Worst is over: Global economic rebound a distant
an economic explanation to the Bush-Blair bombardment of Iraq?
One popular explanation is that it was motivated by the desire to
get hold of Iraqi oil supplies for Texan conglomerates. The other
milder economic interpretation is that both these leaders require
distracting their people from the economic issues in their countries
for which they had no solution.
The oil argument
though simple has been contested. It is true Iraq is the second
largest source of oil in the Middle East next to Saudi Arabia and
is estimated to account for about 30 per cent of world supplies.
However, the question that some have posed is: How does lower prices
owing to larger oil supplies benefit the US companies as overall
prices would fall?
could be contested by two counter arguments. One is that the bottom
line is not necessarily the oil price to consumers but the margin
between the cost of oil and prices fetched. This could indeed be
increased and profits enhanced for US firms .The immediate gains
for US oil firms could be huge.
How the spoils
are going to be divided between the US and the UK is another matter.
Whether the final settlement with the UN, neighbouring Arab states
and the Iraqis themselves would permit plunder of the oil by the
US is another issue that would be only unravelled over time.
counter argument is based on a longer American view on oil. Oil
being a non-renewable resource the US would like to retain its own
oil reserves for a latter day when international supplies diminish.
Unless alternate energy sources are found, this would give the US
a distinct future advantage. Further, the US could control the amounts
of oil reaching international markets and ensure that their returns
from oil are high. If this were to happen the much-expected decline
in oil prices would not materialise.
The other explanation
lies in the economic circumstances of the two countries. The efforts
at economic recovery have met with little success in recent years.
The Bush administration is at a loss about what actions should be
taken. Bush economics can only think of measures to give tax concessions
to the rich. Most eminent US economists have hotly contested this
approach as a wrong one. As many as a hundred leading economists,
including Nobel Prize laureates, thought it fit to place an advertisement
in the New York Times warning Bush of his misguided economic policies.
Unable to cope
with the economic issues at home did Bush turn to war to boost his
popularity? After all, the presidential election is not that far.
November 2004 is just 18 months away.
It is however
agreed that the stakes of such a popularity-gaining strategy were
indeed high and risky. Most commentators are of the view that it
had to fail. Once victory was won, the attention of Americans would
turn once again to their economic conditions. And these could get
worse owing to the additional huge expenditure for the war and the
reconstruction aid that would be necessary.
All this means
that there isn't much good news for the Sri Lankan economy. Although
trade is not very significant to America, American trade is vital
to other countries in the world, including Japan. The old saying
that, when America catches a cold other countries suffer from influenza,
appears to be even truer today with increased globalization. The
economic recovery of the US is important for the rebound of European
and Japanese economies. The economic growth of these developed countries
is vital for Sri Lanka's industrial exports.
The US is Sri
Lanka's single largest market for the country's main export -- garments.
The recent agreement for freer trade in garments was expected to
boost the country's garment exports. For it to have an impact, consumer
demand must recover. It is not governments that buy garments. It
is ordinary people. Their incomes must rise if demand for our exports
is to be sustained and increased.
This may take sometime.
another disaster for the Sri Lankan economy has been avoided: The
prospect of sky rocketing prices. Certainly stable oil prices would
be essential for both Sri Lankan manufactured exports and for stability
in domestic consumer prices. The end of the war may mean that there
would be stable prices. Further, our tea market is likely to revive
with normal shipments and increased demand from the Middle East.
There have been some concerns regarding aid. The US has assured
the government that the Iraqi war would not affect American commitments.
There are many
imponderables about the post-Iraq world economic conditions. At
least the worst appears to be over, in as far as the Sri Lankan
economy is concerned. Yet the impact of the war on global economic
conditions remains uncertain. Only a strong bounce back of the world
economy could benefit and boost Sri Lanka's economy. That may take