Page last updated at 07:22 GMT, Friday, 31 October 2008

Financial crisis: Global round-up

Sarah Bender, MexicoEmma Wallis, ItalyKarishma VaswaniJulia Wheeler, United Arab EmiratesLucy Williamson, IndonesiaJonah Fisher, South AfricaJohn Sudworth, Japan

BBC correspondents reflect on economic confidence levels and fear of crisis from countries around the globe.

Julia Wheeler, UNITED ARAB EMIRATES

Dubai prides itself on its shiny image, something that the city has spent the last decade perfecting and it is not about to let all that hard work go to waste, global recession or not.

So, if anywhere can put a positive spin on economic meltdown, then Dubai will have a good go.

So it was that while the rest of the world waited anxiously for news on bank bailout plans, Dubai announced it would built the world's tallest tower.

Interior of Dubai hotel
Dubai is anxious to preserve its image of opulence, whatever the stocks say

As housing prices were wobbling elsewhere, the huge annual property exhibition reported remaining busy and potential investors were encouraged by a survey saying real estate prices in the Middle East will significantly out perform all other regions.

No-one sensible is now predicting the continuation of the exponential price increases that have been seen in Dubai since it opened its property market to foreigners and there is plenty of anecdotal evidence to suggest a real estate is simply not moving. But there is a belief it remains a decent investment for the long term - not least because rents are extortionate and the increasing number of people who have been moving to the city all need somewhere to live.

The fledgling stock markets in the Gulf are volatile at the best of times and, of course, they have continued to track their more established forerunners throughout this rollercoaster of a month. The increased volatility has shaken some, particularly those new to playing the markets.


Oil prices are down, but Gulf government budgets are based on far more realistic oil prices than those reached in the last year
However, there was increased confidence after strategic measures by regional governments, including the United Arab Emirate's guarantee on bank deposits and Qatar's moves towards supporting its banking system.

Oil prices are down, but Gulf government budgets are based on far more realistic oil prices than those reached in the last year.

People feel relatively protected from the effects of global recession; their governments are holding huge budget surpluses, and this, they feel, will cushion the harsh economic effects many other countries are dreading.

Karishma Vaswani, INDIA

The comforting words of Indian politicians and financial officials - offering reassurance about the stability of the country's economy - are now ringing a little hollow.

The truth of the matter is India has been affected by the liquidity crunch - though arguably not as badly as other parts of the world have been.

Flats in Mumbai
Property prices in Mumbai were once on a par with Manhattan
The downturn in the West now appears to have reached India's shores. The Indian stock market is the most obvious and evident victim of the global credit crunch - having lost over half of its value since the crisis began - billions of dollars of foreign funds were pulled out of Indian shares, as foreign fund managers scrambled to get their books in order.

Concerns are growing here about a global recession and what that might mean for the 300 million strong Indian middle classes.

Many Indian professionals have put their savings into the stock market and into mutual funds over the last few years, tempted by the spectacular returns they saw.

India's property sector has also been bruised. Up until recently, property prices in Mumbai were on par with Manhattan's, boosted by scores of foreign firms coming into the financial capital, looking to set up shop here.

The foreign money also helped to create hundreds of thousands of jobs for India's young middle classes, who could now finally afford to realise their dream of owning their own home.

All that demand for flats and houses caused prices to soar by 40% in some of the big cities in India last year. But now much of that money and demand has evaporated - leaving property developers out in the cold.

Already prices are down some 10-15%, with forecasts of a bigger crash around the corner.

Lucy Williamson, INDONESIA

Indonesia is something of a novel position. In the midst of a global financial crisis, the largest economy in South East Asia is actually doing quite well. For a start, it has 250 million domestic consumers and a lot of its growth is driven by them - not customers abroad.

Secondly, a good deal of its economy - agriculture and services, for example - is not linked to what is happening on Wall Street. And neither are its banks exposed to the crisis in the way those in the major economies are.

A trading screen in Indonesia
Memories of the crash in the late 1990s has left investors in Indonesia jittery
All this means Indonesia's economy is pretty well-insulated from the meltdown in the US. But it is still eyeing the current financial crisis with a good deal of trepidation, and rightly so.

Ingrained nervousness amongst investors here means there does not have to be much wrong for people to start panicking.

Earlier this month there was panic at the stock exchange after some foreign investors began pulling their money back home, some 20% was wiped off share prices in just a few days of trading.

That panic was largely because Indonesia already knows what financial crisis feels like. Ten years ago, foreign money fled this country, and two other so-called "Asian Tigers", as the exchange rate collapsed.

Recovering from that blow has taken many years and billions of dollars from the International Monetary Fund (IMF).

But after ten years of new safeguards and banking reforms, Indonesia is in a more solid position. Its economy is predicted to continue growing at around 6%, and it's the world's major economies that are now facing the brunt of the storm.

Sarah Bender, MEXICO

"If the US economy catches a cold, Mexico catches pneumonia," the saying goes. Money sent from the US by Mexican workers there rank as the country's second largest source of foreign income. But that money has dropped 12%, the Central Bank says, due to a recession in the US construction industry, a heavy user of Mexican labour. Tighter border controls and a US crackdown on illegal immigration have also played a role.

