America has given Iraq up to March 17 to comply with United Nations resolutions or it will unilaterally disarm the Arab state. War with Iraq may be a week away, but the economic impact of the mere threat of war has already taken its toll(Getty Images)...

DEMAND AND SUPPLY 

by Boo Chanco

The Philippine Star 03/12/2003 

America has given Iraq up to March 17 to comply with United Nations resolutions or it will unilaterally disarm the Arab state. War with Iraq may be a week away, but the economic impact of the mere threat of war has already taken its toll. As the New York Times puts it, "around the world, and especially in the United States, the dilemma of planning for the unknowable is upsetting the decisions of consumers, businesses and investors." In Manila the other day, turnover at the stock market was just a little over P59.7 million, a record low.

All eyes are on the US economy as different industries have started to react to all the uncertainty. The Houston Chronicle reports that airlines are reeling from the high cost of fuel driven higher by war fears and declining revenues from overseas travelers. As a result, they are idling planes, laying off employees and seeking wage concessions from their unions. No wonder they are putting the screws on us to accept that one-sided open skies policy.

Heavy industry is also putting off expansion plans and major purchases, unsure when a war with Iraq will begin or how long it may last. Hiring freezes are now a fact of life. Retailers complain of a decline in sales and if this goes on, the loss of consumer confidence, the one thing that held the economy up following 9/11, could be devastating.

Many economists are saying a recession is sure to follow in the next few months if the unabated rise in oil prices continues. They point out that since the first Arab oil embargo in 1973, nearly every oil spike in the US has been followed by a recession. Writes Stephen S. Roach, Morgan Stanley’s chief economist: "Inasmuch as America has yet to withstand an oil shock without tumbling back into recession, I am hard-pressed to believe that this will be the sole exception."

Indeed, there’s little doubt high energy prices are killing any hopes of recovery for an economy that’s already battered by slow business investment, a huge trade deficit, weak consumer confidence, and a depressed stock market. The Houston Chronicle also note that Americans are now more worried than ever about their job prospects at any time since the early 1990s, citing the most recent consumer confidence survey.

And worry, they should. The US Labor Department reported last week that the America’s businesses lopped off 308,000 jobs in February, the largest one-month loss since the terrorist attacks of Sept. 11, 2001. As a result, unemployment rose a tenth of a percentage point to 5.8 percent.

Economists, according to the Chronicle, blamed the job losses on war worries, last month’s increase in the terror alert, harsh winter and the activation of reservists. Economists also say the effect on those who still have jobs and are worried about losing them is nearly as significant, tending to hold back on spending, which accounts for two-thirds of all economic activity. That, in turn, affects the way businesses plan for the future.

There are so many questions: Will it be a long war? Will the civilian toll be high? Will there be terrorist repercussions? What cities will terrorists hit?

Some economists predict that if the war lasts just a month or two and Iraqi leader Saddam Hussein is kicked out of power, oil prices would drop to the low teens, business and consumer confidence would surge and the US economy will grow five to seven percent. But if the war lasted six months or more, the economy would go into a deep depression, dragging the rest of the world. If oil goes up to $80 a barrel, the impact on the world economy would be too horrible to contemplate.

Even now, there is worldwide anxiety focused on the steep rise in oil prices, specially for depressed third world economies like ours. The threat of war has sent oil prices soaring to near $40 a barrel, pushing up the cost of gasoline, diesel fuel and electricity. The price includes a so-called "war premium" of $8 to $10 a barrel. Of course, things could turn for the worse if Iraq sets its oil wells or the wells of its neighbors on fire. They did that during the last Gulf War and it took months, even years to put some of those fires out.

For countries like the Philippines, the danger of a double whammy is clear. Not only will high oil prices have a crimping effect on the standard of living, there is also the very danger of substantial job losses resulting from the war or from the world economic recession affecting host countries of our OFWs. One hates to imagine the social repercussions of all that.

We also have to brace ourselves for ruinous competition from export powerhouses like China and maybe even some Asean neighbors. Expect smuggling to achieve what the WTO and its globalization agenda has not. With the American economy in the doldrums, China will be looking for markets to absorb production originally destined for America.

The impact on the world of the terrifying violence of the war will most likely be surpassed by the deadly repercussions of that war on the world economy. Given that both George Bush and Saddam Hussein seem to have that insane determination to settle their scores on the battlefield, the rest of us can only hope and pray things wouldn’t end up as bad as feared.

Till next week, then, when the fireworks begin.

How can we manifest peace on earth if we do not include everyone (all races, all nations, all religions, both sexes) in our vision of Peace?

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