Financial Times

Gulf crisis - confide in the public

Wanted: A think tank comprising representatives from the Labour Ministry, Foreign Employment Bureau (SLFEB), migrant worker associations and recruitment agencies that goes into action whenever a crisis occurs in the Gulf!

The Gulf represents a major segment of Sri Lanka's foreign exchange earnings and employment potential. Apart from remittances that is the country's number one foreign exchange earner, the Gulf also accounts for the bulk of tea sales from low grown tea smallholders who are struggling to cope with declining sales.

The World Bank last week said such tea workers who are daily wage earners are likely to fall into the bracket of those living below the poverty line index and subject to social protection schemes. Remittances, tea earnings and tourism have all been affected by the Gulf crisis, though there are expectations that with US forces in control of much of Iraq, the situation may improve in coming weeks.

Nevertheless what is lacking is a coherent Sri Lanka policy on the Gulf given its powerful connections to the Sri Lankan economy. There should have been regular, at least weekly government briefings to the media to keep the public informed on steps being taken to protect its workers as the war unfolded in Iraq.

In fact, international agencies like the World Bank and the International Organisation for Migration (IOM) have for the past year been discussing what should be done in the event war broke out in Iraq. What about Colombo? A month before US troops invaded Iraq, Labour Minister Mahinda Samarasinghe was quoted as saying that contingency plans have been prepared to protect Sri Lankan workers but he believed the US was unlikely to attack Iraq. Women's Affairs Minister Amara Piyaseeli Ratnayake, when asked why her ministry is not involved in the issue, was reported to have said that the Foreign and Labour Ministries were taking care of the problem. That's how the Women's Ministry reacted to a crisis which has affected the lives and future of some 700,000 female migrant workers and their families - that's 2.8 million or about 15 percent of Sri Lanka's population!

The inadequacies in the crisis management measures enforced by the state during this crisis came out very clearly at a hurried discussion called last week to discuss the crisis facing migrant workers and their future. Organised by the Action Network for Migrants (ACTFORM), a local migrant workers network, and the local office of the American Centre for International Labour Solidarity (ACILS), there were contradictory positions taken by migrant worker associations, the SLFEB and employment agencies. While migrant worker associations cited overseas workers as saying that they were unaware of any measures taken to ensure their protection and that there was a fall in the number of workers flying to the Gulf, government officials said workers had been informed of the setting up of welfare centres in Kuwait and other cities through leaflets. Employment agencies said many people were still flying to the Gulf.

Migrant worker groups who have close links to former and current migrant workers were unsure of the number of welfare centres and whether they were run by Sri Lankan embassies or those respective governments. The clear message that came out at this meeting is the lack of public information and knowledge about the government's contingency plans or whether there is even one.

It was also surprising if not unfortunate that ministers from labour-sending countries in Asia who met in Colombo two weeks back to discuss migrant worker issues failed to devote a special session on the immediate crisis in Iraq and its aftermath. Although the agenda for the meeting was prepared months in advance, given the importance of the Gulf crisis one would have expected the Sri Lankan government - at least as the host - to push for a discussion on this issue.

It goes to prove that when it comes to crisis management, Sri Lanka is far behind from the rest of the world. It is still not too late to appoint a permanent think tank to discuss the evolving Gulf situation given the fact that a new political leadership is expected to emerge there which could impact on migration patterns and economic ties.

US economy-case for optimism over Gulf

By Justin Fox
A fog of fear and uncertainty has settled over the U.S. economy. Stocks have been tanking, consumers have stopped spending, and businesses have put their plans on hold. High oil prices are pounding an already devastated airline industry and sure aren't helping SUV-addicted automakers. It is, of course, tough to see through fog, which is why much of what passes for economic forecasting these days amounts to guessing about how a war with Iraq will turn out. If all goes better than expected (Iraqis dance in the streets waving American flags: oil gushes from Iraqi wells: Jacques Chirac begs for forgiveness), the economy will come roaring back, we're told. If it goes far worse (the war is bloody and prolonged; Saudi oilfields are destroyed; Chirac starts outpolling George Bush in Texas), Get ready for an ugly global slump.

