Jun 5, 2007

Moody's Report
Asian Crisis - Lessons Learnt and Not Learnt

The Asian crisis, which broke out a decade ago, taught observers many lessons but also raised questions that either have uncertain answers or have yet to be answered at all, says Moody's Investors Service in a new report as part of its "International Policy Perspectives" series. The report, entitled "The Asian crisis: what we know, what we think we know and what we do not know", presents Moody's perspective on how the crisis has added to global knowledge of economics and where it has not allowed firm conclusions to be drawn.

"Ten years after the Asian crisis, there are at least three key issues on which we still do not know enough. The understanding of these issues has improved, but not to the point of providing full comfort in terms of risk assessment," says Pierre Cailleteau, Chief International Policy Analyst at Moody's and author of the report. "Probably the most critical issue is the difficulty of disentangling structural from cyclical factors. This stems from the fact that the world economy is undergoing a dramatic change -- probably one of the most important in its history."

Mr Cailleteau also argues that contagion dynamics remain largely undecipherable. This is an issue that interests investors, because of potentially unexpected portfolio correlations, as much as policymakers. In a way, the reflection on contagion prompted a look at the demand side of the capital market -- who finances what and on which basis -- in addition to the more traditional approach based on the supply side -- i.e. the issuer of financial claims such as governments.

The third issue flagged in the Moody's report as one where knowledge is currently insufficient is political risk. "A final lesson is that we don't know how to anticipate political crises. More precisely, while the risk of political turbulence can be foreseen, the unfolding scenario of a political crisis is unpredictable," advises Mr Cailleteau, who notes that this is more a constant in history than a product of globalisation.Moody's new report cites the "lessons that we think we know" as the realisation (i) that current account imbalances raise concerns, although they do not always end in disaster; (ii) that periods of boisterous financial liberalisation often, but not always, lead to problems; and (iii) that local currency debt is generally "better" than foreign currency debt.

"All in all, the situation of emerging market economies has improved considerably since the 1997 crisis, spurred by a strengthening of liquidity positions, the diffusion of a risk management culture -- practices have improved, broadened and converged across the financial industry and the public sector -- and an intensification in trade integration," says Mr Cailleteau. "These are the three lessons that have been learnt. The repeat of an Asian crisis is thus very unlikely and it will require more imagination to determine how and when risks will coalesce and degenerate into the next crisis.
Source - Asian Banker

Jun 4, 2007

The Bangalores of Europe
Eastern Europe emerging as outsourcing centre

The United States may turn to India to fill its call-center jobs and the like. But Western Europe is turning more frequently these days to its own backyard, transforming a few urban centers of the former Communist bloc into the Bangalores of Europe.

Countries in Central and Eastern Europe are offering outsourcing avenues for white collar jobs like bookkeeping, data crunching and even research and development, as the region is moving more quickly to integrate itself economically with its more affluent neighbors to the west, reflecting an economic advance that is reducing the high unemployment that plagued these countries for years after the fall of the Berlin Wall and the collapse of the Soviet empire.

Eastern Europe, with an outsourcing business estimated at a little more $2 billion this year, represents just a fraction of the global outsourcing market, estimated this year at nearly $386 billion. But analysts expect growth in Eastern Europe to outstrip the rest of the market over the next four years, expanding by close to 30 percent by 2010, compared to 25 percent growth for the global market.

The reasons for Central Europe's new attractiveness for outsourcing are not limited to promising talent at cheap prices. Central and Eastern European countries also remain some of the world's great untapped markets for services and consumer goods.

But there is no doubt that low wages in the region have their appeal to western companies. Employees in Hungary and the Czech Republic earn a quarter of what employees in Western Europe make; Slovakia's pay runs only one-fifth as much, according to the European statistical agency Eurostat.

If that does not make the area attractive enough, governments also offer incentives, from simplified tax structures to subsidies for new office construction.

Unlike other regions that compete for outsourcing, like India or the Philippines, where English is the sole operating language, employees in Accenture's central European business speak a variety of languages, giving clients access to people who speak English, French, German, Russian, and a host of local languages.

Other than the multi-lingual talent base, another key factor is a stable political and economic environment as many of these countries are members of European Union and NATO.

Source : International Herald Tribune