Despite its disastrous policies of late, the world still needs US engagement and leadership, writes Ayman Al-Amir* The US stepped on a financial landmine and the shrapnel hit most world economies. In response, the world's richest nations, the G7, are scurrying to salvage financial markets, banking and investment institutions but, above all, are trying to restore enough confidence in the market to stabilise the global financial system. Without underestimating the magnitude of the crisis or its impact, particularly on developing countries and emerging economies, it does not mark the demise of the capitalist system or, for better or worse, the leading global role of the US. The crisis and the deepening of the recession that had already started several months before the crash will provide a lesson in fiscal responsibility, market management and regulation for the world's economic leaders and certainly for the coming US administration which, it would seem, will fall to the lot of Barack Obama. Much analysis has gone into the causes of the crisis, from the mortgage credit crunch to the get-rich-quick stampede on Wall Street, both leading to the collapse of investment banking and serious threats to individual savings accounts. If the Great Depression of 1929-32 is far too distant to the memory of the baby-boomer generation, the lessons of the 1987 market crash are still vivid as one of the landmarks of the Reagan administration. The present crisis will mark the end of Republican Reaganomics, characterised by the standard policies of deregulation, minimal government intervention, lower taxes, increased defence spending and reduction of expenditure for education, healthcare, social security and social programmes. This usually results in creating the false impression of living in a Camelot that is precariously perched on top of a huge budget deficit, now estimated at nearly $1 trillion. When the Democrats come to power they inherit the deficit problem that they can only manage by reversing Republican policies of tax breaks, defence spending and restoring diminished social programmes. The US has been well known for its resilience in times of war and peace, in the economic, political and foreign policy domains. It has also been known for its myopic policies. A combination of resilience and myopia is both a handicap leading to repeating the mistakes of the past and also the ability to bounce back from disaster. The US fought, for strategic influence, and lost a 10-year-long disastrous war in Vietnam where 56,000 American soldiers were killed and another 115,000 injured. Thirty years later it invaded Iraq for oil and regional hegemony -- the lessons of Vietnam having been lost with only the historical lapse of one generation. Now it is seeking an honourable exit from Iraq, the same slogan it used to get out of Vietnam. Resilience will provide compensation for the human, material and prestige-centred loss of yet another senseless war. In the present financial straits, the US and its G7 partners, supported by international finance institutions, are coordinating strategies that will help them weather the storm and rescue their economies with minimum damage, except for the inevitable period of recession that will follow. The US has developed a plan of buying bank stocks to alleviate the crisis of the banking system -- the first such intervention since the Great Depression. Other countries of the 15-nation Euro Zone are devising similar rescue plans, while the UK has unveiled a $1 trillion bailout package of which $63 billion will go to three major British banks. France, Germany, Italy, Ireland and Belgium are taking similar measures. Governments are bad business managers but can be good regulators if they want to. The banking and investment businesses are bad self- regulators that hate government intervention. Governments hate wildly speculative business that lands economies in the doldrums and that then cry out for government help. In the present crisis, an arranged marriage of convenience is emerging to replace the Reagan-Thatcher freewheeling market economy, which has proven to be largely irresponsible, with a form of regulatory state capitalism. Rich nations will always take care of themselves. However, for African countries, which have generally maintained a healthy annual growth of three per cent over the past seven years, the story is different. African nations are smarting from drought, soaring inflation and the repercussions of stock market turbulence. Kenya, which was dubbed "the world's most competitive economy" by the World Economic Forum a few months ago, is suffering high inflation, a sharply declining rate of growth and the expectation that the world's credit crunch will negatively affect the tourism industry and foreign direct investment flows. South Africa, which boasts Africa's sturdiest economy, has seen the flight of $400 million from its investment market over the past few weeks. Nigeria has displayed double-digit inflation and soaring rents. Other African countries have experienced a rise of between 15-28 per cent in food and fuel prices. To add insult to injury, badly needed investment and development assistance inflows will trickle down to a significantly reduced rate. There seems to be no safe haven in the present financial crisis. The anticipated global recession has dampened demand for oil, the price of which has dropped by 48 per cent from its all time high of $147 per barrel last July. The World Bank, therefore, expects the economies of Middle East/North African countries to deteriorate as a consequence of the decline of both the demand for and price of oil. For sometime, the oil and gas-rich Gulf Cooperation Council countries have been experiencing high rates of inflation, with double-digit rises in most of them (16.5 per cent in Qatar). They have been compensated by high oil prices, with stock and real estate markets buzzing with foreign investment inflows. Despite the multi-billion dollar sovereign wealth funds many of them maintain, there is no telling what impact falling oil prices, outflow of investment capital and potential stagflation (combination of stagnation and inflation) could have on their economies and development investment plans in 2009. The present crisis will not send the US into an abyss or a policy of neo-isolationism. While the Bush administration has plagued the world with every conceivable policy of disaster, from invasion, to war to the environment, the world still needs the US as a partner. President Bush started his term in office in 2001 by facing the 11 September challenge and was led, blindfold, by his ambitious neo-conservative hoodlums to the invasion and destruction of Iraq. He will end his two-term career in 100 days with the shadow of the financial crisis hanging over him. Americans could not have made a worse choice for president and will need a more erudite leadership in the next decade. The world still needs US engagement and leadership by example. US hegemony was more of a quest than a fact. It was resisted by those who were determined to challenge it and accepted by those who needed it. In Europe, France, under the presidency of Jacques Chirac, challenged the US invasion of Iraq. In the Middle East, Iran continues to face off to the US- Israeli threats. Other mighty tycoons and dictators in the region tacitly accept US hegemony. It is not US power that rules but the weakness of unpopular ruthless autocrats that dominates. The myth of a unipolar world ruled by the US has only been demonstrated by the invasion of Iraq at a price. It will be belied in Afghanistan where the US will sink much deeper than the stock markets on Wall Street. * The writer is former Al-Ahram correspondent in Washington, DC. He also served as director of United Nations Radio and Television in New York.
