Containing the Contagion
The debacle in the global credit market now threatens to undermine capitalism. Banks are failing; stock markets are in tailspin, with the main U.S. bourse losing about 20 percent during the first week of October; investors are in a state of panic; job losses are mounting.
Companies unable to get credit are turning to the government for help. Laissez-faireism is out, Keynesianism is in. The only parallel between then and now is the Great Depression, when the U.S. government intervened in the market. The aim then, as now, was to restore flagging confidence in the financial market to run itself. Liquidity is now lacking because investor confidence is at rock bottom. Tight credit is pushing businesses to close as their stock prices plunge.
Africa and Caribbean capital markets proved resilient and were insulated from the global meltdown in September. In fact, they benefited from the turmoil in the U.S. and European markets initially, as investors sought safer havens in commodities and in the emerging markets.
Not anymore. These emerging markets began to succumb in early October as the crisis dragged on, forcing foreign investors to take profits. Analysts say the African and Caribbean markets, which typically have not been dependent on cheap credit to operate, are likely to take a bigger hit if the problem continues.
South Africa’s main stock index fell nearly 10 percent during the first week of October, while the Ugandan index was down a whopping 16 percent after a long period of relative growth. The Egyptian main stock index also fell 3 percent, as did Kenyan index.
Caribbean stock exchanges also dropped slightly over the past several weeks. The biggest drop occurred on the Trinidad and Tobago bourse, where the index was down nearly 5 percent during the first week of October. All of the region’s other major stock exchanges, however, registered a decline of less than one percentage point. Bermuda was down by 0.90 percent while Jamaica declined a mere 0.83 percent. The Bahamas registered a 0.15 percent decline, while Barbados registered a 0.2 percent decline.