Commercialism & Christmas in Non-Christian Societies

Thailand features Christmas elephants, f'rinstance

Your Asian correspondent--obviously Catholic with a name like "Emmanuel"--has always found it curious that some of the most extravagant Christmas pageantry can be found in predominantly non-Christian societies. With the exception of the Philippines and (tiny) Timor-Leste, that's practically everyone else in Asia--Hong Kong, Japan, Singapore...you name it. Spending your Christmas holidays in these metropoles and indeed pretty much elsewhere nowadays, you wouldn't even be able to tell that you weren't in a Christian country given the amount of Christmas decorations lining the streets. What's more, their habits of ornamentation and gift-giving usually are more lavish precisely because they are comparatively wealthier countries.

Remarkably, the increasingly cosmopolitan nature of any number of Middle East societies has resulted in a similar phenomenon. Witness even more gigantic Christmas trees in the lobbies of hotels and shopping malls of places alike Abu Dhabi or Dubai. The UAE, of course, is ruled by an Islamic monarchy. But, alike in the Far East, the Middle East has succumbed to similar temptations. As you would suspect, the influx of foreign commercial interests buttresses the natural inclination of expatriates to celebrate the holidays and memories of days gone by. From the Christian Science Monitor:

One curious trend in the global economy is how many countries with few Christians now enjoy aspects of Christmas – the giving of gifts, an exchange of cards, even singing “Last Christmas” by Exile [???--their words, not mine]. What other religion has had its holiday traditions transcend so many borders?

Christmas has become the world’s most widely celebrated religious holiday, even if it is more commercially exploited than religiously observed in non-Christian countries – and even if the Santa Claus fantasies overshadow the day’s real meaning: the coming of Christ to humanity.

To be sure, the spread of Christmas is driven in large part by retailers – and governments – trying to find new reasons to drum up consumer spending. (Halloween and Valentine’s Day are becoming popular, too.) In many Muslim countries, it is this materialistic aspect that is often decried by Islamic preachers. And sometimes, the Christian part gets lost in translation: Foreigners in Japan tell the tale of a Tokyo department store that once decorated a window with a Santa Claus on a cross.

The obvious growth market in a globalized era is the purportedly godless society of the People's Republic of China:

The most explosive growth in celebrating a secular Christmas has been in China. Since the 1990s, the Communist Party has loosened its control over this “Western holiday.” Urban youth have embraced it, seeing Christmas as an opportunity to give gifts, celebrate with friends, and tie up a romance with a wedding. Stores often record their biggest sales around Christmas. Many Chinese can be seen wearing reindeer antlers or Santa hats. Some give specially wrapped apples as gifts (the Chinese word for apple sounds like “Silent Night.”)

As long as Chinese see only the commercial aspects, the government may not worry about the religious meaning. Still, in 2006 a group of university students started an online petition to boycott Christmas, claiming it is a Western plot to erode Chinese culture.

It's a lot of lavishness for a holiday meant to celebrate the coming of a person born in the stables, but I do not necessarily scoff at these practices. During a time when so-called Christian Europe still has a holiday season but has largely forgotten the "Christian" bit retains the "holiday" part, who am I to say the secular celebrants are "wrong"? The IPE of Christmas is simply that its European-based lore is more suitable for commercial exploitation than any other holiday of the major religions. If the Europeans are increasingly secular but still observe Christmas--at least its more overtly commercial aspects--then who am I to judge others who do the same? At any rate, a Merry Christmas to one and all. Somehow, I know you're doing your bit to prop up the consumer spending portion of GDP.

Burj Al Arab, Christmas 2009

Read More

I Wanna Riot...In Singapore [?!]

@#$% the Police, Singapore Edition

Singapore has acquired a reputation for being squeaky-clean to the point of being antiseptic. It is particularly famous for two things in this respect: banning bubble gum in public that can litter surroundings and caning juvenile delinquents alike the Yankee brat kid Michael Fay [whappack!] In reality, though, there are tensions bubbling under the carefully stage-managed facade. There were race riots between ethnic Chinese and Malays in 1964 and 1969 whose records time has not erased. In their wake, Singapore has been at pains to level the playing field for all three major ethnic groups (including those of Indian ethnic descent) by, for instance, having a more diverse civil service, but things are never quite perfect.

Like many Asian nations, Singapore is highly inequitable and is becoming more and more so. Its Gini coefficient stands at 0.478. At the same time, the locals' very low birth rate results in few Singaporeans left to do blue-collar jobs...such as construction. Hence the elements for this year's sudden outburst as an Indian migrant construction worker was struck down by a wayward bus, resulting in that ever-so-rare event: a riot in Singapore.

A crowd of about 400 foreign workers, angered by a fatal road accident, set fire to vehicles and attacked police and emergency services workers late Sunday in Singapore's ethnic Indian district, injuring at least 18 people in a rare riot in the city-state

Police and eyewitnesses say the riot, the first major outburst of public violence here in more than four decades, started at about 9:23 p.m. local time (1323 GMT) after a bus hit and killed an unnamed 33-year-old Indian man in the Little India neighborhood, prompting large groups of South Asian workers to attack the bus with sticks and garbage bins.

