Issue 9 – February 10,2009
Package—never has one word seemed so startlingly common. Take a quick tour of current financial dailies from across the world and you will know what we mean. Often prefixed by different words like bailout and stimulus, the word package remains consistent.
In context, both bailout and stimulus seem to suggest the same—AID. Though one suggests the cause to be human greed and the other human extremities, which basically accounts for an economic slowdown, they both result in common misery to the common man. In content, however, they are radically different.
Bailout logically means solving an immediate crisis. It is like an injection that brings immediate relief. However, it rarely addresses the long-term need that ensures that the crisis won’t return. It is both, short in effect as well as short-sighted.
Stimulus, on the other hand, tends to have a longer impact as it addresses the root cause of the problem and brings about systemic changes for future prevention. Once endured, the pleasure is sweeter than the pain. Being less popular though, it often sees the neglect of politicians—one reason why tax cuts are preferred to government spending to boost the economy.
This explains Obama’s dilemma and the delay in the hotly-debated (finally US$ 787 billion) package. The Netherlands, too, has just officially confirmed that it is in recession. According to CBS, the last quarter of 2008 saw the economy shrinking by 0.9%. Exports, the culprit, fell by over 2% in the last quarter. Air France-KLM has reported an operational loss of €194 million. With a 2% budget deficit, the government, already accused of spending less, will have to spend even lesser.
Unemployment is dramatically rising. Ministers have, in fact, frozen their salaries. This is of course in direct contrast to their Indian counterparts. The Indian Sixth Pay Commission promising pay hikes is all set to further hike our fiscal deficit as the government presents its vote on account (a mini budget) before the upcoming summer elections. Populist measures involving cuts, be it taxes, fuel prices or interest rates, will be the highlight. It is popularly called India’s third stimulus package. But then everybody loves a package. Be it on Valentine’s Day or from the travel agent.