The Global Financial Crisis – Sunday, 26.10.2008

Posted on 27 October 2008. Filed under: *Editorial*, Week 583 |

After some efforts to play down the severity of the present financial crisis, by now there are, from around the world, voices that say there has never been such a global economic problem since the 1920ies and 1930ies, at that time affecting Europe and the USA. The words of the President of France Nicolas Sarkozy, that New York is the place to meet to discuss solutions for the global finance problems, because the financial crisis had its root causes there, provides a brief sketch of the situation.

At a time when the US Congress, after difficult negotiations, voted to provide US$700 billion to try to prevent a collapse of the US banking system – 350 times more money than the cost of the 18 months of the 1992/93 UNTAC operations in Cambodia! – there was still the opinion that Cambodia might not be affected too much, though the impact of the expiring textile agreements in 2009 would be a difficult challenge for the industry in Cambodia. But for the time being, there was confidence: the international buyers’ forum was still buying garments from Cambodia – where the annual value of the textile Industry was estimated at US$2.6 billion.

It may also be useful to consider how the problems related to textile imports into the USA may affect Cambodia and Thailand, which have a very similar share of the US market: Cambodia has 1.7%, and Thailand has 1.8%; even if their import shares into the US would be affected similarly, their overall economic share at home is quite different – the much larger Thai economy might be able to absorb any changes much more easily than Cambodia, with its heavy dependency on the garment industry.

But any hope may be too optimistic, when we now read that 9,000 factories in Southern China will be closed due to the global economic crisis – as a large share of the Chinese industry depends on purchases from the market in the USA. The seriousness with which the Chinese government is watching these developments becomes clear from some recent self protective decisions: new taxes between 150 and 185% were imposed to keep critical supplies, such as grains and fertilizer, from leaving the country. To what extent the countries next to China and the countries in the ASEAN fellowship will be able to benefit from investment from and commerce with China, as the Prime Minister hoped, will be seen according to the further development of the global crisis.

The international discussion has moved to a different dimension. When the USA provided US$ 700 billion to rescue the US banking industry, foreign observers started to point out that the US was doing, what they had before strictly criticized in other countries: by this enormous financial input into private enterprises it had partly “nationalized” the banking industry. While the term “nationalization” was strictly rejected by the US government, the media and also representatives of some “Western” governments used this term – especially as they were forced to provide huge amounts of financial inputs also into their own banking and insurance systems, which were facing collapse because of their involvement with the US dominated international financial system.

The 23 – 25 October 2008 Asia-Europe Meeting in Beijing provided an international forum to respond to the US President’s invitation for a 15 November 2008 meeting in the USA, to which the so called “G-20” countries are invited: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union; the heads of the World Bank and of the International Monetary Fund were also invited.

Different expectations are announced by the statement of the US President on the one hand, and of the Asia-Europe meeting on the other. The US President voiced his expectations: “As we make the regulatory and institutional changes necessary to avoid a repeat of this crisis, it is essential that we preserve the foundations of democratic capitalism – a commitment to free markets, free enterprise and free trade.” Others in Europe and in Asia apparently blamed the financial crisis on the failure of free-market system based on “market fundamentalist beliefs” in the United States. With quite a different outlook, leaders from Asia and Europe called for new rules for, and stronger regulation of the global monetary and financial system.

Cambodia will inevitably be affected from whatever happens in the global economy. But it is also important that related discussions get going in Cambodia. It was reported from the ASEM Summit that the Prime Minister considers private sector activities as the most important tool for economic growth – seemingly being more on the side of the position of the present US leadership. How is it then to be evaluated that the private sector of the country which has provided most development aid to Cambodia – Japan – has mostly kept away from Cambodia?

The capitalist free market system is driven by different dynamics. The pursuit of personal profit – “greed” as it has been called during the recent discussions – in the absence of social controls, seems to have destroyed the international financial fabric, and there are many warnings that the present crisis is only starting in its initial phase, leading to world wide food scarcity and famine. The European and Asian leadership assembled in Beijing did not call for an abolition of the market system – but to put it under social control and public regulations. Free market systems have been working fairly well in some economically highly developed Asian and European countries. But the major actors on their markets – the economic powers – were to a much higher degree than in Cambodia legally obliged to be transparent in their activities, bound to work according to laws equal for everybody, and to a high degree free from special political pressure.

The recent meeting of the Royal Government-Private Sector Forum had also to deal with the well known problematic of the sanctity and security of long term contracts in respect to the current controversy about the lease contract for the Renakse Hotel, which is intercepted by powerful interests. The economic interests behind the relocation of the Royal Academy of Fine Arts, away from its former location into a distant and flooded area, and the sufferings brought about for hundreds of people evicted from the places where they used to live for years – while some of the grand “urban high rise development projects” now stat to feel financial credit restrictions – show that Cambodia is, unfortunately, a model for the sufferings of a socially not controlled free market capitalist society.

We are living in most challenging times.

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