All this may be true, but it's not helpful. We don't know exactly how things will shake out in the Middle East that, along with the ever-present fear of new terrorist attacks on U.S. soil, is why everyone's so skittish. But what's not in doubt is that once the fighting starts, the U.S. and its allies will prevail. Then we'll be back to dealing with a few fundamental economic trends that, considered together, provide a basis for guarded optimism.

Before we go any further, let's define optimism. It doesn't mean Cisco selling for $80 a share by July-or even $40. It doesn't mean $100,000-a-year jobs for everybody who graduates from college this spring. It doesn't mean 4% or 5% economic growth-at-least not yet. What it means is another year sort of like last year, when gross domestic product grew 2.4%. That means another year during which the job market doesn't get a whole lot better, but also doesn't collapse. It means another year during which promises of a strong economic rebound are postponed, but so are fears of a double-dip recession. Another year, that is, that will stump the doomsayers even while it fails to inspire us to party like it's 1999.

The greatest variable in this picture is the price of oil. It's probably headed down soon, which will give the economy a boost. That's not a sure bet, of course. But let's assume we avoid a recession-inducing oil price spike. Here's what we've got: Consumers who are getting tired but still have money to spend, businesses that have money to spend but are wary about spending it, and a federal government that's deep in debt but is spending like crazy.

First let's consider America's consumers, whose activities account for 70% of GDP. That they will stop spending is a perennial worry that has perennially failed to come true. What kept it from coming true last year were ultra-low mortgage rates. The rates aren't going much lower. In fact, they'll probably go up, regardless of what happens in Iraq. And while a slight uptick in mortgage rates shouldn't kill the housing market, it will certainly halt the refinancing boom that put $150 billion (1.4% of GDP) into American pockets last year. But here's the good news: The boom continued through the first quarter of 2003, generating another $65 billion to $70 billion in cash, estimates Henry Willmore, chief U.S. economist at Barclays Capital.

There's no guarantee consumers will spend all of that, though. These days they face a world in which wages are barely rising, household net worth has dropped for three years in a row (thank the stock market for that), and debt levels are at an all-time high relative to income. That last fact isn't quite as dire as it sounds: Because interest rates are so low, the share of income eaten up by debt payments has actually been declining slightly. But after relying on the booming stock market to take care of them in the 1990s, Americans do need to start saving again. Sure enough, the savings rate bottomed out in 2001 at 2.3% and had reached 4.3% by January. It may be headed back - the 7% to 10% range that prevailed before the 1990s. That's a healthy development for the long run, but right now it means consumers will be hard-pressed to match last year's 3.1% growth in spending.

But consumer spending won't plummet. Even in the oil-stock year of 1974, it dropped only 0.8%. People still need to buy food and gas and the occasional flat-screen TV. Then there's the tax factor. State and local levies are rising, but the President's tax plan-which should win new friends in Congress once Saddam is dispatched -- would give Americans an extra $100 billion to spend or save in the second half of the year.

Business spending meanwhile, has been such a drag on the economy over the past two years that it can be counted as a positive for 2003 even if it just stays flat. Capital spending by business dropped 5.7% in 2002 and 5.2% the year before-the worst two-year decline since World War II. All the data were pointing to a capital decline since World War II. All the data were pointing to a capital-spending recovery until war-related uncertainty put spending plans on hold in February. Once that uncertainty is lifted, even if the war doesn't go all that well, spending should resume. Businesses have the money: For all scandals and grumbling, 2002 was one of the most profitable years ever for corporate America-and that's based on what companies told the taxman, not investors. While households' net worth dropped last year, that of non-financial businesses actually went up. True, margins are slimmer and profits aren't rising, which is why Wall Street remains so grumpy. A return to the massive technology spending of the late 1990s is not in the cards. But neither is another 5% drop.

