The War and the Global Economic Crisis
by Fidel Castro
The following is the transcript of the televised presentation by Fidel Castro, President of Cuba, on the present international situation, the economic and world crisis, and its impact on Cuba. The presentation was made in Havana, Cuba, on November 2, 2001. The official translation comes from the Cuban Mission to the United Nations, New York, NY, Nov. 2, 2001.
My fellow countrymen:
At the opening of the Social Workers Training School in Santiago de Cuba on October 24, I said that in the coming days I would speak about the international economic situation and how it could affect our country, which was carrying out an unprecedented social development program as it gradually recovered from the special period. I do not want to put that discussion off any longer.
To characterize the current situation, one could say, by way of a very brief summary, that in the mid-1990s, when globalization was extending around the planet, the United States, as the absolute master of the international financial institutions and through its immense political, military and technological strength, achieved the most spectacular accumulation of wealth and power ever seen in history.
But the world and capitalist society were entering into an entirely new phase. Only an insignificant part of economic operations were related to world production and trade. Every day three trillion dollars were involved in speculative operations including currencies and stocks. Stock prices on U.S. exchanges were rising like foam, often with no relation whatsoever to the actual profits and revenues of companies. A number of myths were created: there would never be another crisis; the system could regulate itself, because it had created the mechanisms needed to advance and grow unimpeded. The creation of purely imaginary wealth reached such an extent that there were cases of stocks whose value increased 800 times in a period of only eight years, with an initial investment of 1000 dollars. It was like an enormous balloon that could inflate to infinity.
As this virtual wealth was created it was invested, spent and wasted. Historical experience was completely ignored. The worlds population had quadrupled in only 100 years. There were billions of human beings who neither participated in nor enjoyed this wealth in any way whatsoever. They supplied raw materials and cheap labor, but did not consume and could not be consumers. They did not constitute a market, nor the almost infinite sea fed by the immense river of products that flowed, in the midst of fierce competition, from factories that were ever more productive and created ever fewer jobs, based in a privileged and highly limited group of industrialized countries.
An elementary analysis was sufficient to comprehend that this situation was unsustainable.
Nobody seemed to realize that any apparently insignificant occurrence in the economy of one region of the world could shake the entire structure of the world economy.
The architects, specialists and administrators of the new international economic order, economists and politicians, look on as their fantasy falls to pieces, yet they barely understand that they have lost control of events. Other forces are in control now: on the one hand, those of the large and increasingly powerful and independent transnationals and, on the other, the stubborn realities waiting for the world to truly change.
In July of 1997, the first major crisis of the globalized, neoliberal world erupts. The tigers fall to pieces. Japan has still not managed to recover, and the world continues to suffer the consequences.
In August of 1998 comes the so-called Russian crisis. Despite this countrys insignificant contribution to the worldwide gross domestic product, barely 2%, the stock markets of the United States were badly shaken, dropping by hundreds of points in a matter of hours.
In January of 1999, only five months later, the Brazilian crisis breaks out.
An all-out joint effort by the G-7, IMF and World Bank was needed to prevent the crisis from spreading throughout South America and dealing a devastating blow to the U. S. stock markets.
This time, the inevitable has happened: the crisis began in the United States, almost imperceptibly at first. Beginning in mid-2000, the first symptoms began to be observed, with a sustained decrease in the rate of industrial production.
In March of that year, the so-called high-tech NASDAQ index had already begun to drop.
At the same time, the trade deficit showed an enormous growth, from 264.9 billion dollars in 1999 to 368.4 billion in 2000.
In the second quarter of the year 2000, the gross domestic product registered growth of 5.7%; in the third quarter, it grew by only 1.3%.
Industrial sector production began to fall in October of 2000.
Nevertheless, at the end of the year 2000, opinions on the prospects and forecasts for the world economy were still rather optimistic. But reality soon reared its ugly head.
Since the beginning of 2001, the IMF, the World Bank, the Organization for Economic Cooperation and Development (OECD) and the European Commission, along with private institutions, have been obliged to downwardly adjust their growth predictions in the various regions of the world for 2001.
In May, the IMF forecast 3.2% worldwide growth in 2001. For the United States in particular, projected growth was 1.5%, and 2.4% for the eurozone. Japan was facing its fourth recession in 10 years, leading to a prediction of 0.5% negative growth for the same year.
