SINGAPORE: From a request by US President George W. Bush for US$75bil in emergency funding to the postponement by South Korea of a US$1bil bond, governments around the world are starting to count the cost of the war in Iraq.
As early market euphoria over a swift victory faded, an Australian central bank board member said yesterday the US led-war to oust Iraqi President Saddam Hussein could sap the strength of the global economy for years to come.
Warwick McKibbin said the war was amplifying uncertainty that had been dampening confidence for months. In the worst case, he said, it could reduce world growth by 0.75 percentage point a year for three years.
“This war shock – particularly the oil shocks and the shocks to global equity markets and the wealth effects from that – has put this negative impulse into the world economy for a number of years,” he said in Sydney.
US light crude oil prices rose 35 cents to US$29.01 a barrel, while most Asian share markets took their cue from a 3.6% drop in the Dow Jones Industrial Average and slithered lower.
Tokyo’s benchmark Nikkei stock market average fell 2.33% to 8,238.76 despite steps by the Bank of Japan (BoJ) to cushion banks from the fallout of the war on Iraq.
In its first policy action under new governor Toshihiko Fukui, the BoJ said it would increase its purchases of shares held by commercial banks to three trillion yen (US$24.85bil), from two trillion, in what analysts saw as an attempt to minimise the banks’ losses on their equity portfolios when they close their books at the end of the financial year on March 31.
The BoJ also said it would provide as much cash as needed to keep the Iraq war from destabilising the banking system.
“The Bank of Japan is closely monitoring how the military action will affect the economy, especially through stock and foreign exchange markets, and stands ready to make every effort including the additional provision of liquidity to ensure financial market stability,” the bank said in a statement.
The ripples of the conflict also washed over South Korea, which postponed indefinitely a plan to issue US$1bil in 10-year bonds because of unfavourable market conditions. The proceeds would have paid off a bond falling due next month.
“We find it difficult to proceed with the issue as planned. Instead, we will use foreign exchange reserves to pay back the maturing debt on April 15,” a finance ministry official said.
And in the Philippines, where war jitters have compounded worries about the country’s huge public debt, investors forced the government’s borrowing costs sharply higher.
The average interest at an auction of five-year bonds jumped to 12.162% from 10.677%, meaning the government would have to earmark extra money for debt-servicing that could otherwise have gone to improve hospitals and schools.
The US is footing the war bills more directly.
Bush told lawmakers on Monday that he urgently needed US$75bil to pay for the military campaign in Iraq and to reward key allies supporting the war effort, officials said.
A senior administration official said the funding should cover all costs over the next six months, but acknowledged that “there’s so much we don’t know.” – Reuters