US President George W. Bush (right), speaks to top brass during
a visit to the Pentagon yesterday. Standing by Bush are Deputy Secretary of Defence
Paul Wolfowitz (left) and Secretary of Defence Donald Rumsfeld. Bush made the
visit to discuss his request to Congress for nearly US$75 billion to fund the
war in Iraq. - Reuters
SINGAPORE, (Reuters):
FROM A request by US President George W. Bush for US$75 billion in emergency funding to the postponement by South Korea of a US$1 billion bond, governments around the world yesterday counted the cost of the war on Iraq.
As early market euphoria over a swift victory faded, an Australian central bank board member said 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 points 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 have put this negative impulse into the world economy for a number of years," McKibbin told Reuters in Sydney.
US light crude oil prices rose 35 cents to $29.01 a barrel, while most Asian share markets took their cue from a 3.6 per cent drop in the Dow Jones industrial average and slithered lower.
Tokyo's benchmark Nikkei stock market average fell 2.33 per cent to 8,238.76 despite steps by the Bank of Japan to cushion banks from the fallout of the war on Iraq.
The central bank said it would increase its purchases of shares from commercial banks to three trillion yen ($24.85 billion) from two trillion in what analysts saw as an attempt to minimise 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.
RIPPLES OF WAR
The ripples of the conflict also washed over South Korea, which postponed indefinitely a plan to issue $1 billion 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," Choi Jong-goo, a finance ministry official, told Reuters.
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 per cent from 10.677 per cent, meaning the government will have to earmark extra money for debt-servicing that could otherwise have gone to improve hospitals and schools.
The United States is footing the war bills more directly.
President Bush told lawmakers on Monday he urgently needed $75 billion 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, "There's so much we don't know."
The Pentagon said on Monday US forces had advanced more than 200 miles (320 km) into Iraq and were beginning to confront a division of the Republican Guards deployed to defend Baghdad.
But reports from the front said US troops were facing stiff resistance, ratcheting up investors' worries of a drawn-out conflict.
"The forecast of a short war was more of an equivalent to a buying recommendation on Enron," said John Stuermer, head of global high-yield bond research at Bear Sterns in Hong Kong.
"We certainly hope for a short war from a humanitarian's point of view, but as an investment assumption itself... it's a very poor investment assumption," Stuermer said.