IMF Managing Director Horst Kohler, during a speech to the United Nations Economic and Social Council (ECOSOC) in Geneva, on July 16, 2001, stated, Growth is slowing throughout the world. This may be uncomfortable for the advanced economies (the developed and wealthy countries), but it will be a further source of hardship for many emerging markets and developing countries (the poor and underdeveloped countries), and a real setback in the fight against world poverty.
Production has dropped in the majority of the Southeast Asian countries, with the exception of China, and in Latin America, too. According to the World Bank, growth in Southeast Asia, which had begun to recover after its dramatic fall in 1997, would decline from 7.6% in 2000 to 4.5% this year, while Latin Americas growth would be around 2%, one half of the growth registered in 2000.
Other institutions also made predictions. The Economist magazine estimated in April that world growth in 2001 would be only 2.7%, in contrast to the 4.6% growth registered in the year 2000, while world trade would grow by 3.5%, compared to the 13.4% growth in 2000.
With regard to the eurozone, the OECD, in its quarterly report issued in early May of 2001, estimated that the European Union would experience growth of 2.6%, a figure 0.5% lower than its initial projection.
On September 10, just one day before the events in New York and Washington, the IMF analyzed the evolution of growth predictions for the world economy and for the economies of the United States, Europe and Japan. Its findings were as follows:
A progressive fall from 4.2 to 2.7 in less than a year.
More of the same, from 3.2 to 1.5 over the same time period.
The numbers speak for themselves.
Without exception, the three major centers of the world economy saw their growth rates fall simultaneously, dropping to less than half of initial figures over the course of less than a year. In the case of Japan in particular, growth dropped to almost zero.
The employment situation:
At the end of the year 2000, the unemployment rate in the United States was only 3.9%. What happened in the year 2001?
Although official statistics are not yet available, it is estimated that unemployment has now reached 5.1%, a rate that had not been registered in the United States for many years.
Today, November 2, after this material had been drafted, the official figure was released: it is 5.4%. In just one month, 415 thousand jobs were lost.
The increase of the unemployment rate is irrefutable evidence of the deterioration that the U.S. economy had been suffering prior to the terrorist attacks.
It should be kept in mind, as an important precedent, that over the last 50 years, when the unemployment rate has reached 5.1%, this has coincided with the beginning of a recession.
In August, industrial production fell by 0.6% as compared to July. Over the previous 12 months, industrial production had shrunk by around 5%. August was the 11th consecutive month of economic contraction.
The figure registered in August is very close to the lowest level reached since 1983.
Also registered in the month of August of 2001 was a budget deficit of 80 billion dollars.
That same month, Democratic members of Congress were already pointing that predictions indicated that the government would have to use Social Security money to finance current expenditures.
During the second quarter of 2001, U.S. imports shrank by 13.9 billion dollars, while the low level of trade activity in the rest of the world led to a 9.1 billion-dollar reduction in exports.
Stock values on the main indexes have suffered the following decreases in 2001:
This means the loss of trillions of dollars in less than a year.
The Federal Reserve has lowered interest rates nine times in 2001. The goal in doing so is to lower the cost of money, boost consumer confidence and thus promote economic activity. This frantic frequency clearly reflects desperation.
Industrial production in the European region experienced a sustained decline in the first quarter of the year 2001 that obliged companies to reduce staff, and this, in turn, reduced consumption, thus creating a vicious downward circle.
Investment and consumption are depressed, aggravating the trend towards recession.
The European Commissioner for Monetary Affairs has stated that the European economy will grow by only 1.5% this year. Meanwhile, the six most prestigious economic research institutes in Germany have predicted that their countrys economy will grow by 0.7% this year and 1.3% next year, and announced that the German economy is on the verge of a recession. This will have a strong negative impact on the rest of Europe, given that Germany is considered the regions economic motor.
Japans real gross domestic product in the first quarter of the year 2001 dropped more dramatically than expected, with a decrease of 0.2% as compared to predictions of 0.1%, followed by an additional 0.8% drop in the second quarter.
The decrease in industrial production that began in March reached 11.7% by August. This phenomenon of six consecutive months of decline in industrial production has not been witnessed in the Japanese economy since the period from December of 1991 to May of 1992, and it places industrial production at the lowest level of the last seven years. This means an even worse crisis than the financial crisis of 1997-1998, according to Japanese analysts.
