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Wednesday, April 16, 2003

Don't count on US for post-Iraq recovery: Stiglitz

Reuters

Tokyo, April 16

Any countries counting on a post-Iraq revival in the US economy to help them
out of their own slowdowns are probably in for disappointment, according to
Nobel prize-winning economist, Joseph Stiglitz.

Stiglitz, a professor at New York's Columbia University, sees a combination
of existing problems and poor policies holding back a US recovery, spelling
bad news for countries like Japan that rely heavily on healthy US markets
for their exports.

"The US economy was precarious before the war, and the end of the war won't
solve its fundamental problems," Stiglitz told Reuters in an interview
during a visit to Japan.

"I'm not optimistic about the competence of the financial management of the
US government."

With the Iraq war mainly over, the fundamental condition of the US economy
in once again in the spotlight, and recent data paint a less than pretty
picture.
A pair of surprisingly sour economic reports on Tuesday renewed worries the
embattled US manufacturing sector will remain a drag on an already shaky
economy.

Industrial production in March slid a larger-than-expected 0.5 per cent, the
biggest monthly drop since December 2002 and the second straight monthly
decline, while a separate indicator showed a continued dismal outlook for
the Northeast region's factory sector.

For Asia's export-driven economies, that's particularly bad news.
Japan will feel the pinch because its domestic economy is beset by falling
prices and a lack of consumer confidence. Only strong exports have kept
things ticking over.

The fast-growing China market can soak up some of the slack in the region,
but China is itself an export-driven economy, adding to the competition for
a slowing US market.

"INCOMPETENCE"

"The US bubble in the 1980s led to over-investment, which will lead to a
retrenchment," Stiglitz said, adding that the bad accounting that
contributed to the boom was now creating a lack of confidence in securities
markets.

Because of this, even if the US economy grows a bit faster, the gap between
actual growth and the economy's full potential will continue to grow, he
said.

In a speech at a Tokyo symposium on Monday, he took aim at the Bush
administration's economic policy, saying that its plans to cut taxes --
which have already been watered down by lawmakers concerned over rising
government budget shortfalls -- amounted to "sheer incompetence."

The main beneficiaries will be the wealthy, and the tax cuts will have
little benefit in helping create jobs, he said.

A further burden on the world economy is the cost of rebuilding Iraq now
that the war is over. One body has estimated that this could be as much as
$50 billion over 10 years. The White House has so far requested about $2.4
billion.

Stiglitz, also a former chief economist at the World Bank, expressed concern
in the interview that the US will not be willing to pay for the costs,
leaving other bodies to divert money away from assistance to other poor
countries.

"The burden of expenditures on reconstructing Iraq should lie with the US,
since the US was the one who did the destruction," he said.

"It would be a shame if the limited resources of the World Bank were
diverted away from helping the poor in other countries to Iraq."

He also offered his view on the debate about who should pay and who should
be involved.

"The IMF should not impose on Iraq its particular ideology, one that has
failed in most parts of the world where it has been tried," he said. "It
would be a shame for Iraq to be subjected to that narrow ideological
framework."

Stiglitz has repeatedly attacked the International Monetary Fund over what
he sees as its failures in resolving financial crises in Latin America and
Asia.

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