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ANALYSIS

Bleak economy

Arun Devnath
The inaugural speech by Barack Obama probably raised hope around the world, but struck a note of fear on the economic front. It was not a laundry list of policy issues, nor a glimpse into a rosy world. It pointed to a deeper crisis facing the US economy and beyond. It showed a newfound resolve to brave the "icy currents" and to batten down the hatches in the face of brewing "storms".
The 44th president of the United States vowed to restore the nation's leadership in the world and urged Americans to take responsibility for rebuilding the faltering economy together.
Obama sent out a message to the global audience that America aspires to lead the way "once more". For sure, the US, battered by the financial crisis, will pick up the pieces on Obama's watch. At least, that is the New Year’s resolution.
"Starting today, we must pick ourselves up, dust ourselves off and begin again the workof remaking America."
The speech has spawned a deluge of reactions around the world. Many taped and played the speech back and forth to make better sense of it. Many kept surfing the web for most part of the night in Bangladesh and other parts of Asia for insights or answers to some questions after the installation of Obama as the first black president for the US.
Among the series of issues -- some pretty obvious and some hidden in the colourful, masterly speech, the economy and market emerged prominent.
The opening part of the speech that shines the spotlight on the US economy in tatters came, however indirectly, as a grim reminder of the global economy hurtling into an abyss.
"Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age," Obama says.
The speech not only set the tone for future, but also laid bare a string of troubles the new president will have to deal with.
Instead of patting his retreating predecessor, George W Bush, on the back, the new president spoke of America's "collective failure.”
"Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time."
Silence falls on the audience. But he is not without hope:" But know this, America --they will be met."
Obama inherited America as well as its mess. The financial crisis has now wiped out over $6 trillion of Americans' savings.
While the president takes control of the financial mess. Wall Street is about to turn topsy-turvy.
Americans are about to witness the big-
gcst changes they have ever seen in their lifetime.
When Obama says the market can spin out of control without a "watchful eye", it raises the possibility of further regulatory control in the financial system.
"Regulatory supervision is a must for the financial market," says MATasIlm, chief executive officer of Bangladesh X Foreign Trade Institute, in his reac- / tions to Obama's speech. A
The government has a major role to play in bolstering the econ- f omy and monitoring the markets.
An "entirely unregulated" mar- | ket has a grave risk, he believes. F . "Without regulatory supervision, F we may have short-term profit, [ but it can't be good for a long- Z term," ProfTaslim says. /
Similar views were t
expressed by Peter Hoflich, I associate editor of The Asian Banker in Singapore, in an early interview with / —
The Daily Star.
"Loose regulation of [w these products has been a W
huge concern, since markets that are 'self-regulated' tend to be open to abuse and other problems," he says.
One example of this was the audit industry: when it was self-regulated it caused the problems of Enron andWorld.com. This will probably happen in financial services too, but in the meantime governments and regulators will have their hands full solving die crisis of confidence and returning liquidity to the system and tire trust to financial institutions.
Markets that are more heavily regulated, such as Spain and Canada, have in some ways, been seen as models to follow in this crisis, while Iceland's model of severe deregulation coupled with a lack of transparency is in disgrace.
Mamun Rashid, head of Citibank NA Bangladesh, says: "The regulatory bodies will no doubt be strengthened further to make sure there are less or no surprises."
"We may also see exemplary penalties for regulatory breaches."
"We will of course see a more balance being driven between Wall Street and the main street with proactive management of the financial institutions,'' Rashid says.
The nationwide revelry accompanying Obama's inauguration is tempered by the monumental tasks he faces. The country's economy invites comparisons to the Great Depression; programmes such as Medicare and Social Security face funding crises; and soaring costs for health care, energy and education have no easy solutions.
Obama asked Americans to "set aside childish things" like political partisanship and adherence to ideology, and adopt a spirit of service.
"For as much as government can do and must do, it is ultimately the faith and determination of the American people upon which this nation relies," he says.
"What is required of us is a new era of responsibility."
Ifty Islam, managing partner of Asian Tiger Capital Partners, expects greater regulation of Wall Street as well as the broader economy.
"Barack Obama has blamed a lack of "adult supervision" in the financial markets for scandals, such as Bernard Madoff's alleged $50 billion fraud, and has pledged urgent reform to beef up policing on Wall Street," he points out.
Part of Obama's speech touches on the
crux of economic growth.
"The success of our economy has always depended not just on the size of our gross domestic product, but on the reach of our prosperity, on the ability to extend opportunity to every willing heart -- not out of charity, but because it is the surest route to our common good."
Ifty Islam thinks a key challenge for Obama will be a co-ordinated economic plan.
"Obama will need to develop cooperation with the other G7 countries plus China to ensure a co-ordinated fiscal and monetary stimulus package given the breadth and global nature of the downturn," Islam says.