2013=1997? Volatile Asian Markets + SE Asia Haze

There is something about Asia that seemingly brings on the confluence of cataclysmic financial and environmental events . In 1997, the Asian financial crisis devastated wide swathes of the region in a credit crunch of epic proportions. To further the doomsday mood, the Indonesia-Malaysia-Singapore area was blanketed with suffocating smog emanating from Indonesia's recurrent forest fires. So, not only did market plunges in the values of stocks and bonds take your breath away, but so did inhaling the thick smog.

More recently, some family friends working in Singapore were scheduled to leave for Manila but ran into delays when one of their young'uns had to see a doctor due to the heavy haze blanketing the Indonesia-Malaysia-Singapore area once more. You would have hoped that Southeast Asian nations had dealt with transboundary haze in a satisfactory manner sixteen years later, but no: Forest fires still occur that devastate large areas of the Indonesian rainforest, supposedly started by slash-and-burn tactics of subsistence farmers. For, the easiest way to clear forest cover remains to set in on fire; pity if that fire goes of control.

As it so happens, the Indonesia-Malaysia-Singapore "tri-smog area" is also experiencing financial turmoil as markets here in Asia are being rocked hard. As you probably know, there is much whiplash in bond, currency and equity markets here due to uncertainty over whether the US Federal Reserve will stop buying Treasuries by the tens of billions each month via quantitative easing. There is also uncertainty over the extent of Japan's own version of quantitative easing--for how long and how much? We're sure they would like to continue, but at what cost to Japan's purse? With interest rate expectations being adjusted upwards, it becomes more difficult to borrow money to speculate in stocks. In turn, the dollar is strengthening somewhat as some international investors reconsider their portfolio investments in Asia and head home.

[Cough...cough] Meanwhile, the blame game over smog is leading to a heated war of words between Singaporean and Malaysian officials [ahem...hem]. Amid the suffocating smog, Singapore's environment minister says Indonesia has "no right" to harm the health of his countrymen as the city-state's air quality has become the worst it's ever been, 1997 notwithstanding [choke...gasp!]:

"No country or corporation has the right to pollute the air at the expense of Singaporeans' health and well-being," Singapore's Environment and Water Resources Minister Vivian Balakrishnan said on his Facebook page.

Balakrishnan said Singapore had sent officials to an emergency haze meeting in the Indonesian capital, Jakarta. At 1:00 pm local time on Thursday, the city-state's pollution standards index (PSI) soared to a new high of 371, indicating air quality had deteriorated to "hazardous" levels, and exceeding the previous record set on Wednesday night.

A PSI reading above 300 indicates "hazardous" air, while a reading between 201 and 300 means "very unhealthy". The top PSI readings in Singapore over the past two days have exceeded the peak of 226 reached in 1997 when smog from Indonesian fires disrupted shipping and air travel across Southeast Asia.

OTOH, Indonesian officials think the (pampered?) Singaporeans to be a bunch of whingers--and worse.

Earlier on Thursday, Agung Laksono, the minister who is coordinating Indonesia's response to the haze crisis, accused Singapore of "behaving like a child" by complaining about severe haze from raging forest fires on Sumatra island that has cloaked the city-state. "Singapore should not be behaving like a child and making all this noise," he told reporters in Jakarta. Laksono was responding to Singapore's demands earlier on Thursday for "definitive" action by Indonesia to quell forest fires raging in Sumatra...

Agung Laksono said "It's not what Indonesians want, it's nature."

This being the IPE Zone, what's particularly interesting are Indonesian accusations that Singaporean firms in search of palm oil plantations may be responsible for these fires. What's more, even Singaporean authorities cannot discount this possibility altogether. Indonesian officials have thus tried to deflect blame by suggesting companies based in Singapore may be partly to blame for the fires. To which the Singaporean authorities say, (surprise!) prove it:

"It can easily last for several weeks and quite possibly longer until the dry season ends in Sumatra,"  [Singaporean PM] Lee Hsien Loong said on Thursday, warning of action if Singapore-linked companies were behind the burning. "On the scale of it, it's unlikely to be just small stakeholders slashing and burning."

Singapore has said it wants Indonesia to provide maps of land concessions so it can act against firms that allow slash-and-burn land clearing. The illegal burning of forest on Indonesia's Sumatra island, to the west of Singapore and Malaysia, to clear land for palm oil plantations is a chronic problem, particularly during the June to September dry season...

Indonesian officials have tried to deflect blame by suggesting companies based in Singapore may be partly to blame for the fires. Singapore has said it wants Indonesia to provide maps of land concessions so it can act against firms that allow slash-and-burn land clearing. The illegal burning of forest on Indonesia's Sumatra island, to the west of Singapore and Malaysia, to clear land for palm oil plantations is a chronic problem, particularly during the June to September dry season.

Let's just say this matter is not, ah, clearing up soon. So, on top of financial disturbances we have logistic ones as shipping, transportation and travel are adversely affected on a region-wide basis. Having rather bad memories of 1997, I honestly hope they can sort this issue once and for all to prevent future recurrences. Moreover, the simultaneous occurrence of financial and environmental volatility honestly disturbs me a lot given how much buck passing is happening:

"The slash-and-burn technique being used is the cheapest land-clearing method and it is not only used by local farmers, but also employees of palm oil investors including Singaporean and Malaysian companies,'' Hadi Daryanto, a senior official at Indonesia's Forestry Ministry, told Indonesian media. "We hope the governments of Malaysia and Singapore will tell their investors to adopt proper measures so we can solve this problem together.''

A few years back, LSE IDEAS hosted an event in Southeast Asia asking whether the region was up to the challenge of dealing with environmental issues. My erstwhile boss Munir Majid concluded, in so many words, no. It was thus with no small amount of disappointment that I find his words to be correct no matter how bad the truth hurts as Southeast Asia is once again being blanketed in unbreathable smog. Have the root causes of these fires been identified? No. Have sanctions been put into place to place to deter those responsible? No, for again we still aren't quite sure who the violators really are. Have Southeast Asian authorities been working together to deal with transboundary haze? No, they are bickering instead and trading barbs. Alas, read on to hear more of this sad story: Despite ASEAN coming up with an agreement to deal with transboundary haze pollution in 2002, let's say it hasn't quite worked as intended.