"Presidency of Trump has added a lot of uncertainty to economic outlook for US'"
Azeri.Today's exclusive interview with Martin Neil Baily, former chief economic advisor for US ex-president Bill Clinton, former chiarman of White House Committee of Economic Advisors.
- What will happen to US economy under Trump?
- The Presidency of Donald Trump has added a lot of uncertainty to the economic outlook for the United States. First, the good things: Trump has energized the business community. They feel that, as a businessman himself he understands their issues and challenges and is determined to encourage investment and growth. He has promised business tax cuts, easier regulation, and including tax breaks for private infrastructure projects, or public-private partnerships.
The uncertainty arises because of his erratic statements on policy, his support for trade barriers, the restrictions on immigration, and his heavy-handed handling of foreign relations.
- Which economic sectors do you think Trump will develop in the first place?
- I would expect commercial real estate to do well, the defence industry, and infrastructure. Health care may come under stress as the Affordable Care Act is rolled back. He has talked about negotiating for lower drug prices.
- What will happen with global economy under new US president? Is the financial crisis possible?
- I expect that financial regultion will be eased. That may make a new financial crisis more likely at some point in the future, but I doubt that will happen in the next ten years.
- As you know, the collapse in oil prices has led to the devaluation of national currencies in many countries. Do you think devaluation of national currencies will continue in the post-Soviet countries, particularly in Azerbaijan?
- It is hard to predict oil prices. The aging of some older oil fields together with the strong demand growth from China triggered oil prices of $100 a barrel and higher. With China growing more slowly and US oil production rising, I doubt if we will return to those levels; I would expect prices in the $50 to 75 range. However, one thing we know about oil prices is that they fluctuate a lot. One wild card comes from US corporate tax policy, which could drive up the dollar substantially.
- In some countries, food prices are rising, depending on the strengthening of the dollar. That is, when dollar is rising and country’s national currency is depreciating, the products are more expensive in stores. And when dollar declines, prices remain changeless, that is, products do not get cheaper. Is it right? How should the government act in such cases?
- Just because commodities in the global market are priced in dollars that does not mean the US is necessarily determining the prices, nor does it mean prices will rise or fall exactly in line with the value of the dollar. Still, I recognize that many countries have been facing food price inflation as the dollar has strengthened. I would recommend minimizing price fixing policies. It is important that producers in your country are given an incentive to produce more and that households in your country try to economize on food purchases. The best way to protect poor families against food price inflation is to give them an income supplement so they can still buy enough food to prevent hunger and distress.
- What would you suggest for minimizing the effects of devaluation and strengthening national currencies amid the global crisis?
- There is no easy answer. If oil prices decline and your currency declines, your country is worse off. The best policies in the long run are, first, to diversify your economy so it is not so dependent on commodity prices. Second, is to make sure the government saves a lot when oil prices are high and builds up a sovereign wealth fund as a way to insulate your economy from the fluctuations in commodity prices. I recently looked at the finances of Alaska, which is very dependent on oil revenues. Many native Alaskans are very poor and depend upon government subsidies but when oil prices fell there was a budget shortfall. Alaska has established a sovereign wealth fund to buffer its budget and its citizens from the vagaries of the oil market. Think long term.
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