; the crisis will not end anytime soon.
Indonesia, China and India may enjoy a positive growth this year, but once their domestic markets are weakened, they will have nowhere to look for growth. The stimulus they are pushing now will likely be dried out very soon.
My friends, this is the future.***lq
Originally published on luqyantamanni.wordpress.com, March 4, 2009: view original.
