American expats: How secure is your position?

by Barbara Frew

Perhaps the most significant economic impact of the 11 September 2001 terrorist attacks has been the recognition that the United States is falling into a recession. Before the attacks corporate earnings and consumer confidence had already been declining, industrial production was down for 11 straight months, and unemployment was up to 4.9 percent, but few in the US financial media were using the "r" word. In the week following the attacks, over 100,000 additional layoffs were announced, companies further reduced their earnings forecasts, there was talk of a potential slowdown in housing, and the "r" word was used freely.

During the US recession in 1990-1991, Japan, much of Europe, and many emerging economies continued to grow. According to the 15 September 2001 issue of The Economist, "This time, though, they are all sinking together." This recession will not be limited to the borders of the United States. To quote the 22 September 2001 issue of The Economist, "Indeed, since the world's economies are unusually synchronised at present, the sharp slowdown in America means that the global economy is on the verge of its first recession since 1990." Other news indicate this is the case. Using information gathered prior to the 11 September 2001 attacks, the United Nations Conference on Trade and Development, this week, issued its annual report on international investments. In it, the Unctad indicates that in 2001, Foreign Direct Investment will fall by roughly 50 percent. During 1991, cross-border investment fell 23 percent. A drop of 50 percent has not been seen for 30 years.

Multinationals, as well as, domestic companies in many regions of the world will be affected. Normally, multinationals can compensate somewhat for a drop in business in one or two countries experiencing a recession by shifting business to countries that are still growing. However, during a global recession multinationals must do what many domestic companies do in times of recession; they must find ways to cut costs. Expatriates are expensive and a target for cost cutting. While you may not find yourself unemployed as readily as domestic employees, some expenses may no longer be covered by your employer. Should the recession be long lived your expatriate package may be reduced, or you could be repatriated.

The US and international response to the terrorist threat will impact the duration of the recession. War has been declared, but the terrorist threat will not be removed with a few quick military strikes. The terrorists will respond to military actions, what ever form they take, and this will lead to increased security measures and uncertainty about near-term business prospects. These will hamper the pace of global commerce until there is some sense that the terrorist threat has been checked.

At this point, it is too soon to say how deep the recession will be or when it will end. But there are some questions you can ask yourself now to see if you are more or less likely to be impacted. How important is your host country or region to your firm's long-term strategic outlook? How important is your position there? Can it be restructured so that local nationals can do your job? How American friendly is your host country? Are you financially prepared to weather a cut in benefits or repatriation?

Depending on your answers to these questions you can prepare yourself financially by understanding how your family's budget will be impacted and begin to curtail unnecessary spending and move your time table for spending on other items to a later date. Any "deferred" spending is money that will be available to meet family necessities should the family's income be reduced. Even if you are not impacted by the recession or it is short lived you can use your answers to the above questions to position yourself for your next assignment overseas or back in the United States.

(Barbara Frew is the author of Personal Finance for Overseas Americans. She holds an MBA in finance from George Washington University and has worked abroad as a financial analyst with Citibank. She has lived in Finland, Russia, and Austria and can be reached at bjfrew@GILFinancialPress.com.)