Marketplace Middle East - Blog
1/23/09
Yes we hope
"Starting today, we must pick ourselves up, dust ourselves off and begin the work of remaking America."

The words of the 44th U.S. President Barack Obama echoed through the Washington Mall. The pixie dust has settled on the inauguration. The new President has settled into the Oval Office and the work has begun in earnest.

Some felt a little let down by Barack Obama’s acceptance speech. They say it lacked the flair of his election night victory speech. I think many missed the point. I did an informal poll of businessmen and policy wonks and they all agreed with my simple premise -- this was a speech given by the Chief Executive, not the Commander in Chief. It is not the time to rally the troops, but get down to business.

The 47-year-old leader has a steep hill to climb, but he has plenty of support behind him and a bank full of goodwill abroad. After a day of celebration basking in the bright winter skies of the nation’s capital, he hit the phones calling four leaders in the Middle East. It was a classy touch and a strong signal that the region will be high on his priority list.

The challenge for this President is that he is sailing right into the eye of a colossal storm. Financial markets are good lead indicators for the next nine to 12 months ahead. They are pointing to more trouble, not less.

Our animal instinct is to think the worst, but hope for the best. This week I sat down with veteran Jordanian central banker, Umayya Toukan, to size up the impact of this downturn on the Kingdom. He is confident that Jordan, a small but reform led economy, can still grow better than four percent this year, depending on "how quickly confidence can be restored."

Toukan referred back to that nasty autumn week when banks and markets collapsed in a sea of toxic assets. He described it as an investor "panic attack". Rational thinking went out the door and survival instincts kicked in. Putting to rest those "voices" of irrational thinking Toukan says, it will take time and a period of stability.

Financial markets are not giving President Obama a honeymoon period. It seems Congress will move swiftly to approve an $800 billion plus stimulus package. Add more than $1 trillion for bank and insurance fund bailouts, and one is talking about a sizable long term burden on the U.S. economy.

This massive spending package on infrastructure and green technologies will bring the major economies together like never before. No one wants to see the U.S. sputter for long (nor Europe for that matter), so China, Japan and the Gulf countries are likely to remain loyal buyers of U.S. and European government debt.

But right now, the grand assumption is that 2009 will be terrible and that 2010 will be a year of recovery for the United States. Laura Tyson, a transition adviser for President Obama and former chair of the National Economic Council in the Clinton Administration told me in London that, "The U.S. recovery is going to be slower, longer and subdued." She too believes that the last to fall in this downturn, the developing countries from the Middle East to Asia, will be the first to recover.

"We have had a crisis which has demonstrated that the world is highly inter-dependent," says the economist from University of California at Berkeley. Those countries, she added, with giant surpluses need to "continue to stimulate their own economies and serve as stabilizing investors in the global economy."

Tyson was referring to China which sits on an estimated $1.9 billion of total reserves, and the GCC countries with a collective stockpile of $1.4 billion. Tyson a year ago in Davos expressed concern that the sovereign wealth funds might institute a "Trojan horse" strategy. They have been passive investors to date, but no one really understood their long term aims. After the signing of the so-called Santiago principles sign last October, she was clearly less concerned. Tyson even expressed the need for Washington to be more transparent in this process of state capitalism by the U.S. Treasury department in the financial bailout.

On the sidelines at the World Economic Forum, leaders will continue their work on the new financial architecture. The Group of 20 will gather again at the end of April here in London and will try to define who will lead and how they will lead. No doubt, decision making will be more collective, but the U.S. will still be in the front of this pack, during this re-balancing of the global economy, the new, inspiring President/Chief Executive Barrack Obama will not want to go at it alone.

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ABOUT THIS BLOG
John Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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