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Political instability a big worry in Asia

By Shefali Rekhi, The Straits Times, 21 February 2001

An absence of strong political leadership coincides with the expected soft landing of the US economy, and an economic slump looms, say speakers

THE absence of strong political leadership in many Asian countries will threaten regional prospects, and an economic slump looms, leading speakers warned at a seminar yesterday.

They said political instability is the key area of concern for the region, and it now overshadows earlier concerns about military flashpoints.

They were participating in a discussion on Storms Ahead: Economics on Track, Political Peril is Back, one of the sessions at a two-day seminar organised by BusinessWeek.

Refering to recent events, Mr Stanley Roth, former US Assistant Secretary of State for East Asia and the Pacific, said political leadership and governance were turning out to be important issues in many countries and would hold up progress for the region.

In Japan, he feared that Prime Minister Yoshiro Mori would not be able to survive until the end of the year, given that his popularity ratings had fallen to an all-time low of 9 per cent.

As for China, he believed tensions would brew with the upcoming changes in leadership.

'It would mean a good time for the military with a hike in the defence budget, but it could also mean a hardening on the Taiwan issue,' he said.

In South Korea, too, President Kim Dae-jung was losing popularity with people, who believed that North Korea had gained more from the agreement to engage the isolated Communist nation, he said.

The former US official, however, said that a stronger worry was the ongoing events in Indonesia.

Indonesia's failure to achieve political stability could eventually break up the country, he said.

But he hastened to add that it was unlikely because it was held up by vibrant growth in the region.

Other panelists agreed with him, and noted that the timing of the regional political instability coincided with the expected soft landing of the US economy.

Said Mr Mark Clifford, Asia regional editor of BusinessWeek: 'The enthusiasm for investing in the region would dampen.

'Already, foreign investment has fallen off the cliff and this is worrying because South-east Asia needs that investment.'

Dr Fong Cheng Hong, DBS Bank's managing director of treasury and markets, said the linkages in trade and stock markets explained how a slump in the US economy would affect economies in this region.

She said that a large part of the exports from China and Asean were directed to the US.

Speakers felt that the slowdown in the US economy would also impact Asian economies as the outlook of both Japan and the European Union was not optimistic in the immediate future.

On the business side, Mr Mark Daniell, managing director of Bain & Company, said that apart from the political and economic changes, companies also needed to think about the competitive volatility that would follow.

The nature of strategies would have to change for different countries, and this would spur competition between companies, he said.

'How the companies make the most of opportunities or manage the risks will decide who the winners and losers are going to be,' he said.

The two-day seminar ends today.