Dollar yielded to everybody

Emzar Jgerenaia

Doha round finally passed away owing to crisis. World Trade Organization is sinking in the marshes of protectionism disputes, instead of opening up the markets.

Every country is seeking the way out of crisis on its own. The first thing done by the countries was the revival of protectionism at the markets and dumping deployment. China appeared to be in the worst situation. By now, it escaped economic slump by provoking domestic market and financing domestic consumption.
Thinese economy was advancing at the expense of exporting; though now these importer countries are fiercely resisting to China. Together with USA, Europe is becoming another pain in the neck for China. Europe imposed 5-year antidumping tax on aluminum foil and seamless steel pipes. Tax rate imposed on pipes made up 39.2% and 30% for aluminum foil. The same tax has been imposed on aluminum foil imported from Brazil – the tax rate is 17.65%. Despite the fact that Big Twenty member countries every time promise each other not to use protectionism elements, they still increased tax rates on steel wires, high capacity cables, screws and other products imported from China. This process was continuing in the course of 2008Y (source: World Trade Organization). Seventy one investigations were carried out in the WTO concerning dumping against Chinese production. China was conducting investigations against 13 countries due to grounded doubts. India 53 times and Brazil 23 times have accused and disclosed other trade partners mainly China, in dumping. This means that Doha Round agreement never will be fulfilled in the World Trade Organization, it has been finally buried. WTO that is considered as a child of continental Europe is developing into bureau of constant complaints. Unprecedented boom of protectionism is noticed at world markets and among its main players; main principle here is – all is fair in love and war. Leaders are the countries with nondemocratic governing, for instance China and Russia. It appears in the outline that countries with large population and nondemocratic government are oppressing the small countries with the population less than 10 million and impeding their development. One of clear examples of this is our neighbor Turkey. It is fills Georgian and Azerbaijani markets with low quality products and what is more important with dumping prices. Moreover, Turkey is trying to destroy business in these countries. At the same time, Turkey is making some attempts to replace Russia with political influence in this region. It is doubtless that Turkey betrayed Azerbaijani concerns by starting negotiations with Armenia. Turkey acts as a superpower – so what? – strategic concerns are most important. It appears that USA plans to eradicate two hundred years of Russia’s predomination in the region by strengthening Turkey’s positions. This process is running at the expense of reviving new dominant empire, Turkey. Azerbaijan and Georgia are concerned with such development of events as decisions are made behind their backs and against their interests. Not to speak of impudent statement made by Armenian president declaring that Armenian language should be acknowledged as the official language in Georgia, economic interests of these countries suffer from such situation. However, this is not a matter of concern for big countries. Experts reckon that this is a first chance for the Euro Union. It tries to weaken Russia’s positions in the region at Turkey’s expense and hereby strengthen the European Union.
In 20th edition of Azerbaijani magazine “Region Plus”, editor is speaking of failure of Azerbaijani diplomacy: “Turkey was the main ally in the conflict of Mountainous Karabagh. There is nothing new in the fact that quite often the key point of Azerbaijani foreign policy was relevant to Turkey’s demands. The time has come to free Azerbaijani – to change reference point and ally, as Turkey made no changes or progress in settling the conflict”. This is a serious declaration, if considering governmental roots of Region Plus. One should assume that this is government’s new position. Turkey is severely criticized in Azerbaijan and people do not believe in prime-minister’s promise not to ratify Turkish-Swiss agreement signed on October 10, before settlement of Mountainous Karabagh conflict. Similar promise was given by this high-ranking authority of Turkey in May, but these were just empty promises. Azerbaijan reckons that Turkey started to change its attitude already two years and Azerbaijan is not a first-priority for it anymore.
The Financial Time announces: “By mending ties, Turkey stands to gain influence in the Caucasus, smooth its path to EU membership (The EU is declaring that Croatia is readier for membership that Turkey, remark: “Economy of Georgia”) – and lessen the perennial threat of US legislators recognising Ottoman massacres of up to 1.5m Armenians in 1915 as genocide.