Authorities quelled the violence before 11 p.m. after deploying 300 police officers to the scene, including its riot-control squad and Gurkha unit, police officials said in a news briefing early Monday, adding that officers didn't use any firearms to end the riot...

Police officials said 10 officers were hurt, none seriously, while the bus driver involved in the fatal accident—a Singaporean—was hospitalized. Five vehicles were burned—including three police vehicles, an ambulance and a motorcycle, the Civil Defense Force said. Several other vehicles—including police, civil defense, and privately owned cars—also were damaged, officials said...

The role of migrant workers has come under scrutiny:

The riot has sparked concerns of festering unrest amid the large foreign workforce, numbering about 1.3 million as of June, in this island state of 5.3 million people. In recent years, some foreign laborers—particularly low-pay unskilled workers in construction—have resorted to protests against alleged exploitation by employers, including a rare and illegal strike last year by about 170 public-bus drivers hired from China.

There is also, unfortunately, an element of racial profiling

Even so, police would "pay extra attention not just to Little India, but also to foreign-worker dormitories and known places of congregation, moving forward," Police Commissioner Ng Joo Hee said at the briefing. Police officials said they were treating the incident as a case of "rioting with dangerous weapons," an offense that carries penalties including up to 10 years' jail, as well as caning.

Good ol' caning; would this be Singapore without it? Yes, Singapore is highly inequitable, but its claim to fame has been different races living in relative harmony in recent years. I guess the seams are beginning to show once more as inequality becomes more evident based on racial differences. Then again, demographic realities probably mean that flashpoints of this sort will continue to occur in the near future, especially as income and racial divides reinforce each other.

This ain't Disneyland, folks.

Read More

Business as Usual: Thailand Back in Crisis Mode

There is an anarchic quality to Thai politics that has to be seen to be believed. At regular intervals, mass protests, military coups and other forms of upheaval toss out leaders whether they are democratically elected or otherwise. Since the turn of the century, media mogul Thaksin Shinawatra--sort of an Asian Silvio Berlusconi--has dominated the political scene, being PM from 2001 to 2006, when he was ousted in a military coup. Since 2006, he has lived largely outside the country to avoid criminal prosecution. However, his allies have held office most of the time, including his sister Yingluck Shinawatra who was elected in 2011:

Although Thaksin or his allies have won every election in the past decade, the judiciary often undercuts him, illustrating how the billionaire former telecommunications tycoon and populist hero remains one of the most polarising figures in modern Thai history.

Since the 2006 coup, court rulings have removed two prime ministers, disbanded four parties, jailed three election commissioners and banned 220 politicians. The military will be watched closely. A major force in politics since Thailand became a democracy in 1932, the military has staged 18 coups - some successful, some not - and made several discreet interventions in forming coalition governments, almost all with the tacit backing of the royalist establishment that now reviles Thaksin.

Now Yingluck Shinawatra finds herself in trouble. She recently tried to ramrod legislation that would grant Thaksin amnesty, but to no avail. Instead of bringing big brother home, she has raised the ire of the middle class Bangkok-based opposition. I've already called her Badluck Shinawatra for her terribly expensive and quite frankly unaffordable populist policies of supporting rice farmers in Thailand's north and northeast. Aside from trying to bring home their bete noire Thaksin home scot-free, Thailand's deteriorating economic situation is driving much unrest as ten of thousands have, well, Occupied Thailand's Government Offices:

Thousands of anti-government demonstrators kept up pressure on the Thai government Wednesday by surrounding more official buildings amid the highest tensions the country has seen since deadly unrest three years ago. The protesters in Bangkok continued to occupy the finance ministry building, which they stormed Monday and turned into their secondary command center.

They plan to send groups to a range of other ministries and government offices around the capital Wednesday, said Akanat Promphan, a spokesman for the protesters. Their objectives include the public health, labor, industry, social development and science ministries, as well as a government complex that houses multiple agencies, notably the Department of Special Investigation. The number of demonstrators, led by the opposition Democrat Party, has declined from the huge gathering of roughly 100,000 people that assembled in Bangkok on Sunday.

So those are the politics; now for the economy part. The Thai baht and the stock market are both plunging. Part of the pressure comes from Yingluck trying to auction bonds to pay the rice subsidies she vows will remain in place. Since October (harvest season), the government has failed to pay the farmers. These auctions have not succeeded either in selling the entire amount on offer, raising fears among Yingluck's allies. After all, if the farmers desert her due to non-payment of subsidies, the Thaksinite political base will be angry:

At least four sales of three-year debt in Thailand have failed to raise the targeted amounts in July and August. The notes yesterday were sold at a yield of 3.53 percent, 39 basis points higher than similar-maturity sovereign bonds, Chularat Suteethorn, head of the Public Debt Management Office, said. The securities were issued on behalf of Bank for Agriculture & Agricultural Cooperatives, which is helping to support farmers by purchasing rice at above-market prices. 

