US shutdown dismissed as ‘political hype’

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“One should not fall for the hype,” said Rewane, chief executive officer of Nigeria’s Financial Derivatives Company told CNBC Africa on Monday. “Politicians go through the process to make sure democracy works and a consensus is always reached at the end of the day.”

While the US government shutdown continues into its second week with neither the Republicans nor Democrats offering any sign of agreements this far, Rewane is confident that the parties will reach a compromise before the 17 October debt ceiling deadline.

“Democracy is about agreements and negotiations. Failure to negotiate doesn’t help anybody. The markets will punish you if you don’t negotiate,” said Rewane.

Hypothetically, he pointed out, if the US government does not reach a compromise before the deadline, they will default, which could then severely impact the global economy.

“The US is the largest economy in the world and holds about 90 per cent of the external reserves of the economy. If it defaults, you can imagine the impact of that on many countries and the world economy,” he explained.

On the markets front, he added, the shutdown is forecast to be temporary as many are confident that an agreement will be reached in time.

Fund managers, for instance, work on a long term strategy therefore they will not budge or shift fund directions to accommodate the shutdown.

Another factor to consider is the impact the shutdown may have on emerging markets. Rewane however believes that emerging markets have other, more serious challenges to overcome and that the shutdown should not be a major concern for them at this stage.

“Emerging markets have come under a lot of heat. If anything, people are trying to take money out of emerging markets right now so this is not a concern for emerging markets as they are facing commodity, currency and policy challenges,” he explained.

“I wouldn’t worry too much. In the end, just like under the Clinton administration, they will come to a compromise.”