So far, Azerbaijan feels defeated. I guess, in order to win Azerbaijan’s favor, Turkey together with Europe, USA and its new ambassador (well-known Mathew Braiza) in Azerbaijan, will have to make new, serious offer to the country.
Azerbaijan started to look towards Russia, after October events. Both alternatives of how the events might develop are dangerous for Georgia. First, if Azerbaijan receives actual offers this would imply settlement of the conflict and in return laying the pipeline on Armenian territory. Such development of events is beneficial for the West, but it is disadvantageous for Georgia. Second, if Russia helps Azerbaijan, then oil and gas stream will be delivered to Novorossiysk bypassing Georgia. Georgia is facing serious problem and it’s obvious that the government needs more active diplomatic policy. Conflict settlement is very good, but not at the expense of Georgia. Why Armenian president ventures to be improper towards Georgia? Or why Europe is betraying Georgia’s economic and political interests?
Baku has become a diplomatic arena on Oct 21-22. Swiss president, Hans Rudolph Mertz visited Baku and held a meeting with Ilham Aliev. Talks were about Europe’s energy security. Ilham Aliev made a promise to support “South Corridor” project (Source: “Baku Post”, Oct 22, 2009). BISEC countries’ ministers of foreign affairs have met in Baku, Hotel “Haiat”. Armenian party participated in the meeting. However, they traveled through Tbilisi and with Azerbaijani airlines. Deputy Minister, Mr. Davit Jalaghonia presented Georgian party. Meeting of the ministers of foreign affairs of Caspian Sea countries has been held on Oct 22, against the above mentioned Western forum. At this time, Iran was participating in the meeting. The meeting was initiated by Russia; the country emphasized its partnership with Azerbaijan by this. On contrary to previous meeting, Iran was invited to participate also. It should be noted that this meeting was of pure political character and famous dispute over measure off Caspian Sea has not been discussed.
The role of Georgia’s big ally, the USA is quite strange. Can it be true that USA has reconciled with the fact that Georgia was second quality country and disadvantageous project? It might be that US is concerned with own problems in the country’s economy and future of Dollar?!
The time to worry about Dollar has come. Journalist, Robert Fisk1, announces “Dollar’s decease” in his article published in “The Independent”. He emphasizes that Persian Gulf countries are mobilizing new reserve currency in 2018, so that oil prices were not calculated in USD.
Following countries are the members of GCC (Gulf Cooperation Council) – Cathari, Kuwait, Bahrain, the Sultanate of Oman, and United Emirates of Arabia. At the same time, other countries like China, France, and Russia are interested in the new currency. Author is making long-term assumptions based on Chinese sources and writes that Middle East oil might become foundation of the new economic confrontation between the USA and China and develop into the war for gaining title of superpower. Obviously, authors of the new idea are taking measures by mobilizing a new currency. Everything depends on who wins the war of superpowers? What kind of new world order and new world currency we might have? Indebtedness in Dollar, rate of reserves in it and constant losses due to cheapened USD makes everybody to think of dethroning its highness Dollar. Concerns of Arabians and Chinese are common in this case. The volume of international reserves is $7.2 trillion. $2.1 trillion is from Arabian countries, and $2.3 trillion from China. 80% of World Currency Reserves is in USD (Source: Federal Reserve System and International Monetary Fund). Both countries are major trade partners for USA. Federal Debt of the United States made up $11.86 trillion in Oct-2009. Barack Obama’s Administration managed to revive US economy by 12.5% fall of USD. For the first time over the recent period, Dow Jones index exceeded historical barrier – 10 000 points.
