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Your Excellencies, distinguished guests, ladies and gentlemen:
Let me thank the Cyprus American Business Association for its generous sponsorship of this relief dinner for the victims of the September 11 terrorist attacks and for giving me the opportunity to share with you some thoughts on the impact of international terrorism on business. I also want to thank all of you for your many expressions of support -- not the least of which is your presence here tonight -- and for your generosity towards the victims of the attacks.
Tonight, let's pause and reflect on the events of September 11th. We'll consider the unprecedented, united world response to these events and some of the constructive steps the United States and its coalition partners, including Cyprus, are taking to ensure this tragedy is never repeated. We'll examine the impact on the U.S. and the global economy, the disproportionate effect on specific industries, and the early signs of recovery. We'll focus on the critical efforts underway to deny global terrorist organizations the financial resources they depend on. Finally, we'll look at the important role that you, the leaders of industry and commerce, have in the campaign against international terrorism.
At 3:46 p.m. today, Cyprus joined the United States and nations around the globe in an event affirming that "The World will Always Remember" the horrific and cowardly terrorist attacks in New York City and Washington just three months ago. September 11 is etched in the consciousness of all Americans and the global community. It is a symbol of the evil and destructiveness of terrorism. Make no mistake. This attack was not just against America.
It was, after all, an attack on the World... Trade... Center. On the map behind me you see marked in blue the 80 countries whose citizens were injured or died in this attack. It illustrates, that this was an attack against all of us.
Let me tell you about just one of the people who died that day. Adam Arias was a determined man who rose to a vice presidency at Euro Brokers with only a high school education. On September 5, he and his wife Margit celebrated their third anniversary -- a remarkable milestone, since Margit was diagnosed with lymphoma cancer 18 months before they were married. Adam was determined that she would beat her cancer. He cajoled and encouraged her through treatment that included 15 surgeries and chemotherapy.
Adam was in his Twin Towers office on September 11 when the unthinkable happened. On that day, he showed that same kind of selfless determination that others would make it, too. He lingered, prodding colleagues to leave, getting as many to leave as he could, until finally, it was too late for him. Recently, Mrs. Aris had her 16th operation. "I didn't want to," she said, "but Adam fought too hard to keep me alive."
We should remember Adam Arias, and the thousands like him who died that day and rededicate ourselves to not letting it happen again.
Today, the war on terrorism is underway. It is a new kind of campaign, for the terrorists attack the foundation and ideals of civil society: justice, individual liberty, self-determination, equality of opportunity, free and democratic institutions. It is a struggle that must succeed in the trenches of the global financial system as well as on the battlefields of Afghanistan. To prevent recurrences we must find and bring to justice the terrorists behind these attacks. We must dismantle the infrastructure, organizations, and networks of support, both private and state-sponsored, that enable them and others like them to flourish.
To succeed requires a global effort. Our military strength is an indispensable asset in this effort: so is the support of the world-wide coalition against terrorism that formed itself on September 12 -- a coalition that Cyprus unreservedly joined from day one. The United States greatly appreciates the strong support we have received from the Government of Cyprus.
Terrorism seeks to destroy the growing web of economic, financial, business, and commercial ties that plays such an important role in modern civilization. It is also an important element in the fight against terrorism. Expanding prosperity is important not just for the developed nations, but even more so for the world's developing countries. The poorer a country is, the higher the likelihood it will become a hotbed for terrorism. This is one of the reasons that the United States worked hard to ensure the successful outcome of the WTO Doha Ministerial. The significance of this new trade round should not be underestimated.
I think US Trade Representative Robert Zoellick got it right when he said: "[W]hat we achieved in Doha lays the groundwork for [a] trade liberalization agenda that will be a starting point for greater development, growth, opportunity and openness around the world. Particularly in the aftermath of September 11, it is also an excellent political signal that 142 diverse nations can come together to agree on a constructive agenda for the world's public."
In this same spirit, the coalition is preparing for the rehabilitation and reconstruction of post-Taliban Afghanistan. In November, the World Food Program delivered enough food to feed 4.3 million Afghans for the month. The United States contributes 80 percent of all food provided to the Afghan people through the World Food Program. With the Taliban gone, Afghans can build a common homeland, a process begun last week with the historic agreement on an interim government. Proof, as one leader said, "that if Afghans can fight well, they can also achieve peace."
