BRIDGETOWN, Barbados, Thursday October 3, 2013 – There will be a lot of rubbish in Washington over the next few days. And, that rubbish is not only the garbage that is steadily piling up in the nation’s capital because of the government’s shut down. It is also the quality of the Republican Party’s argument for refusing to pass a Budget that would allow the federal government to provide goods and services to the public.
While the Republicans have obstructed Budgets before – notably in late 1995 and early 1996 when Bill Clinton was President – there is more than a little racism toward this first non-White American President by the right wing Tea Party element even though they have not dared to say so.
The Republican intent in refusing to adopt the government’s budget is to sabotage the Affordable Care Act – President Obama’s health programme that would give coverage to all – that has been labelled “Obamacare”. Incidentally, there have already been over 30 attempts to stop it.
What the Republicans are doing is nothing short of blackmail – in more ways than one. So far, President Obama has stood-up to it. But, this battle looks as if it will persist, bringing hardship to many and even threats to the security of the country.
Those issues have been well detailed in the international media and no purpose would be served by rehearsing them here. It is with the international impact that this commentary is concerned.
The impact of the government shutdown on the US economy, which is still the world’s largest economy, will be felt worldwide. For instance, with over 800,000 federal government workers not being paid and hundreds of contracts to the private sector not being honoured, there will be fewer people thinking of holidays and this will affect tourism, including to Caribbean destinations that rely heavily on US tourists.
Caribbean countries will also suffer from a decline in remittances from many of their migrants who either work directly for the federal government or are employed by private firms that provide services for the government.
Official development assistance from the US to developing countries is also now suspended until a budget is passed and government spending can resume.
A great part of the world, therefore, has a keen interest in the high-stakes poker game being played out between President Obama and the Democratic Party on the one-hand and the Republicans pressured by their right-wing Tea Party faction on the other.
The government shutdown is one issue but the more serious problem is raising America’s debt ceiling from its current level of $16.7 trillion. By October 17, the US Congress must raise the debt ceiling or the US will default on payments of its debts. The mere prospect of such a default has already adversely affected the global stock market. An actual default would bring into question whether the US dollar should be retained as the world’s main reserve currency and it would certainly compromise its value.
Sir Ronald SandersMany countries – including the majority in the Caribbean – have tied the exchange rate of their currencies to the US dollar. Therefore, if the value of the US dollar declines in the wake of a default on debt repayment, there will be an automatic devaluation of those currencies that are tied to the US. If countries have debts or trading arrangements that are denominated in other currencies, say the Chinese Yuan, the size of their payments will rise in equivalence to the decline in value of the US dollar. At the end of September, the Yuan’s value was up against the dollar for nine consecutive weeks.
For some small countries – particularly those in the Caribbean that are already highly indebted – this development will increase their debt burden and gravely challenge their capacity to avoid default themselves.
The truth of the matter is that these fights in Washington are presented as disputes over the budget and the debt ceiling but they are really about next year’s mid-term elections. The Republicans are determined to weaken President Obama and to lay the blame for the government shutdown squarely at his feet in the hope that the electorate will vote against the Democratic Party. If the Republicans can also force Obama to abandon his signature health care Act, they will claim a massive victory and a major humiliation of a President whose face they have long wanted to grind into the dust.
On the two previous occasions (this is the third year in a row) when the debate over raising the debt ceiling has raged, it was President Obama who made concessions. This is obviously seen as a sign of weakness by his Republican opponents who will push him to the wall again over raising the debt ceiling even if the budget issue is resolved by October 17.
In all this, the Republicans have done the United States no good. Within America, government services have halted, hundreds of thousands are living lives of uncertainty with no pay packet, and there is widespread dissatisfaction and frustration. From outside, the US governmental system looks dysfunctional and weak. Its reputation as a model to be adopted is now fractured and confidence in its global leadership has been severely undermined. No one in the US has gained from the antics of Republican Party representatives in Congress, not even the far-right Tea Party who can claim no benefit for America.
Dysfunctional government occurs elsewhere in the world including in the Caribbean but, for the most part, the countries involved are too inconsequential to impact the global economy. Not so with the United States which, however the present debacle unfolds, must now understand that the same prescription they give to others to reduce their debt applies equally to them. If they fail to do so, the irresponsible dysfunction of their system will continue year after year.
In the meantime, other governments should take every precaution to safeguard their countries from the extremes to which the Republican Party appears ready to go – even to the point of using weapons of mass financial destruction within their own borders.
The opinions expressed in this commentary are solely those of Sir Ronald Sanders. Sir Ronald Sanders is a Consultant and former Caribbean diplomat.