Japans trade surplus decreased 48% in July of this year.
As a defensive measure, companies are cutting staff, leading to a rise in the unemployment rate, which reached an all-time high of 5% in August of this year, something never before seen in Japan.
In August, the Economic Commission for Latin America and the Caribbean (ECLAC) reported that the regions economy would grow by only 2% in 2001, a mere half of the growth registered the previous year (4%). In so doing, it retracted its prior prediction, made in May, forecasting a GDP growth of between 2.7% and 3%.
According to ECLAC, this is the result of the worldwide economic weakening and instability in a number of the regions key countries: Peru and Uruguay will experience no growth; Brazil has been affected by a scarcity of fuel supplies, which has hit its productive activity, and by an almost 40% devaluation of its currency this year; and Chiles economic reactivation has come to a halt. In the case of Mexico, a feeble economic growth of 0.13% is predicted for this year, and 1.74% for 2002. The government had originally forecast 4.5% growth in the gross domestic product for 2001, but it has downscaled that figure a number of times due to the slowdown in the world economy, and particularly that of the United States.
ECLAC estimates that unemployment in the region will reach at least 8.5%.
There are people who calmly speak today about the world economic crisis caused by the terrorist attacks that took place in the United States on September 11 and by the war against Afghanistan initiated on October 7. Such statements are completely baseless. What I have just outlined irrefutably proves this. The crisis was already breaking out, uncontrollably.
Every week I receive a bulletin with the most important economic news gathered from the most prestigious and reliable public sources of information, or statements made by specialists and political leaders. I remember in particular the bulletin I received on September 8, 2001, exactly three days before the terrible tragedy in New York. It had been many years since I had read so much bad news about the prospects for the international economy in just one bulletin.
Curiosity led me to look it over once again. I have chosen a number of reports from it, which read as follows:
Hitachi Ltd., Japans biggest manufacturer of electronic products, announced that it will cut 14,700 jobs this year, or 4% of its staff, while preparing for a loss of over a billion dollars caused by the collapse of the high-tech sector.
Rival Japanese conglomerates Toshiba Corp., NEC Corp. and Fujitsu Ltd. have also announced that they plan to cut thousands of jobs. (CNN, 31/08/2001)
The president of the United States Federal Reserve said that the rise in housing prices, at the same time that the stock market has collapsed, is making it difficult for the central bank to diagnose the state of the countrys economy. This divergence could have significant implications for the countrys economic growth, he declared. (The Wall Street Journal, 31/08/2001)
The U.S. Federal Reserve has warned in its latest report to the countrys banking institutions that they have not reinforced their risk management systems to the extent demanded by the economic slowdown facing the international economy. (Spanish newspaper Cinco Días, 31/08/2001)
The European Commission admitted yesterday that the prediction for economic growth in the eurozone this year will be less than 2.5%. The monetary affairs commissioner, Pedro Solbes, who even noted that Brussels has some doubts about this figure, acknowledged this. The drop in rates by a quarter of a point, announced last week by the president of the European Central Bank (ECB), was accompanied by an explicit acknowledgement of an error in calculation. What we have underestimated is how long and severe the slowdown has turned out to be in the United States,Duisenberg said. If I may say so, we, and also the United States authorities, have tended to be too optimistic regarding the duration and depth of the slowdown, he said, recalling the opinions of Treasury Secretary Paul ONeill.
The ECBs orientation difficulties are contained in this brief analysis, which comes a bit late after the gradual reduction from the 3.2% growth in the eurozone predicted in January to the 2% estimated in recent days. (Spanish newspaper Cinco Días, 31/08/2001)
The president of the United States acknowledged his concern over the persistent decline in U.S. economic activity and its repercussions on the labor market. I am aware of the problems being faced today by the families of workers affected by the economic crisis, but I am convinced that the economy will get back on its feet, he declared before a meeting of trade union groups.
With the economy on the brink of a recession, the president tried to convince U.S. workers that he was aware of their situation and that he is doing something to remedy it. The matter is complicated, given that the weakening of consumer confidence, the decline in financial markets and the lukewarm growth of the major world power have placed economic affairs at the top of the presidents agenda.(Spanish newspaper Expansión, 04/09/2001)
Note that President Bush, who is not very partial to these subjects, made these declarations one week before September 11.