Let's look now at how the events of September 11 affected the U.S. economy, the ripple effect on Cyprus and the world economy, and prospects for recovery.
The United States economy, the main engine of growth for the world's economy for at least five years, showed signs of weakness throughout this year. The attacks of September 11 threatened to throw the economy into a tailspin. Consumer confidence in the U.S. fell sharply, the stock market plunged, and unemployment rose rapidly. The U.S. is now officially in recession, and has been since March, ending nine years of unprecedented economic expansion.
Similarly, growth in the EU is sluggish at best and Europe may yet slide into recession. Japan continues to suffer from a decade of problems and is expected to be in recession both this year and next. The latest IMF forecast of world economic growth predicts 2002 will see the first worldwide recession in decades.
The September 11 attacks were especially devastating to the insurance, tourism, and aviation sectors. Insurance losses could easily reach $70-80 billion, making this the worst disaster in insurance history. Tourist destinations from Cyprus to Australia are reporting a flood of cancelled bookings. European airlines are reporting declining passenger traffic of up to 10%. Airlines in the U.S. have been hit particularly hard, with Delta for example, announcing 13,000 layoffs. Boeing, the giant American aircraft manufacturer, expects to cut 30,000 jobs by early next year and to cut production in half.
Governments were quick to respond. The U.S. aviation rescue package was finely calibrated to compensate air carriers for the losses suffered as a result of the unprecedented nationwide shutdown of air traffic.
When aviation insurers announced dramatic cuts in the amount of coverage they were willing to underwrite, the United States and other countries adopted various reinsurance schemes to fill the gap. What's important here is that these steps were targeted, limited government interventions to address specific short-term market failures. As such, they differ from the return to subsidies advocated by some for the European aviation industry and quite properly rejected by the European Commission.
Here too I applaud Cyprus' responsible approach. Cyprus provided its own reinsurance support to Cyprus Airways but has not moved to subsidize the tourism sector. Instead, Minister Rolandis is working hard to promote Cyprus as a tourist destination. While many project tourism next year will still decline, the decline is less severe than the initial dire predictions of collapse. These efforts are complemented by the many steps taken to improve airport security, which will enhance Cyprus' reputation as a safe vacation destination with secure airline connections and will help allay the fears of an understandably skittish traveling public.
The September 11 attacks were an unexpected economic shock to a world economy already teetering on the edge of recession. They exacted a disproportional psychological toll on the world economy -- and particularly that of the U.S.
How quickly the economy will recover depends on how quickly all of us are able to overcome this trauma and deter future terrorist attacks.
Empirical evidence suggests that the pace of economic recovery after many natural disasters is often surprisingly fast. After the enormous earthquake that hit Kobe, Japan, in 1995, many predicted recovery would take a decade or more. Kobe defied these dire predictions and recovered in a little over a year. A similar effect was seen in California following a severe earthquake in 1989, and in Florida following the devastation of hurricane Andrew in 1992.
This is, I believe, attributable to the resilience of the human spirit and the fact that knowledge and skills are the wellsprings of economic growth -- a fact recognized by no less an economist than John Stuart Mill in the 19th century. These same factors are at work now.
Recessions traditionally last 12-18 months, and the United States may already be at or near the bottom. Indeed, if we look closely, we can already begin to see early signs of recovery. The two major areas of weakness throughout the year in the U.S. economy were declines in inventories and spending for new plants and equipment.
Both appear to be leveling off. Indeed the rate of inventory reduction overall has been so rapid that halting the decline, even without rebuilding stocks, would add roughly 4 percentage points to the U.S. growth rate, according to several recent forecasts.
There are other signs as well. New jobless claims are falling and residential real estate activity remains relatively strong. On Wall Street, the major stock indexes have already recouped all of the September 11 losses and are now close to their levels at the start of the recession in March.
Cyprus too is seeing some encouraging signs. Witness the recent rally in the Cyprus Stock Exchange, which in two short months, and in the most unlikely period, recorded gains of over 30%. Tourist arrivals, the "barometer" for the Cypriot economy, recorded a considerable decline right after the attack.
The focus now is on reversing the negative trend for next year's advance travel bookings, and it is starting to bear fruit. Outward tourism also seems to be making a recovery. Friends of mine in the travel business are telling me that Cypriots are, once again, beginning to travel freely, as they did before Sept. 11.