Which brings us to the Feds, who are spending like it's going out of style. After declining in real terms for much of the 1990s, federal outlays were up 7.5% in 2002. The Congressional Budget Office is forecasting a 5.5% rise this year, and that seems conservative. True, spending money that the government doesn't have isn't great long-term economic medicine, but for now it's certainly boosting GDP.

Put all that together, and what you get is an U.S. economy that won't exactly burn rubber but will grow a lot faster than Japan's or the European Union's. That's because both labour productivity and population are growing much faster in the U.S. than in the world's other two major economies. This sounds like something to cheer about, but slow growth abroad is in fact the biggest negative in our economic scenario. If things don't start getting better soon in Japan, they might get disastrously worse. And Europe's sclerosis is making it extra hard for the U.S. to shake its own funk. The European Union is the largest foreign market for the things U.S. companies sell. In the early 1990s, with Europe in relatively robust economic health, U.S. exports rose sharply right through a recession. This time around Europe's economy is at a near standstill (the EU's GDP grew just 0.8% in 2002). Largely as a result, U.S. exports were down 5.4% in 2001 and 1.5% in 2002. And while the dollar is down almost 25% against the Euro since mid-2201, making U.S. products much cheaper in Europe, signs of an export rebound remain elusive.

So if exports aren't growing and U.S. consumers aren't spending much, it could be hard for corporate America to do more than tread water. As long as that's the case, the kind of aggressive hiring and business spending needed to get the economy really moving again will be postponed.

We're not saying that day will never come. At some point there has to be a payoff for the huge productivity gains corporate America has wrested from its workers (and its computers) over the past few years.

In the meantime, we'll muddle through. That might not sound so great to you. But by the standards of the pre-bubble economy, it isn't bad. After all, most economists would have sworn on a stack of Bibles a decade ago that a 5.8% unemployment rate (what we've got today) signaled an economy in danger of overheating. (Fortune, March 31)

Water supplies revived in Basra

The war may do less damage to Iraq's water supply than sanctions did. Dirty water has killed vastly more Iraqi civilians than stray bombs and bullets.

Engineers from the International Committee for the Red Cross have just helped to restart supplies in Basra - home to more than a million people - after an interruption of three days. But Iraqis have been dying in large numbers for years because of the long-term effects of economic sanctions on the water-supply infrastructure. When sanctions were introduced in 1990, they were imposed on an economy that had been weakened by the Iran-Iraq war, then torn apart by the first Gulf war.

Richard Garfield, a professor of public health at Columbia University, New York, says that after that first conflict with America and its allies, Baghdad was without a proper water supply for eight months.

There was an outbreak of cholera. "Nobody cared, and the world turned away," he says.

Sanctions caused serious additional damage to Iraq's water and sewerage infrastructure, as well as to the electricity-supply network that is crucial for pumping water across most of Iraq's flat landscape. Calculating the number of deaths caused by sanctions is both difficult and controversial, but Garfield suggests that lack of infrastructure killed 20-40 people for every Iraqi who died during the first Gulf war.

Typhoid, as well as cholera, has reappeared; and that is no surprise. Around 500,000 tonnes of raw sewage are discharged every day into Iraq's rivers. In many unserved rural areas, people still fetch water for drinking and mix it with infant formula to feed their babies. Only one in three Iraqi women breast-feed her baby in the first six months of life.

Whatever the precise figures, it is clear that Iraq has suffered a public-health disaster. And the root of the problem is simple. For the first five years of sanctions, Iraq was unable to import any of the parts needed to repair its water-supply system.
Even after the oil-for-food programme started, it took another three or four years to replace damaged equipment because much of the gear could not be imported. Once the equipment started arriving, the main problem was people, says Garfield. Iraq's water authority now has only half of the 10,000 staff it needs, and most of these are inexperienced. Engineers who could do so have either left the country or taken jobs that pay more such as driving a taxi.

Despite the care that the allies say they are taking, the water-supply infrastructure in Baghdad and other towns is now at risk again. This time, at least, there will be no need for sanctions when the fighting is done.
- (Economist)

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