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

Taiwan post..of 'sino-cism' and 'de-sinicisation'

Taiwan government is pursuing a drive to remove references to 'China' or 'Chinese' from the names of state owned companies, in an attempt to assert a stronger Taiwanese identity. There have been a spate of name changes recently and some more may be in the offing. Chinese Petroleum Corp has become CPC Corp, Taiwan, while China Shipbuilding Corp has become CSBC Corp, Taiwan and Chunghwa Post Co will be known as Taiwan Post Co. Earlier Chiang Kai Shek International Airport was renamed as Taiwan Taoyuan International Airport, as the current independence leaning ruling dispensation seeks to downplay the historic links with the mainland. This was also reflected in recent changes in history textbooks.

The Democratic Progressive Party of president Chen Shui-bian considers establishment of an independent Republic of Taiwan under a new constitution as its objective and its move to mobilise support for the same is leading to sharp political divides. Although Taiwan is a de facto sovereign state, it exists only under the official name of the Republic of China and has little diplomatic recognition. China considers Taiwan as a part of its territory and has even threatened use of force to prevent any attempt to declare independence. US, Taiwan's strongest ally, and most of the international community favour the status quo to be maintained.

Bangkok Bomb - the Coup and the Road Ahead

As the newly ‘appointed’ prime minister, retired Army General Surayud Chulanont has assumed office in Thailand, the world is eagerly watching as to what lies ahead for the young Asian democracy. General Surayud replaces Thaksin Shinawatra, who was ousted in absentia in a bloodless coup over charges of corruption, shady business deals and abuse of power. The coup, led by General Sonthi Boonyaratglin and endorsed by the country's beloved monarch is the first in fifteen years and sets the clock back on evolution of democracy in a country that has a long history of military coups. The coup leaders, however, portray themselves as democracy-friendly, have pledged to return power to the people and say Thaksin's ouster was necessary to rid the country of the political uncertainties that had come to paralyse it since the beginning of this year.

Thaksin, a billionaire-business-tycoon-turned-politician, had a strong political mandate and enjoys immense popularity among the rural masses primarily due to his successful social welfare and health care schemes. Having won a landslide re-election in February 2005, he was forced to dissolve the Parliament only a year later in view of protest rallies triggered by the controversial sale of his family-owned telecom company to a group led by Singapore's Temasek Holdings. There has been no respite for the beleaguered ‘hero’ since then. The snap polls held in April this year were invalidated by the courts on grounds of electoral fraud. Although Thaksin's Thai Ruk Thai party was widely expected to win the fresh elections scheduled for October 15 owing to his rural support base, the political climate was increasingly getting divisive and it's in this context that the coup has been seen in Bangkok as a relief.

A major criticism against the ousted prime minister has been his approach in handling the sectarian violence in the restive south. The predominantly Muslim provinces of Narathiwat, Pattani and Yala have been affected by insurgent movements for “independence”. Thaksin Shinawatra adopted a confrontational approach – to fight the insurgency by force and refused any talks with the local Muslim leaders on any kind of political settlement.

Gen. Sonthi, belongs to the Muslim community in Buddhist-majority Thailand and this puts on him a responsibility to bring his fellow-Muslims into Thailand's mainstream and to find a credible political settlement of the problem of "Muslim insurgency" acceptable to the country as a whole.

General Surayud Chulanont is a respected figure, known for his integrity. He has been chosen for his ability to work with all sections of society, to ensure that the political situation is stabilised. General Surayud has said he will focus on national reconciliation and people's happiness.

Going ahead, the interim Prime Minister faces the challenge of promoting reconciliation with Thaksin supporters and reaching out to democracy advocates, while keeping the support of the military. Putting Thailand's democracy back on track and strengthening of political institutions will be a daunting task for him. It needs to be seen how much independence he will have in dealing with the tasks ahead. On the economic front, General Surayud has said he puts healing social divisions before boosting economic growth and indicators of people's happiness are more important than GDP numbers. But he can ill-afford to ignore the realities and challenges of the global economy.

There are considerable powers in the hands of the coup leaders in terms of the interim arrangement now in force. General Sonthi will have the power to appoint or sack the government. He will also appoint the members of the People’s Assembly that will start work on a new constitution. It will be important for revival of democracy that the process of drafting the new constitution is transparent and representative.

Japan's New PM....... What will be new?

He is the country’s youngest prime minister since the Second World War, the first to be born after the war and scion of one of the most powerful political families. As Junichiro Koizumi, one of the most powerful politicians in post-war Japan has passed on the baton to Shinzo Abe, there are curious questions on ‘newness’ and ‘continuity’.

What will “Japan, the beautiful country” be like? What will be the contours of the foreign policy of the country that is all set to play a more assertive role in international affairs – a role that is in contrast to the low profile it has maintained since the end of world war? How will it reconcile the goals of an assertive foreign policy with the need to maintain conducive relations with the neighbours? What direction the bold economic reforms that enabled the economic revival after nearly a decade of stagnation will take? How will Japan reconcile the conflict in its economic interests with the rising economic might of its giant Asian neighbours?

Well, the answers will unfold gradually in future. But, the indications are that the generational change is more about continuity. Abe will pick up from where his predecessor left off – his vision entails a stronger Japan, a revision of the pacifist constitution to permit the country to have full-fledged armed forces, a robust economy and a trimmed-down government, a close alliance with Washington in both trade and security.

Following are some of the key points in the policy platform of the new Prime Minister --

Security & diplomacy - Stronger, Muscular & Assertive

• Revision of Japan's 1947 ‘pacifist’ constitution, which renounces the right to go to war to resolve international disputes and prohibits the maintenance of a military
• Aggressive pursuit of a permanent seat on the U.N. Security Council
• Further strengthening of the US -Japan alliance
• Strategic dialogue with countries such as the United States, India and Australia and European nations that share "common values" with Japan, such as democracy and freedom
• Strengthening trust with China and South Korea
• Promoting an Asia-Pacific community by promoting the World Trade Organization framework and free trade agreements
• Strengthening the role of the Prime Minister's Office in diplomacy and security policies

Economy - Reforms for All

• Rebuild a healthy economy by putting priority on spending reform and work towards comprehensive, mid- to long-term tax reform
• Keep new government bond issuance under 30 trillion yen ($258 billion) for next fiscal year starting in April, a target first set by predecessor Junichiro Koizumi. The target is seen key to cutting Japan's public debt which stands at 150 percent of gross domestic product, the highest ratio in the industrialized world
• Introduce "Second Chance" measures aimed at ensuring that market-based economic reforms do not result in a society of permanent 'winners' and 'losers'
• Revitalise the countryside through private-sector leadership and reform regional governments
• Build a "Japanese style social security model" which includes a simplified pension scheme, sustainable care for the elderly and a better environment for child-rearing

Education - Values and Patriotism

Reform the education system to ensure a high level of education, respect for social values and greater emphasis on patriotism in the school curriculum