John Rapley - Foreign Focus PREDICTIONS ARE risky at the best of times; putting them in print is little short of foolhardy. But, as this is New Year's Day, I figured that people's festive moods (or hangovers) will make them overlook my failings. Accordingly, what do I look for in world politics in the year ahead?
The American occupation of Iraq will still prove troublesome. One way or another, the handover of power to some form of Iraqi government will occur next summer, but American influence not to mention its troop presence will remain. This will make the transition difficult.
The continuing American death toll, not to mention the financial cost of the occupation, will weigh heavily on the American presidential election campaign. Nonethe-less, it will probably not derail President George W. Bush's re-election. This is because the Democrats will tear themselves apart in their nomination campaign, producing a weakened candidate with a limited resource base. I expect the Clintonites will eventually crush the candidacy of Howard Dean. In the process, however, they will alienate much of the party's base, just as happened in 2004. The Republicans, meanwhile, will hold together and thereby squeak back into the White House.
WEAK US ECONOMY
The rebounding economy will further support the re-election of President Bush. The federal government's fiscal stimulus package, and the Federal Reserve Board's ultra-loose monetary policy, will keep the stock and real estate markets afloat. Employment will pick up, and incomes will rise.
Storm clouds will begin gathering on the horizon, though. The U.S. dollar will continue declining, and could even go into free fall. Ultimately, this will drive up inflation. Rising inflation will push up interest rates. Eventually, the stock market once again over-inflated will burst. Things will probably not begin to unravel before the November elections. After that, though, all bets are off.
If and when the American stock-market tanks, a global financial crisis could well take place. Even before then, however, a declining U.S. dollar is likely to cause disruptions to global trade. As U.S. imports decline, fragile economic recoveries in Europe and Japan may be jeopardised. Over the short-term, central banks may be tempted to loosen their money supplies in order to rein in the dollar's decline. This, in turn, would cause a short-term bounce in their economies. Indeed, it is looking like 2004 will be a good year for the world economy.
GOOD TIMES SHORT
But the good times may not last. Premature loosening of money supplies by central banks may aggravate inflationary pressures that are already present. In that light, a country that merits careful observation this year is China. Underpinning its astounding economic boom is a fragile and over-exposed financial sector. It could be tipped over by a financial crisis, bringing the economy crashing down. The Chinese central bank will struggle to keep its currency from rising in value, but the contest may sorely test its resources.
Global investors are thus likely to continue their shift into gold, precious metals and commodities. Oil prices will probably remain high. India may even overtake China's place as the golden boy of Asian economies. Its growth rate will probably remain lower than China's, but its long-term prospects may begin to look brighter.
MIDDLE EAST TENSIONS
In the Middle East, tensions between Israel and Palestine will continue without let. Israel will continue building its controversial security fence, paying lip-service to the peace process while doing little to support it. But the government of Ariel Sharon will in the process grow increasingly fragile, both at home and abroad. Saudi Arabia will remain tense. So too will Pakistan. In Africa, Zimbabwe will continue to bedevil the Commonwealth, not to mention the African Union. Meanwhile, Russia's President Vladimir Putin will coast to an easy election victory and further solidify his hold on power.
There is a good chance that a major terrorist attack possibly on the scale of 9/11, possibly on U.S. soil will take place. In this event, cancel all the above predictions; save that gold will continue rising and the U.S. Democrats will continue fighting.
After finishing this column, please turn the page and forget what I said. I don't want anybody holding my predictions against me in another year's time! And to you all, may the New Year begin with hope and optimism.
John Rapley is a senior lecturer in the Department of Government, UWI, Mona.
