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How hard would war strike Florida?

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By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times
published October 27, 2002


Would a war with Iraq result in a wreck of the more-fragile-than-usual Florida economy?

Here are three war scenarios already bandied about by business leaders and economists:

1. Quick and easy. The United States sweeps into Iraq and, despite Iraqi President Saddam Hussein's bluster, takes control of the country with minimal losses, stabilizes a new government and benefits from improved access to, and more direct control of, cheap oil. War's price: $80-billion.

Florida impact: Minimal, even positive. After some initial consumer worries, the U.S. economy settles down and continues to pull out of the current slowdown. People continue to regain their confidence in travel and enjoy lower gas prices.

2. A tougher victory. Iraq puts up more resistance, resulting in heavier U.S. losses. Iraqi oil fields are sabotaged by Hussein, driving up oil prices. Post-Hussein, a new government struggles to maintain control of a fragmented country. War's price: $150-billion.

Florida impact: Negative. Already weak consumer confidence stalls as U.S. involvement in the Mideast swells. Nervous consumers stick closer to home, and travel and tourism decline slightly. Rising oil prices start pushing a gallon of gas toward $1.75.

3. Quagmire: A prolonged conflict brings heavy casualties and potential reprisals -- this time on American soil. Newly installed Iraqi government becomes mired in internal power struggle. U.S. troops must occupy Iraq (population: 20-million) long term, driving up the cost of war, rebuilding and the U.S. budget deficit. Interest rates rise. Oil prices rise faster, while already depressed U.S. consumer confidence and stock markets drop, prompting double-dip recession. An angered Middle East becomes more unstable. War's price: Somewhere north of $200-billion.

Florida impact: Nasty. Uneasy U.S. consumers minimize travel and hold off on tourist plans. International visitors drop. Orlando, Tampa Bay and South Florida markets especially suffer. Unemployment jumps. Additional major airlines seek bankruptcy protection. An uptick in interest rates strikes housing market, the last sweet spot in the economy. Only defense industries benefit, and they play a secondary role in the state's economy.

A month ago, swift action against Saddam's regime in Iraq looked almost assured. Now it seems further off, perhaps in early 2003.

There's even talk it will never happen. Officials who once insisted on getting rid of Saddam now stress the importance of disarmament over a regime change.

Given its dependence on tourism and discretionary travel, Florida is more vulnerable than most of the country to the effects of an Iraqi war, says Lynn Reaser, a veteran observer of Florida and the chief economist of Bank of America asset management group in St. Louis.

A short, quick, clean victory in Iraq is all to Florida's advantage, she says.

A messy and long conflict? Look out, she says, and rattles off a domino effect: Fewer tourists and travelers because of worries about flying and higher gas prices. Declining stocks because of the weaker business climate and lower confidence. Less expansion by companies with Florida operations. Increased deficits for the state because of Florida's reliance on sales taxes.

"The most likely scenario? A short and quick war," Reaser says, "because the United States would not engage in such a conflict unless it was quite confident of a swift victory."

The Persian Gulf War experience of the early 1990s and the events of Sept. 11, 2001, may offer at least a glimpse of what might happen, if and when hostilities with Iraq begin.

"Initially, the shock of war brings an immediate slowdown in travel as consumers hunker down at home glued to their television sets," says travel industry analyst James Cammisa Jr. says in Miami. "The stock market falls sharply, and there's a spike in oil prices, creating additional uncertainties for both consumers and businesses."

After that, it depends. On many things.

How long would the United States remain to prop up a new government? Will the United States pay for the war and reconstruction of the Iraqi economy by itself or, as with the earlier Gulf War, manage to share the heavy costs with its allies? And will there be more confrontations after Iraq? Is it, like Afghanistan, just one on a list of countries the United States will target for military action to pursue terrorists or dethrone presumed enemies?

Scared partly by talk about fighting a multiyear war over several continents with a hard-to-find enemy, the confidence of U.S. consumers has been in a particular funk since the spring. The University of Michigan's index of consumer confidence has declined five months in a row. On Friday, the Michigan survey said that sentiment had dropped to 80.6 this month, down sharply from 86.1 in September. That's the lowest reading since 1993.

A comparable consumer confidence survey of Floridians conducted at the University of Florida is due out this Tuesday. It, too, will show another drop in confidence.

So far, struggling U.S. airlines are the industry most vulnerable to the effects of a war. Here's what two of the major airlines are warning.

Continental: "The continued specter of a war with Iraq and unrest in the Middle East threaten to raise fuel prices further and may also decrease the demand for air travel just as the Persian Gulf War did in 1990-91."

American: "The increased threat of U.S. military involvement in overseas operations . . . including the threat of war with Iraq . . . could have a material adverse impact on the company's business."

Then there's the lodging industry.

LaSalle Properties, which owns 17 luxury hotels in Florida and other major convention and business markets, is still cutting costs just to make up for the dropoff in travel and tourism since Sept. 11. The threat of war with Iraq, not to mention actual conflict, will put revenue pressure on LaSalle for the next year, the company says.

Adds lodging giant Marriott International: "Recent economic softness, concerns over potential military action in Iraq and the possibility of airline failures and service cutbacks have left it unclear whether, at what pace, and to what extent, a recovery will continue."

About a billion questions remain unasked (Where's Osama bin Laden? Are we really after Iraq for the chance at cheap oil? Where will this conflict leave us with Saudi Arabia and the rest of the Middle East? Are we really ready to deal with a nastier strike than Sept. 11 inside U.S. borders?). But let's keep things simple, stay focused on Florida's economy and review.

Quick, clean war? Good. Messy, long war? Bad.

And what of no war at all? That would be best of all for the economy, suggests Reaser, because it removes some of the risks found in the other scenarios. But she adds a few caveats. No war would be best if a regime change in Iraq can occur from within the country. If the United States can be satisfied Iraq puts a genuine end to its weapons of mass destruction. If it is clear we are not going to war rather than merely delaying the conflict.

That's a whole lotta ifs.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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