Monthly Archives: May 2012

Effects of Corruption in Asian States

The power of the state to influence operations and success of businesses is accepted in virtually all policy circles, though traditionally this focus centers on regulatory and tax regimes. Less obvious is the hidden intersection of governance and markets which distorts and subverts both. In Asia, the rapid evolution of markets in many countries over the last century has made government interactions with those markets more uncertain: the lack of durable institutions and legal traditions in the area has created a series of more ad hoc relationships. Corruption and rent-seeking behaviors by bureaucrats is somewhat inevitable in this climate.

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Economic isolation is difficult

It noted that Asia can withstand a renewed financial crisis and weakened export demand from developed markets, but long-term prosperity hinges on relying more on domestic and regional markets as well as expanding ties with Latin America and Africa.

Moreover, the report said that currently, the national focus is on containing crisis risks from potential financial contagion and weaker trade. Regionally, there is need for a strong, effective and adequately resourced financial safety net to complement national and global financial arrangements.

It added that this year could prove crucial since financial tensions in Europe could raise more. And there remains concern over the fledging economic recovery in the United States.

via Asia needs new economic growth model –


The first point is a valid one: a country cannot remain primarily export-directed in low-end goods forever. The rise of a consumer class in many Asian nations is the single most significant demographic and economic trend of the next half century, and providing an expanded range of products for these individuals will do more to create sustainable growth for the relevant nations.

The second one is more difficult. The ability to limit exposure to international financial trends is extremely limited for even the most functional set of institutions, and even moreso when the status quo focus is on exports.  Even if the first goal of domestic diversification is accomplished, however, credit markets are so readily interlinked that disentanglement is functionally impossible. So what’s the solution? TARP-style ex post facto policies? Basel III type leveraging limits or capital requirements for financial entities? More rigorous anticipatory regulating bodies to install firewalls to prevent contagion effects? While any of those could help, the plausibility of many of these governments having the institutional capacity or resources to execute them is dubious. Like it or not, Asia goes as the rest of the world does.

Development is an uphill battle

Foreign investors have been cutting exposure to rupiah bonds and stocks for weeks, suspending a long spell of bullishness based on Indonesia’s high yields, strong growth and its swift ascension into the investment grade club.

Fund managers have been distancing themselves from the rupiah market too, moving to neutral or even underweight positioning.

So when the same set of investors lapped up a $2.5-billion global dollar bond issued by Indonesia late in April, it was clear that their doubts and unease lay not with the fundamental attractiveness of Southeast Asia’s largest economy, but rather with assets denominated in the local currency, the rupiah.

“This year won’t be the year for Indonesia,” said Arnout van Rijn, chief Asia-Pacific investment officer for Robeco.

Foreigners hold about a third of local bonds, which exposes the $84-billion market to a brutal sell-off should the global risk environment change. And the burden of servicing foreign creditors is burning a hole in Indonesia’s external account, which is already hurting from slowing exports.

via Investors like Indonesia, but … | BusinessWorld Online Edition.


Monetary policy must be extremely hard to manage in a relatively small nation faced by currency speculation and other external pressures. Indonesia is at something of an intersection point for such concerns, as even in an otherwise positive business climate, currency pressures make international investors uneasy.

It’s easy in the United States to wave a hand and ascribe currency fluctuations as meeting whatever inflation target we’re currently identifying, or the largely tangential movements of other nations money.  But smaller nations have only limited foreign reserves, making government intervention to stabilize their currency less practical.

This problem often makes development operate in fits and starts, if not even more abortively. Indonesia is in the unfortunate position of doing most things right, and still losing.

Financial diplomacy

Myanmar, the so-called last frontier for business opportunities in Asia, will be establishing a stock market by 2015 with the help of Japan’s Daiwa Securities Group Inc. and Tokyo Stock Exchange Group Inc.

Many Japanese and foreign investors believe that the envisaged stock market will open up numerous business opportunities. At the same time, however, some experts have pointed out that after five decades of the isolation from the global community, Myanmar’s transformation from a pariah state to a modern economy will not be quick.

via Japan firms to help create Myanmar bourse –



The ability of markets to help transition states to part of the international liberal order is a foundational component of the Washington Consensus and much of the US’ foreign policy. Oddly, however, our reluctance to directly engage with pariah regimes means the export of institutions which would help such a transition rarely occurs.

Fortunately, less politically constrained states like Japan can act as jumpstarters for this sort of thing. In the case of Myanmar, the formation of a functioning stock market domestically will help local firms secure access to credit in international markets, ensuring growth and productivity increases are promoted in the country.

Things I didn’t know, part (very large number)

The United States, European Union, South Korea and Japan have submitted a list of about 40 North Korean companies to the U.N. Security Council’s sanctions committee for possible blacklisting due to Pyongyang’s recent rocket launch, envoys said on Tuesday.

The committee, which includes all 15 Security Council members, received an initial response from China that it would only consent to adding two entities to the U.N. list of banned North Korean firms, which the United States and its allies see as too few, envoys told Reuters on the condition of anonymity.

via Exclusive: U.S., allies urge sanctions for North Korea firms; China resists | Reuters.

Wait, wait: there are North Korean firms? Perhaps my understanding of internal functions there is very poor, but I was under the distinct impression that the DPRK was a fairly absolute command economy. The existence of firms in that context is perplexing.

The most likely model, I imagine, is probably the SOE’s seen pervasively throughout China: nominally run autonomously,  but with initial fiscal backing and significant marketing/production targets established by relevant government bureaus. In the case of North Korea, they might be especially helpful as international intermediaries for trade, given the climate of trade restrictions which surround the Kim regime.

Principles are expensive

Alone with his wife and children, Chen Guangcheng periodically switched on a cell phone Thursday to tell friends and foreign media he felt scared and wanted to go abroad, and that he had not seen U.S. officials in over a day.He even called in to a congressional hearing in Washington, telling lawmakers he wanted to meet with U.S. Secretary of State Hillary Rodham Clinton, who is in Beijing this week. “I hope I can get more help from her,” Chen said.Chens high-profile effort to keep his case in the public eye increased pressure on Washington and embarrassed Beijing as it hosted Clinton and other U.S. officials for annual talks on global political and economic hotspots.

via U.S. seeks solutions in China activists case – CBS News.

If Chen’s story is even partially accurate, the narrative of the US human rights regime should make this an open and shut case. Unfortunately, realpolitik makes this a lot more complicated.

Obviously State cannot be especially eager about the prospects of granting asylum or even a meeting to Chen, especially during the middle of a high-profile visit from Secretary Clinton.

The most likely outcome is either a convenient concession by Chen, or a backchannel-directed pressure by the US to allow Chen some modicum of freedom. In either case, the public stalling does us no favors.