Ali Ettefagh at PostGlobal

Ali Ettefagh

Tehran, Iran

Dr. Ali Ettefagh serves as a director of Highmore Global Corporation, an investment company in emerging markets of Eastern Europe, CIS, and the Middle East. He is the co-author of several books on trade conflict, resolution of international trade disputes, conflicts in letters of credit, trade-related banking transactions, sovereign debt, arbitration and dispute resolutions and publications specific to the oil and gas, communication, aviation and finance sectors. Dr. Ettefagh is a member of the executive committee and the board of directors of The Development Foundation, an advisor to the United Nations High Commission for Refugees, and an advisor to a number of European companies. Dr. Ettefagh speaks Persian (Farsi), English, German, French, Spanish, Italian, Arabic and Turkish. Close.

Ali Ettefagh

Tehran, Iran

Dr. Ali Ettefagh serves as a director of Highmore Global Corporation, an investment company in emerging markets of Eastern Europe, CIS, and the Middle East. more »

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U.S. Will Learn Recession's Lessons

The "recession" whose reality and outlines we see today is just the beginning of a decade-long test period that shall strip bare elements of raw, unregulated and highly leveraged Anglo-American markets crossed with short-term, destructive decisions. The highly interconnected global economy is now a force and a trend with its own downward momentum -- and America is both the primer and leader of it.

Those in the less leveraged EU will revise their assumptions on the spread of risks in trans-national markets and tighten controls, definitions and, if necessary, flows of capital. Other notable economies (Russia, China, Brazil and India) will reverse plans to discard the assured social safety net of socialism and may well label reduced state intervention as a bad experiment.

Americans will be busy with concurrent revisit of FDR’s New Deal, Johnson’s Great Society and a series of trial-and-error tools and means to put out the fire, de-leverage their finances and reinvent economic performance.

One ought not to be worried about Europe, including Eastern Europe, the Middle East or many parts of southeast Asia, as these regions are realists and used to cycles of boom and bust. The memories of tea and foreign currency rationing, nationalization of Leyland car factories and Newcastle coal mines (in Britain, circa 1970s), and deep bankruptcy and stark readjustments (in Eastern Europe, circa 1990s) have not faded. It took decades to re-train and return many to work from heavy industry, steel mills and shipyards to fast food, coffee franchises, the odd car parts plants and computers.

Other “emerging” states such as Turkey or Argentina are serial boom-and-bust markets with predictable five to six year cycles and relatively shallow capitalization of financial markets. In Turkey, for example, the stock market index has traded in an oscillation range of 1.5 to 3.5 U.S. cents equivalent for the last 25 years. Brazil, Argentina, Mexico, Chile, South Africa, the Asian “tigers” of Korea, Malaysia, Indonesia, Thailand and the Philippines all have similar five to seven year cycles.

This means the locals, where less than 15% of the population invest in shares or borrow from banks (except credit cards), are used to reruns of the same scenario. Cycles of rapid evaporation in locally available debt have never proven to be a precursor of instability where, quite interestingly, rapid rise of food and fuel prices in spring of 2008 led to protests and food riots against the governments. So, these countries will return to what they did before: borrow, subsidize and keep the consumer happy.

Also, the monetary catalyst required to re-float these “emerging” economies are relatively paltry sums of about $25-30 billion in IMF loans. So, the sum that kept AIG in America afloat could keep four to six of these countries jaunty and busy with their 25 year old riddle of “emerging” markets. Alas, and despite steady growth and development, none have “emerged” or managed to leap to the next category.

Such realistic presumptions and truth of cycles are also fresh in the mind of the local population in single-commodity, oil producing Middle East that form other parts of the Third World Club.

There are two distinct groups here: the states with low population and high financial reserves (Saudi Arabia, Kuwait, UAE and Qatar) and the ones with larger population (Iran, Iraq, Yemen). Those flush with extra cash (such as Saudi Arabia, Kuwait and Qatar) are wondering about the devaluation of their overseas assets and investments. They are set on investing at home and regionally, especially in Saudi Arabia, as they politely refused to fund the troubles of other countries during the November G-20 meeting.

The Iranian economy has turned the corner in many aspects and has reduced some, but not all, of its challenges. It is now self-sufficient in production, or net exporter, of much of its import requirements (when compared with some 20 years ago). Since March 2008, the Iranian rial has devalued by a mere 5% against the dollar while the Turkish lira (a regional country of roughly same sized economy and comparable GDP, population and age, and interest rates) has dropped more than 38%.

Iraq is and shall remain a special case to be observed, especially after American troops leave the streets.

Perhaps the most destabilizing, unpredictable elements in this Global Age remain in the minds of North Americans and their leaders -- be they ordinary citizens, CEOs, bankers or politicians. Instability seen in Somalia, Iraq or Pakistan, it is not. But the sum and substance of short-term programs, emotional reactions to volatile economic convulsions mixed with experimental but conflicting “policies” (done in good faith and belief) illustrate that Americans are still in a state of disbelief that, somehow, they are not the exception.

American statesmen continue to simplify it all and merely kick the can down the road with an iffy "BBB" cure all -- bankruptcy, bailout or bust. But it is no longer a temporary and seasonal occurrence that can go away with yet another bout of borrowing (in chunks of about trillion dollars, or 7% of GDP).

The auto sector cries for immediate cash injections, but none demand change of management, reformulating and refocusing the businesses, or ask workers to take shares in part payment for wages! Do they not believe in their own work product, or their own economy?

The most destabilizing and corrosive agent is the tendency to dismiss need for a long period of transformation. The Weimar Republic of Germany, Britain of 1960s and 1970s, France in late 1970s and all of 1980s, Japan since the 1990s and the stubborn USSR similarly postponed accepting such truth. Their subsequent adjustments took at least a decade or longer as all resisted in hopes that the “good old” days would not come back.

It turned out fooling oneself and others to believe the contrary was the most destabilizing factor. American business and political leaders ought to realize that they are overwhelmed by a state of disbelief in the most stunning economic “readjustment” since the implosion of the USSR. As such, a decade-long era of reinvention in politics, stable economics, finance, consumption, employment and reasoned international affairs is inevitable.

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