Superior, inferior economies and the Wall Street melt-down

• Rwanda will not suffer heavily When you think about the worldwide monetary melt-down and the collapse of corporations that we thought were invincible in the superior economies, it’s inevitable not to fear the looming cloud that will surely bring an economic hurricane especially in economically fragile Africa. These qualms are associated with the fall of a series of corporations - Fannie Mae, Freddie Mac, Merrill Lynch and the largest being Lehman Brothers Holdings Inc. A brief history of the Lehman Brothers Lehman Brothers Holdings Inc, founded in 1850, was a diversified, global financial-services firm. It was active in investment banking, equity and fixed-income sales, research and trading, investment management, private equity, and private banking. It was a primary dealer in the US Treasury securities market. Its primary subsidiaries included: Lehman Brothers Inc., Neuberger Berman Inc., Aurora Loan Services, Inc., SIB Mortgage Corporation, Lehman Brothers Bank, FSB, and the Crossroads Group. The firm’s headquarters were in New York City, with regional headquarters in London and Tokyo, as well as offices located throughout the world. Lehman Brothers Holdings Inc. operated in a network of offices around the world. Things go sour After various attempts to rescue these financial institutions, Bank of America purchased Merrill Lynch for about $50 billion and became the new financial giant’s owner. However, the rescue plans of Barclays for the Lehman Brothers was futile. They filed for bankruptcy on the Sunday of September 14, becoming the largest financial firm to fail in the global credit crisis, after federal officials refused to help other companies buy the venerable investment bank. As if that wasn’t bad enough, American International Group (AIG), the nation’s largest insurer, unveiled a restructuring plan. They were begging for a cash infusion in form of a $ 40 billion loan from the government. Following this, the American financial markets tumbled. This fallout from the sub-prime lending crisis has continued to drastically affect firms that in the past, many would have thought to be immune from any possibility of bankruptcy or failure. The campaigns and a quick backup plan On the other hand, the US government set in place a quick backup plan that is yet to make any impact. The $700 billion bailout for the Wall Street firms was designed to stave off a global economic collapse. The tension from the financial sector does not make things easier for the ongoing presidential campaigns in America. It seems that this crisis is in favour of Barack Obama though it is not the Democrats who are the factor behind the miscalculated policies that led to the Stock Exchange Market’s collapse. According to the Telegraph; “Mr Obama called the financial crisis “a final verdict on eight years of failed economic policies promoted by President Bush and supported by Senator McCain.” Mr McCain responded assailing Mr Obama’s support for pet congressional projects, calling them “earmarks” worth £932million. Mr Obama responded, saying: “John, it’s been your president who you said you agreed with 90 percent of the time who presided over this increase in spending, this orgy of spending and enormous deficits and you voted for almost all of his budgets.” Whatever, the outcome of the campaigns, traders all over the world feared that the collapse of Lehman would send shockwaves around the world and spark a global sell-off of shares. Indeed, time has proved these fears quite accurate. Asia’s Market With so many markets tied to the US, it was inevitable that stock markets in Asia plunged as well. With their exports slowing down, it was bound to happen. Now that the US economy is in disarray, many smaller Asian economies believe that their salvation lies with China and Japan –t he superior Asian economies, they are not so stupid to ignore the upcoming recession. That’s why the Asia-Europe Meeting (Asem) of 43 nations, held in Beijing last weekend, tried to devise a bailout plan just as the US and Europe did. During the two-day meeting, European and Asian leaders representing nearly half of the world population had in-depth dialogues on all crucial topics including financial, monetary and economic issues. India’s Prime Minister Manmohan Singh said, “IMF and World Bank should put in place facilities to provide additional assistance more quickly and in large amounts with less service conditions and greater flexibility to developing countries.” He said the current crisis is due to the massive failure of regulatory and supervisory powers. France’s President, Nicholas Sarkozy said that in order to tackle the current global financial crisis, China, India, the Republic of Korea and Indonesia should play a major part in the G20 summit slated for November 15 in Washington. Motherland Rwanda Fuel prices are dipping. Food prices if not steadily remaining high, are just hiking. Following the recent past’s global food and fuel crisis, a financial crisis is not appealing whatsoever. However, all is not bad for Rwanda and other small economies in Africa. In fact investors feel more secure to invest in countries like Rwanda. “Since our Capital Market is not as developed as those in the first world, it’s unlikely that Rwanda will directly suffer from a recession like the one in Europe and in the USA,” said Robert Mathu the Executive Director of the Capital Markets Advisory Council (CMAC), Rwanda. He explained that Rwanda receives from both collateral and bilateral lenders, adding that the proportion of development funds is not substantial. However, these lenders will continue supporting Rwanda in form of Foreign Direct Investment and this will boost investor confidence. “Generally,” Mathu added, “the export market in Rwanda would in the long run be inevitably affected by inflation. At the moment there is no reason to fear because Rwanda is not affected substantially therefore speculations are that there would be a possible increase in the volume of the country’s exports.” This follows a decrease in demand for products from Asia, America and Europe whose capital markets are directly linked. Mathu further advised that there is need for intervention by cross-monitoring. He added that through consistent communication Rwandans should know that all is well and that there is no significant disturbance. Rwandans in the Diaspora The CMAC Executive Director further urged Rwandans in the Diaspora to continue diverting their investments back home where they are safe. “These investment projects are the ones that have driven Rwanda’s economy. Besides Rwanda’s Capital Market is more than able to accommodate the funds sent back home” Mathu explained. With all said and done, I say superior or inferior economies, Wall Street, whatever the economic recession will bring our way, Rwanda and the rest of the world economies should learn from their mistakes and adopt better economic schemes. Otherwise this gives inferior the chance to move to superior! Contact: anyglorian@yahoo.com