As US president George W Bush starts his second term, will his administration engage with the rest of the world – economically and militarily – or will it be business as usual at the White House?

Second-term George, as his father now calls him, inspires little confidence outside Republican and neo-conservative circles. Pledges of spreading liberty and freedom work well on inauguration day but are much more difficult to implement, as the conflict in Iraq has shown.

While few can argue with the statement: “The best hope for peace in our world is the expansion of freedom in all the world”, the core issue revolves around how the US, the sole superpower, relates to the rest of the world. And this is more than a military issue.

On the financial side, the world’s largest economy tends to set the global financial agenda and Bush’s second term starts with massive budget and current account deficits, at 3.6% and 6% of GDP respectively, and a steadily declining dollar. While the US is still expected to achieve a reduced but healthy 3.4% growth rate in 2005, there are considerable opportunities for reactions to the deficits and the exchange rate to create damaging volatility around the world. And that is before geopolitical risks and the oil price are taken into account.

Will US policies change in the second term? Pundits suggest that Condoleeza Rice and Robert Zoellick, the former US trade representative, will create a more multilateral foreign policy in their new state department roles. A more interactive approach will be welcome by US allies but whether it can happen with the administration’s neo-conservative heavyweights still in place elsewhere remains to be seen.

Budget an indicator

Much also depends on the president’s domestic agenda focus. How much does he want to and how much can he change social security and tax? The budget in early February should be a good indicator. And the late January Iraqi elections will have their own domestic and international repercussions.

A less combative foreign policy and better financial management would help restore confidence around the world that the second term is not more of the same. Inauguration day rhetoric is one thing; the directions shown by the Iraqi elections and US budget are a real concern.

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