President Obama signed the bill on Tuesday to raise the national debt ceiling by a further 2.4 trillion USD. It ended an agonising debate on whether to raise the ceiling or let America default. In theory, the 2.4 trillion USD addition to the national debt puts the United States Government on a tight rope and its economy on tender hooks.
With the dollar weakening against the Yen and threatening Japanese exports, the Central Bank of Japan intervened to sell its yen and strengthen its currency. Added to the woes, Italy is on the brink of a default and possible bailout while Portugal and Spain are gasping for some financial oxygen before their economies get snuffed out. Again, the euro zone regime is on a cliff’s edge. Uncertainty seems to be the only constant. Wars, revolutions, protests and famine in Somalia seem to take back-stage in the minds of anxious people everywhere.
Managing Uncertainties is taught at the Harvards of this world as a complex science. CEOs pay massive amounts to sit during weekend workshops on Managing Uncertainties which involve analysis of internal and external environments that affect businesses and nations, and highly fine-tuned futuristic modelling, strategic plans and innovations. For multinational corporations and big funds, sensitivity to adverse changes and developments are often high, and sometimes destructive. Understanding what lies ahead and forward-planning are therefore vital for the survival of corporations and of nations.
For smaller and emerging nations, striving diligently to catch up with the growth and lifestyles of developed countries, the impact of fall-outs in developed nations are heavy and agonising. More so because smaller and emerging nations, while being part of the global economy, do not have the levers of political or economic power to play any part in the making of decisions which affect them. The level of uncertainty for these nations is much higher. The means at their disposal to grapple with uncertainties are weak and limited.
I spent some weeks in Pyongyang in North Korea some 10 years ago. Here is a country which is totally secluded from the rest of world, economically, socially, politically and even culturally. It is so completely de-linked with global developments that the US Government or any government defaulting on its loan would hardly make news except for kindling the old anti-imperialist, anti-west propaganda. But across the border in China, which some 25 years ago was also a very secluded and inward looking nation, the rise and fall of the US dollar will have severe repercussions. And if you fly into Hong Kong where every man and woman closely watches and punts on the stock market, as if stock markets are more reliable than the roulette tables in Macao next door, any uncertainty in the global markets drives people to near frenzy and animated discussions.
Emerging nations are now compelled to take stock of the globalised world, re-think their own fiscal and monetary policies, their economic development strategies, their investments, their debt levels and borrowing modalities in order to ensure that weakening economies in the West do not bring about a total and catastrophic destruction of their wealth and their lives.
In emerging economies, one constant is the high density of poverty, both seen and unseen, although much of poverty is shrouded by the veil of dignity with which people bear them, day in and day out. In re-thinking and planning real economies in emerging nations, a key assumption is that it is the people themselves, in cities and in the villages, who will require a full understanding and appreciation of the strategic development goals set out by their leaders, that it is the people of each nation who will need to plough the land, sow the seeds and harvest the corn. Whatever economic and development models have been expounded – from Maynard Keynes to Lee Kwan Yew, from Karl Marx to Mohammad Yunus – the basic strategy must focus on developing native intelligence, talent, capacities, entrepreneurship and providing men and women the funds and finance to pursue their own initiatives for growth.
Micro-financing small and medium businesses have been hailed as a key to grassroots development in emerging markets. There are brilliant success stories of small business expansion, employment and productivity growth. Currently some 27 billion USD have been given out as microfinance loans across some 100 countries, although a Deutsche Bank report suggested that the real need is for some 250 billion USD. I would suggest that real need is at 10% of the global GDP. Microfinance, often offered with no collateral or a weak collateral, is about banking with the unbanked poor, of moving some of the idle wealth across to productive forces to reduce poverty and elevate people and give them ownership of their lives.
In managing uncertainties in emerging nations, it may perhaps be a brilliant solution to lay the foundations for rural economic prosperity which will insulate its people against global financial economic tremors and tsunamis. Financing rural and city entrepreneurship initiatives, micro, small and medium businesses, educating people on their own survival and growth strategies need not be left merely to NGOs and other social groups. They need to be built in as the core platform for economic rejuvenation and growth for any emerging nation which intends to withstand any global turbulence in the market place. Micro-financing real economies across all nations, both developed and emerging, may perhaps be the next major economic model for managing uncertainties.