O'Sullivan: NZ should link arms with US

President Bush's call for support is an opportunity to position ourselves for trade negotiations, writes FRAN O'SULLIVAN.

Today's Wall St opening will be the most difficult hurdle for financial markets since the 1987 global sharemarkets collapse.

The one-week halt to trading is the longest since the First World War closure.

The human carnage wreaked by terrorists who destroyed New York's twin pillars of capitalism - the World Trade Center towers - will exact a different toll on United States markets and their players.

But the effects will quickly spread worldwide through the global electronic linkages which intertwine international trading rooms and stock exchanges.

New Zealand, which has enjoyed the effects of a commodity boom and low exchange rates, will inevitably be swept along.

But beyond the effect of the global stock waves, New Zealand has some serious issues to address in the interests of our long-term economic health.

US President George W. Bush's pledge to launch a global war on terrorism might alarm the pacifists within the Labour Alliance Coalition. But it presents a huge opportunity for New Zealand to redefine its defence strategy.

For too long, New Zealand has paid the price for an outmoded foreign policy, formed in the Cold War era of the 1970s and 1980s.

The "my enemies' enemy is my friend" approach might be too aggressive for Prime Minister Helen Clark's Government. But allegiances formed in times of crisis tend to carry through to the recovery period. New Zealand does need to strengthen its global ties swiftly to lessen economic fallout on our strongly trading-based country.

Helen Clark has quickly pledged New Zealand support in the field of intelligence.

But the assault on America has changed the global outlook for ever and created a demand for much stronger political leadership. New Zealand must state unequivocally that it will stand shoulder-to-shoulder in the war against terrorism and, in particular, reconsider its alliance with the US.

The first step is for the Clark Government to move swiftly to rejoin Anzus.

New Zealand has played an isolationist game. But many of our brightest and best have swarmed to the US to pursue opportunities. It is clear that if New Zealand does not demonstrate preparedness to stay fast to our defence allegiances, we cannot expect a similar quarter to be awarded in trading ties - or if this country comes under attack.

New Zealand's pitch for a free trade agreement with the US will inevitably be dropped well down the Bush Administration's agenda. It has other more pressing issues.

But if Clark adroitly positions New Zealand, US political support within the Congress will be strong when our negotiators begin their work on Capitol Hill.

Clark's second step should be to reaffirm New Zealand's commitment to the World Trade Organisation. WTO Secretary-General Mike Moore - a former New Zealand Labour Prime Minister - has recommitted his organisation to push ahead with a new WTO round at the Dohar meeting.

The assault on the World Trade Center had a huge effect on Asian blue-chip firms which resided at the financial centre and has caused Asian politicians to stand by the US.

The crisis provides the perfect opportunity for the Clark Government to come out from behind the shield of its Trade Negotiations Minister Jim Sutton and take a strong stance against the anti-globalists.

Clark's third opportunity is to use the Shanghai Apec meeting as a platform for New Zealand to demonstrate its commitment. Bush has confirmed he will still go to Shanghai next month, despite the crisis and possibility of war.

But the immediate focus will be Wall St's opening.

The "we shall overcome" mood which brought New Yorkers and Americans throughout the US to join together in worship at the weekend seems to have spread to the financial market participants.

The extent of that optimism will be tested when Wall St opens at 9.30 am today (Eastern standard time).

Early signs were promising but a period of volatility will inevitably occur while the United States prepares for war.

A Wall Street Journal poll asked what would happen when US stock markets resumed trading. Nearly 50 per cent of the 1821 respondents predicted "an early plunge and then stability". Twenty per cent predicted sharp losses, 17 per cent a rally and the rest said there was no way to predict the outcome.

The big difference between the 1987 Wall St closedown and last week's shutdown is that the infrastructure was left standing after the sharemarket collapse, even if some companies had gone.

Global insurance and aviation stocks are expected to be seriously affected as earnings forecasts are lowered.

Analysts also believe the troubled technology sector will be negatively affected.

Reports say that US telecommunications companies are struggling to restore services in Manhattan, and consumer spending is forecast to decline further, particularly for discretionary big-ticket items, such as personal computers.

In addition, tens of broker conferences covering all industry sectors were cancelled during the week, as were the operations of venture capitalists.

The outlook for property stocks is less clear. Manhattan has to be rebuilt, but when even flamboyant US property investor Donald Trump announces he wants to sell the Empire State it is clear iconic buildings have lost their value.

The big question, as the Journal has noted, is whether something extraordinary - Wall St's first-ever use of its emergency power, a momentary ascendancy of patriotism over profits - will limit the selling pressure, especially in the insurance and airline sectors.

A huge propping-up exercise for US stock prices has been given tacit approval by US regulators.

The Federal Reserve is expected to chip in and drop interest rates to improve liquidity.

But the US was already on the verge of economic recession before the World Trade Center was evaporated.

This recession would have sharply cut demand in our second-largest trading partner.

In this environment, the transtasman political bloodbath over Air New Zealand and the Ansett collapse should quickly take a secondary place.

But the blame game, and the failure of Air New Zealand to honour the entitlements of the Ansett Australia workers, has resulted in a huge wave of damaging anti-Kiwi sentiment.

The immediate heat will dissipate once Prime Minister John Howard makes good on his pledge to bail out 16,000 Ansett workers by exacting a $A10 levy on air fares to fund their entitlements.

Yet this is the time when both Governments should be pulling together in the interests of regional security, not indulging in a transtasman tit-for-tat.

If the New Zealand Government had stood by the Air New Zealand board four months ago, it would have been spared the undignified spectacle of our Prime Minister having to be escorted from Australia.

Clark's opportunity to forge strong relationships with Howard is lessened just when New Zealand needs them.

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