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US Financial Turmoil Could Adversely Affect Africa, Experts Say

 

Financial experts say the financial crisis in the United States is expected to adversely affect most African countries. A top US investment company, Lehman Brothers, filed for bankruptcy protection Monday, sending shock waves through local and international financial markets.

In a conference call Monday, Sebastian Mallaby and Benn Steil, senior economists at the Council on Foreign Relations, said the impact of the U.S. financial crisis will be hard on Africa's emerging markets.

Steil said he thinks they will be hit particularly hard…. “You are seeing a flight to safety. You are seeing investors in Europe and the United States retrenching capital…. Those falling commodities prices are obviously not going to help at all.”

Mallaby agreed: "It seems to me that…African economies as well as other emerging economies around the world have been feeling the effects of the ups and downs of finance in the U.S. and other developed market. So, at the time when commodity prices were high, mobile global capital flowed into Africa and pushed asset prices up, and that made capital cheap…and fueled growth. And now,” he said, “you are seeing something of the opposite cycle, as commodity prices come down and that effect goes into reverse."

The economist said the current financial crisis is generating comparisons to problems faced by emerging economies in the past.

Steil noted that some countries in other parts of the world probably can weather the financial shock “much better than they might have in the 1990s. I'm thinking in the European context of countries like Greece and Portugal and Slovenia, that have adopted the Euro as a currency and internationally traded currency. So, their current account deficits are no longer of concern to the markets. In the case of Central America, interestingly enough, I think El Salvador and Ecuador are somewhat protected from international turmoil by the fact that they no longer have domestic vulnerable currencies and are using the dollar as their currency."

Some analysts, including Mallaby and Steil, praised Treasury Secretary Henry Paulson for refusing to use U.S. taxpayers' money to bail out Lehman Brothers. They say more stringent regulations are needed in the financial market. Mallaby explained the perspective of the two economists: "What we try to bring, which is a little bit different to other people who comment on this crisis, is that we are looking at the Council for Foreign Relations, the interplay between international financial issues and US power, US policy.”Financial experts say the financial crisis in the United States is expected to adversely affect most African countries. A top US investment company, Lehman Brothers, filed for bankruptcy protection Monday, sending shockwaves through local and international financial markets. In a conference call Monday, Sebastian Mallaby and Benn Steil, senior economists at the Council on Foreign Relations, said the impact of the U.S. financial crisis will be hard on Africa's emerging markets. Steil said he thinks they will be hit particularly hard…. “You are seeing a flight to safety. You are seeing investors in Europe and the United States retrenching capital…. Those falling commodities prices are obviously not going to help at all.”

Mallaby agreed: "It seems to me that…African economies as well as other emerging economies around the world have been feeling the effects of the ups and downs of finance in the U.S. and other developed market. So, at the time when commodity prices were high, mobile global capital flowed into Africa and pushed asset prices up, and that made capital cheap…and fueled growth. And now,” he said, “you are seeing something of the opposite cycle, as commodity prices come down and that effect goes into reverse."

The economist said the current financial crisis is generating comparisons to problems faced by emerging economies in the past.

Steil noted that some countries in other parts of the world probably can weather the financial shock “much better than they might have in the 1990s. I'm thinking in the European context of countries like Greece and Portugal and Slovenia, that have adopted the Euro as a currency and internationally traded currency. So, their current account deficits are no longer of concern to the markets. In the case of Central America, interestingly enough, I think El Salvador and Ecuador are somewhat protected from international turmoil by the fact that they no longer have domestic vulnerable currencies and are using the dollar as their currency."

Some analysts, including Mallaby and Steil, praised Treasury Secretary Henry Paulson for refusing to use U.S. taxpayers' money to bail out Lehman Brothers. They say more stringent regulations are needed in the financial market.

Mallaby explained the perspective of the two economists: "What we try to bring, which is a little bit different to other people who comment on this crisis, is that we are looking at the Council for Foreign Relations, the interplay between international financial issues and US power, US policy.”


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