Economic Forum By Prof. Nshuti P, Manasseh:Global Economic Crisis: Part XIX

China leads in recovery The financial crisis that has hit world economies is easing even among pessimist economists, and financial experts. China (third largest economy after USA and Japan) which is leading the recovery pack, recently posted a 7.8% GDP growth against (-3% on average) negative growth posted by western economies for the last financial period, and predict GDP growth of -1% by mid 2010. As pointed out earlier, the pace at which policy mitigation measures can be applied determines the extent to which recession is tamed in a given economy. Chinese political economy, unlike their Russian counterparts, undertook cautious, but methodic reforms leading into a moderate market economy. They did not dismantle their command economic structures, which they have now used effectively to mitigate the depth and length of current recession in their economy. This entailed fast tracking the stimulus packages they designed for their financial systems, which reached their banks and non-banking financial institutions fast enough (as US Congress and Senate were debating/blocking the amount of the package), and put in place even fast measures to ensure that, their financial systems increased credit (which they did at an alarming pace) to the underlying economy. African economies await the recovery of other economies for theirs to recover as a consequence, essentially ‘bystanders’ in the recovery, as they were at the onset of the crisis. In this period of unusual financial meltdown, unusual measures work best, and Chinese’s fast-track policy reaction has made a huge difference in their recovery process as the west reels on their bureaucratic baggage. But now, Chinese are demanding (as pointed out in earlier articles) a shift from the use of the dollar as unit of international reserve, pointing out that, US monetary authorities can no longer be trusted to maintain prudent monetary and more so fiscal policies (US’s fiscal deficit has hit historical record of 1 trillion dollars,) that can assure the international economy of future stability. In this period of unusual financial meltdown, unusual measures work best, and Chinese’s fast-track policy reaction has made a huge differenceTheir argument seems to be gaining currency among disillusioned financial experts who point out that, in the last 50 years, US has had 10 recessions, although most lasted for a short span. Through currency dynamics, such recessions have sent secondary waves to other economies that use US dollar as a unit of international reserve. They further point out that, much as the current financial crisis originated from policy blunders (mainly Bush Administration ‘American Dream’ zero equity mortgage aimed at helping low-income families obtain mortgage) which gave rise to US sub-prime mortgage markets and their disastrous derivatives, so was the 1929 Great Depression. This depression( devastated world economies to the core) which lasted 10 years was caused by US tight monetary policies that the US Federal reserve had instituted at the time, and which led to stock market crash in October, 1929. These policy blunders have all cost world economies huge amount of resources, that will lend credence to this change of currency debate which is bound to gain momentum as countries count and pick up their losses from the current recession. Thus for instance, US economy will be exposed up to 23.7 trillion dollars as a result of various stimuli packages extended to the economy to turn it around (which is proximately two years of lost GDP). If you add this to intervention by EU, Japan, China, and other economies, the bill for disastrous policy actions could reach 32 trillion dollars. This is approximately loss a half of world’s GDP, twice of USA’s GDP, and four Times of EU’s GDP in nominal terms. Sub-Saharan Africa stands to lose around 50 billion of her 987 billion GDP, an economy that is 14 times small than USA’s GDP, and approximately the same size as South Korean GDP!. Such negligible economy amidst abundant resources questions our economic governance performance of African leaders, and how far they need to go. An economic national philosophy a kin to, or better than current population control strategy, is over due.However, China tabled currency change in recent G 8 meeting, but as expected was ignored. As Chinese economy grows however, the safety and stability of such huge economy, will shift from economic debate and take on a strong political face. Brazil may be sympathetic to Chinese cause, and could place the debate where it can be heard. But as pointed in earlier articles, a currency is as both economic as it is political, and this will not be a simple debate, considering the alliances in the debate. With regard to developing countries in Africa, this debate is irrelevant for their reserves are so inconsequential, and erratic that, they need not ‘worry’ in which currency their meagre ‘savings’ are held. In any case most of these reserves are in form of donor/multinational funds who decides in what form, and which institution they are kept. In case of Rwanda, we have to run as other walk (as President Kagame emphasizes to Rwandans and rightly so), the only trick is; when others are also running, and faster, our national options are then open. Good news is, our economic and political governance is one of the best in the continent, so let us chase others. An economic national philosophy a kin to, or better than current population control strategy, is over due. Ends