Of course, many uncertainties remain. The situation in Afghanistan remains fluid, despite the surprisingly rapid collapse of the Taliban throughout much of the country.
Just as the world has been buoyed by the swift results, the collapse of Afghanistan's new interim government or some dramatic change on the ground could sap growing confidence that we now have the terrorists on the run.
The shock of a major new terrorist attack would have significant repercussions that could undermine the nascent recovery. And it is here that business feels the true impact of terrorism. Terrorism on a massive and unprecedented scale is now a known risk, a risk business must plan for.
For most sectors, the cost of doing business has increased as a result of the attacks. Businesses now face new challenges as they confront increased costs that bring no greater output or efficiency. Every new guard or mail screener hired by a company adds to its workforce and its costs without adding one widget to its output. Every extra hour that a business traveler spends navigating a more complicated transportation system reduces productivity.
This is the insidious, long-term impact of terrorism on business. We cannot mitigate its effect merely by capturing Usama bin Laden.
He is the most notorious leader of an organization with roots in countries around the world. To truly succeed, we must dismantle the infrastructure underpinning Al Qaeda and other terrorist organizations with global reach.
September 11 refocused the world's attention on the financing of terrorism. The U.S. and its coalition partners, including Cyprus, have moved swiftly to sever terrorist organizations from the financial resources they need to operate.
Under the authority of United Nations Security Council Resolutions 1333 and 1373, the assets of several hundred terrorists and terrorist organizations have been singled out to be frozen wherever they are found -- to the tune of over $150 million already.
Throughout the world, we've seen unprecedented, rapid and dynamic action as governments clean shop. The Swiss, for example, have tightened "know your customer" rules on the non-bank financial industry.
Italy assigned 600 special police to the task of combating the financial roots of terrorism and their results oriented approach has already apprehended four individuals linked to a radical Islamic cell. The French adopted anti-terrorism legislation to expand police search capabilities, increase monitoring of telephone and Internet exchanges, and enhance measures to fight the financing of terrorism. Denmark is considering similar legislation to enhance police search capabilities, while the EU has proposed a number of steps, including the establishment of a specialist anti-terrorist team within EUROPOL.
Cyprus, as a regional financial services center serving the Middle East, needs to be especially vigilant. We have pledged and received excellent cooperation from the Government of Cyprus. The Office of the Attorney General, Ministry of Finance, and Central Bank continue to work closely with us to determine whether any terrorist financing occurs through Cyprus, and if so, to freeze it in its tracks. We applaud the government's recent ratification of the UN Convention on the Suppression of Financing of Terrorism and the establishment of a special department of MOKAS dedicated to eradicating terrorist financing.
These steps reinforce an already solid set of laws and regulations aimed at combating money laundering and, by extension, the financing of terrorism. Cyprus wisely has not rested on its accomplishments, but has continued to improve its regulations with the adoption of recent rules requiring the disclosure of the ultimate beneficial owner of nominee accounts. This is a key example of the effort Cyprus is making to monitor and adopt "best practices" from other countries.
Which brings us back to business. You are now on the front lines in the fight against terrorism.
Terrorism costs money. Those funds come from legitimate and criminal enterprises, they are laundered through financial transactions designed to disguise the sources and uses of the funds. Your fellow bankers, lawyers, and accountants in the audience have an important role in detecting these transactions by spotting and promptly reporting suspicious activities. Commercial transactions too may be used to hide funds through invoice manipulation or unusual commercial terms. We would encourage each of you engaging in commercial transactions to exercise due diligence and report suspicious transactions to the authorities.
Let's remember that the real goal of terrorism is to destroy our way of life. On September 11, the terrorists took their best shot against America and the world community. Far from humbling us, they united all civilized nations in a battle against global terror. The fight will be long. It will not be easy.
As Pericles of Athens said in 429 BC: "The measure of courage will surely be adjudged most justly to those, who best know the difference between hardship and pleasure and yet are never tempted to shrink from danger. (...) Judging happiness to be the fruit of freedom and freedom (the fruit) of valor, never decline the dangers of war."
Thomas Jefferson once said: "The price of Liberty is eternal vigilance." We will remain united. We will remain vigilant. Together, we can and will prevail.
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