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21.10.2008 General News

Statement on the World Financial Crisis by

By The Statesman

Over  the past few weeks, a crisis of cataclysmic proportions has hit the world economy.

From New York to London through Paris and Frankfurt, from Tokyo to Seoul, Sydney to Toronto, the most powerful economies that have sustained the world over the past century have found themselves tottering on the brink of collapse, while once rock-solid banks, upon which these economies have been built, are now in danger of bankruptcy.

This unprecedented development may be seen as the end-game in a crisis that has been festering since the dramatic spikes in the price of food and petroleum threw the economies of most developing countries off course.

Although a series of positive, thoughtful interventions by the NPP government has helped us weather the storm here in Ghana better than most other African countries, there can be little doubt that these external problems may well put some damper on our outstanding achievements.

The upsurge of this new and more ferocious crisis at a time when we are managing to cope with the effects of the food and fuel price increases must, therefore, give real cause for concern.

So far, we have been assured that the economies of Africa, like Ghana, will not suffer the same effect as those of the developed economies, as well as those of emerging markets more closely entwined in the global economic system.

For me, however, we should derive scant comfort from the conventional wisdom; for, although we are unlikely to see our banks endangered by the effects of reckless lending and horrendous speculation, there are many ways in which the ripple effects of the crisis will be felt from next year.

As we all know, onward remittances from our compatriots in the diaspora have become an important part of our economy, providing a lifeline for many Ghanaian families and contributing to the regeneration and growth of our towns and cities.

States, the United Kingdom, Germany and the rest of the developed economies arising from the crisis is bound to hit at our countrymen and women too, leading to a probable decline in their remittances.

The effect on parents, children and siblings, who have come to depend upon this lifeline for their education and upkeep, cannot be under-estimated.

Beside this crucial lifeline, there are three key areas in which we are bound to be affected.

The United States, United Kingdom, Germany are  our major trading partners, providing us not only our established markets,  but also some of our target markets as we embark upon our programme of industrialisation.

If these economies fall into deep recession, it is bound to lead to a decline in trade to our detriment.

Moreover, given the evidence of history that commodity prices decline in periods of economic downturn in the developed world, there must be a real danger of a decline in the prices of commodities that are critical to Ghana's survival.

Furthermore, it is only realistic to assume that investment capital will be more difficult to obtain at a time when our development needs are greatest.

The programme of the next NPP government to transform structurally the Ghanaian economy and modernise our society will be no doubt fuelled by access to financial credit.

Already access to credit for the private sector has increased by nearly 1,000% over the last 7 ½ years under the NPP. Ghana's banking sector has witnessed significant growth and competition, with banks today chasing after their clients to offer them car loans, furniture loans, etc.

If we are to modernise our society, then we need to improve radically access to affordable housing for the majority of our people.

If we are to create a property owning democracy, then we need rapidly to grow and expand a vibrant, sustainable mortgage culture here in Ghana. Our banks are, over the last few years, increasingly making mortgage loans an essential part of their portfolios.

The challenges in the developed world today present us with an opportunity to ensure our fledging mortgage and credit regime in general takes lessons from the recklessness of the global mortgage market.

We should, thus, be determined to build here in Ghana the kind of responsible credit culture that can also secure our necessary push from the third world to the first.

Against this background, 1 consider it imperative that anyone seeking the mandate of the people should be fully alive to the challenges emerging from this unprecedented crisis and be equipped with the combination of ideas and the appropriate contacts capable of responding positively and effectively to those challenges.

Last Friday, I paid a visit to the Ghana Stock Exchange to see the great work they are doing there and to exchange ideas with them on the challenges ahead.

 It has been particularly inspiring that throughout the calamities of the past few weeks, when the great and the good were collapsing from New York to London and Tokyo and everywhere else, the Ghana Stock Exchange was one of the few to remain in positive territory.

1 think it in the national interest that the achievements of the Ghana Stock Exchange and its potential should be widely publicised for those investors abroad who may be seeking alternative destinations for their investment funds.

1 have also initiated contacts with some key players on the Ghanaian landscape, including those with commitments on the radar, for the purpose of reassuring ourselves about the prospects for the future.

1 do this in recognition of the fact that, more than ever before, confidence is going to be a decisive factor for investment decisions going forward for countries like ourselves.

The world will be looking for leadership that is not only in tune with the challenges of the moment, but also has the credibility and experience to deliver.

Finally, 1 wish to announce that 1 am bringing together an Expert Panel, to do three things: first,  to maintain liaison with the Stock Exchange, the Financial Services and other institutions representing the business community, to monitor the emerging challenges; secondly, to review as wide a range of policy options as may be appropriate for consideration in the coming years; and lastly, to fashion an appropriate input in the inevitable dialogue on the world economic system in the aftermath of the crisis.

Four reasons dictate this course of action.

It is obvious that some fundamental changes are needed in the global economic system following the collapse of the major economies and the failure of its institutions to protect them.

An international conference is now firmly on the cards to explore new ideas for a brave new economic order.

This opens the way for a dialogue that will have to take account of the special challenges of the developing world. Obviously, no one expects this to be achieved in an instant.

The dialogue will go on into next year and beyond.

It is important that we place ourselves in a position to be full participants in this dialogue next year and beyond and the time to start focusing and thinking new thoughts is now.

Secondly, the country needs re-assurance of a proactive leadership in these critical times. We cannot sit down and wait to be overwhelmed by problems; rather, we need to be proactive in anticipating and responding appropriately and in due time to challenges as they loom on the horizon.

Thirdly, our party in government has established a solid track record in the management of our economy, moving it from HIPC status to a frontier emerging market country that has issued a sovereign bond on the international capital markets.

The strong economic fundamentals established have ensured the resilience of the economy in the face of a major oil price shock up to $147 per barrel in 2007/8, which stands in stark contrast to how the economy virtually collapsed after a small oil price hike ($36 per barrel) in 1999 / 2000.

The gravity of the crisis facing the world reinforces the need for Ghanaians not to gamble our future away, but rather remain faithful to the credibility and good sense that has seen our country on the steady road to future prosperity.

1 will remind the nation that at the height of the world food and fuel price hikes, the NDC Minority Party stated that we could have done better by engaging in hedging on the petroleum market.

Today, the world knows that it is the irresponsible indulgence in hedging and speculation that have combined to bring the entire world economy to its knees. Ghana cannot risk entrusting its economy to those who will gamble away its future.

Fourthly, an appropriate Ghanaian response will be immeasurably enhanced and strengthened if it is delivered within the fulcrum of our regional and continental institutions.

The urgency of the crisis requires that our regional and continental agencies, ECOWAS and AU, take upon themselves the immediate and daunting task of coordinating Africa"s collective response in defence of the interests of the African peoples.

The other regions and continents of the world are so acting. ECOWAS and AU Ministers of Finance should meet now to begin to outline our common response.

We cannot afford this time to be passive bystanders or mere observers of history. We must shed our status of perennial victims.

 This crisis presents us with a great opportunity to help shape the new world that will emerge from it. We must seize the time.

Thank you and may God bless us all.

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