Asia has indeed decoupled—not from the US economy, but from political reality.
Thailand is Exhibit A. Three years ago, it was the post-Asian crisis role model. Living standards were rising, investors were funnelling in and Asian peers were envious of “Thaksinomics”.
The reference here is to the dual-track plan to boost domestic demand and export growth championed by Thaksin Shinawatra. The former Thai prime minister was removed in a September 2006 coup amid corruption allegations. Thaksin fled to the UK and bought soccer team Manchester City.
Yet the military leaders who replaced him were painfully inept. That paved the way for the People Power Party to be elected in 2007. Its pro-Thaksin leader Samak Sundaravej is facing massive protests and calls for his resignation.
And just like that, one of South-East Asia’s shining examples of stability, prosperity and democracy is descending into farce. The joke among investors is which English Premier League team will Samak buy if he flees Thailand?
It’s less of a joking matter that strategists like Dwyfor Evans of State Street Global Markets in Hong Kong say Thailand’s baht may slide more than 3% by year-end, leading global funds to pull money from the country.
Events in Malaysia are also troubling. Again, this is an economy than won kudos following the Asian crisis a decade ago. Malaysia’s headline-grabbing backlash against the International Monetary Fund moved to the background as growth returned, stocks rose and commodity prices soared.
Now, headlines are filled with “sodomy” and “opposition official arrested” and “leadership crisis”.
The personality in question is Anwar Ibrahim, who’s been accused of having illegal sex with a man. This week, Anwar won back a seat in parliament, increasing his chances of ousting prime minister Abdullah Ahmad Badawi. Malaysia’s government is adrift when its economy can least afford it.
Politics often offers the biggest surprises in Asian markets. In recent years, investors have found themselves less shocked by reports on gross domestic product, inflation or stock movements than coup attempts, scandals or disagreements between neighbouring governments.
Disputes abound: China and Taiwan over sovereignty, Japan and South Korea over rocks in the sea, Indonesia and Singapore over pollution, India and Pakistan over disputed territory (Kashmir), Thailand and Cambodia over borders and North Korea and the rest of Asia over nuclear weapons. The Philippines is often on guard for the next “people power” rebellion.
Politics is holding Asia back, distracting officials from spreading the benefits of growth, reducing poverty, improving education and upgrading roads, bridges and power system to compete in the global economy. It’s also scaring away investors who are growing increasingly risk adverse as the global credit crunch worsens.
The region does have its success stories, such as Indonesia. Rampant corruption and persistent poverty aren’t undermining President Susilo Bambang Yudhoyono’s efforts to put South-East Asia’s largest economy on a higher growth path.
“Indonesia”, says Bruce Gale, a political risk analyst based in Singapore, “is a lot more stable politically than many foreigners seem to realize.”
Yet politics is even getting in the way of Asia’s most developed nations. Take Japan, which is experiencing paralysis at the highest levels of government. Prime minister Yasuo Fukuda’s slipping political support is complicating efforts to shield Asia’s largest economy from recession.
Recent declines in markets speak to how Asia hasn’t decoupled from the US economy, as pundits once asserted. This period of global instability would be less dangerous if governments were better equipped to handle them.
The fallout from Wall Street’s losses continues to flow this way. Michael Dee of Temasek Holdings Pte Ltd, Singapore’s $130 billion (Rs5.7 trillion) sovereign wealth fund, on Wednesday found himself in the surreal position of voicing confidence in the once mighty Merrill Lynch and Co.
Merrill has a “great franchise which has existed through many crises through a long period of time,” Dee, Temasek’s senior managing director of international, said.
Since December, Temasek has invested about $5 billion in the third largest US securities firm. Dee said he has “great confidence” in Merrill chief executive John Thain.
Last year, Thain replaced Stan O’Neal, who oversaw the firm’s largest quarterly loss in its 93-year history.
If South-East Asia is to stand its ground amid a potential US recession it needs more predictable and transparent government. Only then will economies have credible institutions such as judiciaries, central banks, media and watchdog groups to weed out corruption. From there, more efficient and stable economic growth might follow.
All this sets Asia apart from many of the world’s markets. Analysts typically assess economies by locking themselves in offices and studying government data, bond yields, stock valuations, and the like.
Here in Asia, more luck might be had looking out the window at the street demonstrations below.
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