Monday, August 11, 2008

Hard Rain

We started out nicely as a commodity-export economy. We were not happy because of the "vagaries" of commodity exporting, namely, that when the US economy faltered our commodity prices crashed and we had no support. So we said we wanted to industrialise.

To industrialise, we tried to build an industrial complex with steel plants for car making.

When this failed, we called in the foreign investors who did a good job in creating jobs and exporting. But our inadequate infrastructure gave us the excuse to build "mega projects" financed by the clever concept of "privatisation" which really was to tap into the stock market. We were trying to finance long-term projects with short-term speculative foreign funds.

To pretend that it knows its job, the central bank followed the US and kept interest rates low and financed consumers who went on a spending spree giving the basis for buying that nobody lives and shopping in mega malls, all very happy with the asset bubble.

The real global demand to add value and compete as in China has now led to high commodity prices. What are we doing in the face of higher prices? No higher productivity. No innovation. No capturing of global markets. Just give us more money to tie things over.

Hard rain is going to fall.

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