Famous economist, Alan Greenspan declared that fall of national currency of the United States creates no serious dangers for the US economy. “I am not worried by recent depreciation of USD” – declared former head of Federal Reserve System, “If you remember, in the beginning of crisis, the value of USD considerably increased as everybody considered it “Reliable Shelter”. We are returning to pre-crisis condition now” – noted Mr. Greenspan.
The financier reckons that actual danger for the United States is increasing foreign debt that right now amounts $11.9 trillion. Reason of such increase of foreign debt is budget deficit that devaluates national currency and raises the value of foreign debt. By the time, when government will not manage to service the debt, Dollar might lose its function of the world currency, reckons Greenspan.
Everything in USA happens at the expense of losses suffered by Arabians, Chinese and Europeans. Each of them demands strengthening of Dollar.
In response, the US Secretary of the Treasury declares: “We understand importance of strong USD in an international economy”. Actually, over October month Dollar weakened againstevery currency and yielded to everybody like a demimondaine, thus ensuring big benefit for the country’s economy.
Main Macroeconomic tendencies in the United States and Europe:
The United States
According to the report of the US Labour Ministry, consumer prices in USA have increased 0.2% by Oct-19-2009. In comparison with the same period of the last year, the US consumer prices are decreased by 1.3%. The prices of imported goods and services increased by 0.1%, analytics were anticipating 0.2% growth. At the same time, the price of the US export decreased by 0.3%, while only 0.1% reduction was expected.
According to the data of the US Ministry of Trade, retail sales have decreased by 1.5% within the same period compared with the previous month and amounted $334.69 billion.
Euro Zone
According to the data of Eurostat consumer prices have decreased by 0.3% in Oct-19-2009. Balance of trade deficit made up €4 billion, trade deficit of the same period of the last year was €11.3 billion. Wholesale prices within the same period reduced by 0.2% compared with previous month, though analytics were anticipating increase of the rate. Consumer prices in Oct-19-2009 state, reduced by 0.2% in France. Deficit of current account have increased by 2.5 times and amounted €3.7 billion. The volume of export in France has decreased by €31.147 billion within the mentioned period, while the same index in July was €31.534 billion.
Revival of European economy will be long-term and difficult process. The president of the EU Central Bank, Mr. Jean-Claude Triche already warned public against this. He declared that overcoming of recession in Europe’s economy “would be full of unpleasant events”. Triche is sure that EURO countries will have nothing to boast about this year either. Stage by stage growth of the economy after stabilization phase will be anticipated in the next year.
Statistics shows that inflation pressure in the Euro Zone countries is decreasing over four months. This is connected with reduction of energy carrier prices and jobs. Under the conditions of crisis, in order to maintain competitiveness, European entrepreneurs were induced to decrease the prices of manufactured products; as a result, consumer prices were reduced also. Thus, consumer prices in Euro Zone are reduced by 0.3% by the state of Oct-19-2009.
Jean-Claude Triche reckons that by the time when Europe’s economy starts reviving, the pressure of inflation becomes harder. Analytics of the EU Central Bank, forecast that inflation will be 0.4% this year and 1.2% next year. Monetary Government of Europe intends to maintain inflation rate at 2%. Majority of European companies note that situation might be especially grave for the companies that calculate the price of their products in Euro. Naturally, attractiveness of European production is fading due to growth of Euro exchange rate against USD. The price of Euro against USD has increased by 15% over the last seven months. Jean-Claude Triche reckons that the US monetary government should think of strengthening Dollar. Triche suggests – there are serious threats that strengthening of Euro considerably impedes revival of the region’s economy2.
While analysing political and economic developments of the world, one can assume that oil and gold prices maintain their high rate to the end of this year as the Dollar’s exchange rate will fall against all currencies. The way out of crisis will be tiresome and long lasting. Nobody knows when all this will come to the end and what will be the new rules of the game. Our concern is Georgia’s place in everything. Let’s recall George Soros’s words, from his well-known book – “New Paradigms of Financial Market” – “I am sure that old has come to the end, but I really have no idea how the new looks like”.