Crises have a tendency to force the hand of those who would otherwise ignore the positioning of the global economic jet stream which is blowing strong winds of change.

I had, what was intended to be, a slight detour on my way back from Davos via Geneva to London. Mother Nature extended my journey for a day, and as a result, I bumped into bankers and transport officials who saw our coverage from the World Economic Forum.

They asked bluntly, “What came out of Davos 2009?” The answer can be summed up as -- a high profile dust up between Turkey and Israel over Gaza, thanks to Prime Minister Recep Tayyip Erdogan walking out -- a couple of tough speeches from Vladimir Putin and Wen Jiabao who opened the meeting -- and towards the end of the gathering, some fresh oxygen that was pumped into the Group of 20, as leaders and delegates began to pack their bags high up in the Swiss Alps.

Before British Prime Minister Gordon Brown took the stage Friday, there seemed to be a lack of clarity in the efforts to bring 85 per cent of the global economy under one umbrella.

As one senior finance official – who asked to remain unnamed – put it on the sidelines of Davos, this decision to move forward is “well above the pay grade of the Ministers of Finance. This, John, is at the Heads of State level and requires clarity.” He asked me to take my own reality check, hinting that things cannot move that fast.

Shortly thereafter, I sounded out that discussion with Ricardo Hausmann, a leading economist from the John F. Kennedy School of Government at Harvard, who confirms there are active consultations taking place across the board.

U.S. President Barack Obama did not show up at Davos, nor did his two top finance officials, as planned, but no one was eager to jump before Washington signalled it was safe to do so. In sum, old habits, like getting U.S. support, die hard.

Hausmann made a solid point, while we flushed out the topic in the midst of hundreds of government officials and businessmen, “The G-20 jives well with the message of President Obama”. This is true. It is collective, equitable and disperses the burden of future challenges and decision making. At the same time, by its very nature of broader membership, it also dilutes power amongst those who are used to having it. Therein lays the problem.

The G-20 already exists. The fact that it does not need to be created from scratch makes the debate over membership less onerous. The gap between the haves and the have-nots, not the rich and poor, but rather the surplus and debtor countries has never been greater. So co-dependency is at its peak.

During a panel that specifically addressed global imbalances, Azman Mokhtar, Managing Director of Malaysia’s sovereign wealth fund Khazanah Nasional said, there is a danger that the world moves to the “lowest level of equilibrium”, meaning that we gravitate to lower standards of legislation, rush to print money, widen budget deficits and regret later that it could have been done differently.

Victor Halberstadt of Leiden University in the Netherlands said, the “sense of urgency to address global imbalances is not there.” Hausmann then made an illustrative point comparing the airline sector to the rolling crises every seven to ten years in the global economy. Anytime that there is a crash, the airline business dissects every bit of evidence to try and take the risk out of travel and rebuild confidence. In the financial sector it is literally every man for himself.

This is a bit worrying because of the trends that emerge during global downturns. For one, highly coveted foreign direct investment, that keeps the wheels of cross border transactions and trade well oiled, is expected to drop by up to 15 percent this year according to WAIPA, the World Association of Investment Promotion Agencies. That follows a record year for FDI of 1.8 trillion dollars. The Middle East saw its share of the pie grow to 43 billion dollars last year, a six fold increase from the year before. The last thing the region needs is for investment to dry up.

In the United Kingdom, we see workers protesting that British workers should get British jobs, and finally President Obama is rightly trying to strike “Buy American” legislation out of the bailout package.

The tendency to become protective of ones home turf is instinctual, but mistaken. In Davos, World Trade Organization Director General Pascal Lamy urged countries to pass the Doha Round to encourage more investment and lower trade barriers. I did not hear a lot of enthusiasm for that to be candid.

The reality is, no one wants to see the U.S. or other G7 countries stumble and fall. If they do, demand for hard goods from China and Japan and for oil from the Gulf and Russia will stumble as well. So, the surplus holders from the Gulf and China are likely to continue buying the debt to finance budget deficits from Washington to London.

But G7 countries should not bank on it. We know that countries from the Middle East to China have their own set of employment challenges to deal with. It is for this reason that Gordon Brown called for a “shared revolution” to bring countries under one roof in London in April. Let the power sharing begin, and hope that protectionism is put behind us.

Labels: barack obama, G20, g7, World Economic Forum

Labels: Davos, oil prices, World Economic Forum

"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.

Labels: Abu National Energy Company, barack obama, Laura Tyson, middle east, World Economic Forum