Wednesday, 19 February 2014

Don’t get caught napping again

IT seems that small economies will now have to better equip themselves to face the understanding that volatility will be a part of the global economic landscape going forward. The regularity with which these downturns have been occurring cannot be underestimated and while countries will not be able to escape them, better planning nonetheless could help to lessen the full impact of these downturns.

So that once countries are in tune with being able to anticipate them and to be able to steer sensible economic policies, governments will not be caught napping with the onset of recessions.

In recent times comments have been made to the effect that the severity and duration of the present economic slowdown was not anticipated. Like a volcano which is about to erupt, there are usually many instances where mini-eruptions take place prior to the real blast.

Developments in the 1990s were clear signs that the world was heading for turmoil. Mexico, once considered the economy that should be emulated because of the economic reforms undertaken and the resulting economic growth and stability, erupted in the early 1990s with catastrophic consequences. Towards the end of that decade there was the Asian financial crisis, while Brazil and Russia and a few others also had their bout of economic downturn around that time.

These developments indicated that the global environment was so unstable that at any moment another crisis was going to emerge, one that was going to be bigger and more long-lasting than what took place in the decade of the 1990s.

Thomas Gray, who served as an adviser to the late Margaret Thatcher when she was the UK Prime Minister, predicted that the world economy would go bust. Gray wrote that in his book “False Dawn” that was published in the late 1990s.

Given also that the market had been calling the shots since the turn of the 1990s, it was expected that one day it was going to experience a crash.

At the news conference hosted last week by the Caribbean Development Bank (CDB), one of the presenters said the recession was not expected to last so long and become so deep. Barbados’ Prime Minister the Honourable Freundel Stuart said as much when he spoke a the last luncheon of the Barbados Chamber of Commerce and Industry (BCCI). Even prior to that address, he had recounted in a lecture at the Lloyd Erskine Sandiford Centre, the instances where the world economy had gone into a tail spin. He cited the 1974, 1981/1982, 1991/1993 crises and the current one as evidence of the regularity with which these things have been occurring. The 1974 crisis stemmed from the oil embargo and then the increase in oil prices. These factors, along with the Iranian Revolution, were also at the root of the recession in 1981, whereas the Iraqi invasion of Kuwait in 1990 sparked the global downturn the following year.

Faced with the myriad of problems which these recessions have brought to both large and small economies, emphasis now has to be placed on how to be ready once they come a-calling.

It is true that small open economies like what exist in this region are hardly unable to influence global events. However, they have to engage in better economic management, always mindful that things will not always be the same.

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