If the world, as we knew it changed after September 11, 2001 ? will it remain the same after March 20, 2003 when America rendered the United Nations irrelevant and embarked on one of the most criticised military actions in decades?
The American view of the post-war world does not dwell on any backlash from nations that have criticised its action or the reaction people across the world who demonstrated against the war. As the world?s only super-power, it is convinced that the end of war will trigger an economic revival in the United States (US) and give it control over the second largest oil reserves in the world. And America indeed needs an economic revival ? consumer confidence is at its lowest in a decade and public deficit has increased steadily to become a serious cause for concern.
But investors and analysts around the world are unclear about the cost of this war and whether the world economic order will remain the same. International Monetary Fund director general, Horst Koehler, told a Spanish daily: ?A war, however long it lasts, will complicate the economic situation in the US and increase the uncertainty hanging over the world economy?. The US Congressional Budget Office (CBO) says that according to government reckoning ?the overall direct cost (of war) should not exceed $ 100 bn? but ?analysts have warned that a prolonged conflict or occupation of Iraq could easily end up costing far more?. CBO warned that war spending could turn a $ 891 bn cumulative budget surplus for 2004-2013 into a deficit of $ 1.82 trillion.
Most of the debate revolves around whether or not world money would remain in America. In the words of a popular and respected e-newsletter, The Daily Reckoning: ?The thing that unites both supporters of Bush?s war and its opponents is dollars. Both sides have them. Twenty three percent of U.S. corporate bonds are held overseas…13% of equities and 35% of treasuries. There are also trillions worth of U.S. cash in central bank vaults, merchants? registers and individuals? piggy banks all over the world?.
The question is whether victory against Saddam would inspire countries to hold more US dollars or to move their money out of America. That would depend on several issues. Will the end of war make the world, especially America a safer place?
In the build up to the war, some countries had begun to move money away from America and an expensive and prolonged war could drive money away from it even faster and dent its superpower status. But the cost of war would depend a lot on its duration.
The New York Times said last week that the Bush administration remains ?about as transparent as a stealth bomber in specifying the likely price? of war. But there are plenty of estimates and they differ widely. Forbes Magazine says the war could cost $ 100 billion with another $ 20 billion required every year to rebuild a destroyed Iraq.
The Economist says that estimates of the eventual cost of war could vary from ?$ 50 billion to several hundred billions of dollars?. It quotes an analysis saying, ?the cost may be as much as 2 per cent of American GDP for the next decade, and will have to paid through government borrowing?.
Forbes Magazine again points out that apart from the cost of war and reconstruction, the 34 countries that supported American aggression against Iraq would be certain to seek their pound of flesh. All of them demand significantly enhanced aid, some of which was definitely promised in return for their support. But ironically enough, some of those nations opposed to the US action may also continue to get American aid (Russia is an example); at the same time the so-called coalition partners are unlikely to bring out their own chequebooks to fund the post-war rebuilding effort.
In terms of the economic impact of the war, The Economist said a couple of weeks ago, that ?if the capital inflows (into the United States) only shrink, as opposed to turning into outflows, the dollar could plummet. In fact, it has already fallen by more than 10 per cent on a trade-weighted basis in the past year?. Going by the experience of the early 1970s, it says, a cheaper dollar would boost American exports, but could add to the world economy?s problems, and might not do much to promote American growth?.
Oil will remain a big issue in assessing the impact of war. A lot depends on whether America manages to overthrow Saddam Hussein and grab hold of Iraq?s oil wells intact. If it does get the wells and releases oil to the world market, then prices could drop significantly. This will provide immense relief to oil importing countries such as China, India, Japan, Korea and Thailand, but will not necessarily help America. However, if the oil fields are destroyed during the war, world oil prices would increase and that would have a disastrous impact on the entire world economy including the US.
The other big imponderable is what America?s defiant stand would do to the major world trade agreements. Already in America, France?s opposition to the war had led to jingoistic demands to boycott French wine, cheese and military products. The internet was flooded with jokes about whether Americans saying no to French wine and cheese would say no to French fries and French kisses too.
Various surveys suggest that people normally do not link their consumption habits with geo-political protests, but could this war be different? It is probably the first time that world opinion has been so polarised against American aggression. And the protests are just starting to happen. Organisations such as http://www.corpwatch.com are putting out investigative reports showing how companies such as Halliburton ? former employer of Vice President Dick Cheney ? stand to make almost a billion dollars by providing supplies and building tents for American troops in the war. They plan to educate people about corporate war mongering within the US itself and hold protests across America.
After last Thursday, the nations and the people who protested against the war are slowly grouping together to plan a variety of actions against the US attacks. Even in countries that supported the so-called American led ?coalition?, large sections of people had opposed their government and held public protests against the war. Their boycott of American products may lend an entirely unexpected dimension to the cost of a modern war.
Writer?s e-mail: suchetadalal@yahoo.com