Mexico's stock exchange
The Mexican peso has fallen amid uncertainty on the markets

Despite these concerns, Mexico's President Felipe Calderon is confident that the country will not suffer the ramifications of the credit crunch, and has proposed to spend US$4.4 billion next year (2.5bn; 3.3bn euros) on infrastructure projects.

The labour secretary for the Mexico City government, Benito Miron Lince, has announced plans to support some 30,000 workers who are expected to return to the Mexican capital because of the slowdown in the US. Officials have stated that the current unemployment insurance program, unveiled last autumn, will be broadened. According to Mr Miron Lince, demand for unemployment benefits has rapidly increased during the last few months.

With the wave of migrants heading back, it is becoming increasingly evident that re-adjusting to a country that was once their home is not that simple.

After spending most of their lives in the US, Mexican families barely recognise relatives or their towns. Children in particular are often mocked and discriminated against by their teachers and fellow students when they pronounce their names in an American accent. Many are returning to the same grinding poverty that originally drove them out.

Jonah Fisher, SOUTH AFRICA

With the South African economy having grown steadily for the last decade there was little temptation for banks here to invest in the US sub-prime market. That meant the economy was largely insulated against much of the world's financial turmoil.

"Over the last couple of years it became clear that South African investors were likely to get better returns here than in the overseas market," says Goolam Ballim, the chief economist from Standard Bank. "So, as a consequence, our financial system has stayed stable and secure."

But the Rand is a notoriously volatile currency and, in the last week, it slumped to its lowest levels since 2001 against the US dollar.

When financial crises take place it is often emerging markets such as South Africa which feel the pinch as foreign investors shift their money to safer havens.

For ordinary South Africans the impact of the financial crisis is likely to be higher inflation and unemployment.

While encouraging exports, a weaker Rand means that all imports into South Africa cost more. With the government committed to targeting inflation that could also mean another rise in interest rates from a current benchmark level of 12%. For the many South Africans with loans or credit that is bad news.

Steep falls in commodity prices could also mean redundancies at South Africa's many mines as global demand falls and some production becomes uneconomic. Unemployment rates of over 25% could be set to rise again.

"With commodities like platinum down over 60 percent, lots of projects could be put on ice," says Chris Hart of Investment Solutions. "As that happens we're going to see economic growth take a real hit."

Emma Wallis, ITALY

Italian Prime Minister Silvio Berlusconi says that running a country is like controlling a very big board meeting. The word recession might not be good for the business of politics, but, spun in the right way, the credit crunch could enhance the PM's political power.

Silvio Berlusconi
Silvio Berlusconi is trying to steer Italy away from crisis

The new right-wing government likes to blame the current recession on the previous left-wing coalition. With a different economic system and less borrowing than the UK and the US, Italy should not have been affected as seriously, but its biggest and most international bank, Unicredit, hit troubled waters very quickly, calling for an injection of cash from investors to the tune of nearly $9 billion. It repeatedly stopped trading as its share prices fell too low.

Italians have been voting with their feet, pulling their money out of shares and banks and turning to the post office for savings and bonds. The prime minister has passed laws to inject state money into troubled banks and businesses. The financial crisis allows Silvio Berlusconi to play the role of strong leader. He has stepped in personally to reassure Italian investors, has organised special emergency meetings, and when necessary has turned to rule by decree to get things done quickly.

Mr Berlusconi, Italy's richest man, has seen his poll ratings climb; around 60% of the electorate back him. As if to prove his word is law at the moment, the failing national airline, Alitalia, seems geared up for a new take-off at the beginning of November. That just goes to show that in Mr Berlusconi's Italy, despite the recession, it's business as usual.

John Sudworth, JAPAN

Japan, in theory at least, should have been well set to weather the financial storm, following a home-grown financial crisis that began in the 1990s.

Bailed out by government money, Japanese financial institutions were thought to be in better health than their western counterparts. Instead the country is bracing itself for more economic pain.

Vital export industries have been hit hard by the credit crunch as the American consumer can no longer borrow money to buy things like cars. "We're seeing events that are completely new to everybody, we've never seen economic cycles accelerate like this before", said a Nissan executive.

Some analysts believe Japan may already be in recession. Stock market index boards say it all - the benchmark Nikkei index has lost almost half of its value in just 12 months, with the biggest declines during the past few weeks.

With international lending frozen Japan's banks have also been growing reluctant to lend, contributing to a 30% increase in business failures last month. The central bank has not yet had to underwrite lending or raise deposit guarantees. But it has injected liquidity into the system by the bucket-load and says it will continue to provide as many dollars as the banks need. If the freeze doesn't ease there is speculation that, once again, the banks might need more direct help.

Meanwhile, the Japanese parliament has enacted an 18 billion dollar emergency spending plan to try to stimulate the economy. But there is a strong feeling here that this is a crisis of someone else's making.



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