There is another large auction scheduled for Friday, November 29. If that too fails (and it looks like it will), you can bet more economic turmoil will hit Thailand and add fuel to the protester's ire at the government. Call this another example in how democracy does not always work. Sure these Southeast Asian equivalents of (Venezuelan) Chavistas are very good at winning elections, but their policies are largely unsustainable redistributive initiatives.

In the end, you got the government you deserve if you vote for this kind of nonsense.

Read More

Philippines, PRC & Geopolitics of Disaster Relief

[I wish to express my appreciation to those who have gotten in touch to check whether I have been affected by the recent storm in the Philippines. Typhoon Haiyan did not really pass through the capital, Manila, where I am currently based. Nevertheless, any help you can extend to my compatriots is most welcome.] Typhoon Haiyan is one of the most powerful storms ever to hit land. While storms of its magnitude are frequent in the open ocean, it is relatively rate that one reaching over 300 kph hits populated areas. The devastation is enormous, and the UN estimates that $301 million is needed to rehabilitate affected regions over a preliminary six-month period:

The United Nations today appealed for nearly a third of a billion dollars to provide humanitarian assistance to typhoon hit regions of the Philippines where aid workers are labouring around the clock to get in urgently needed survival supplies, such as food, clean water, shelter and basic medicines. UN Emergency Relief Coordinator Valerie Amos launched the $301 million flash appeal from Manila, the capital, where she is surveying the damage by Typhoon Haiyan which ripped through nine regions in south-east Asia over the weekend. 

However, many are noticing the comparatively small amount China is pledging to give to its neighbor ($200,000 total):

China's government has promised $100,000 in aid to Manila, along with another $100,000 through the Chinese Red Cross - far less than pledged by other economic heavyweights. Japan has offered $10 million in aid and is sending in an emergency relief team, for instance, while Australia has donated $9.6 million...

"The Chinese leadership has missed an opportunity to show its magnanimity," said Joseph Cheng, a political science professor at the City University of Hong Kong who focuses on China's ties with Southeast Asia. "While still offering aid to the typhoon victims, it certainly reflects the unsatisfactory state of relations (with Manila)."

China's ties with the Philippines are already fragile as a decades-old territorial squabble over the South China Sea enters a more contentious chapter, with claimant nations spreading deeper into disputed waters in search of energy supplies, while building up their navies.

While the merely state-affiliated publication Global Times usually holds the more jingoistic views compared to the truly official Xinhua news agency or China Daily, this time it expresses concern about how the rest of the region will view the PRC's comparative stinginess. A feint, perhaps? It is still notable that such an opinion was made. Especially notable is the recognition of contributions Filipino-Chinese have made when the PRC has been affected by similar calamities:

China shouldn't be absent in the international relief efforts. Instead, it should offer help within the compass of its power, given China's international position and its location of facing the Philippines across the sea. It's a must to aid typhoon victims in the Philippines despite Haiyan having also battered China's coastal regions and bilateral tensions over the South China Sea disputes.

China, as a responsible power, should participate in relief operations to assist a disaster-stricken neighboring country, no matter whether it's friendly or not. China's international image is of vital importance to its interests. If it snubs Manila this time, China will suffer great losses...  

Aid to the typhoon victims is a kind of humanitarian aid, which is totally different from foreign aid in the past made out of geopolitical concerns. Overseas Chinese in the Philippines played an active part to mobilize relief efforts when the mainland was in disaster. It's legitimate that we provide assistance when they suffer.  

Still, China's pledge is indicative of certain things. Its leadership is not quite pleased with the Philippines, having disinvited the latter's president in recent months and now this. These expressions are also conditioned on playing to public opinion: having portrayed the Philippines as "the enemy" over the South China Sea spat to the Chinese public, it is hard to back down on the tough rhetoric against the Philippines by offering millions in disaster relief.

Asian politics are notable for the long memories of those concerned. If so, the Philippines may better remember those who helped it during its time of need. For instance, that Putin guy might not be so mean towards other developing nations...

UPDATE: China has since upped its commitment to $1.64 million, although many are questioning why it has not dispatched its state-of-the-art hospital ship Peace Ark designed for emergencies such as this to the Philippines. 

Read More

China's 'Maritime Silk Road' as a Hegemonic Project

 The wrangling over both the US government shutdown and the debt ceiling caused Barack Obama to cancel his attendance at the annual Asia-Pacific Economic Cooperation (APEC) shindig being held this year in Bali, Indonesia. So he stayed at home to deal with a localized insurrection led by an angry, mostly whitebread crowd, "Tea Party" members, they call themselves. Just desserts, I say. His absence triggered yet another round of commentary about the existence of American hegemony in general and its alleged "pivot to Asia" in particular. Some say the absence does not matter; others think it's a culmination of US decline.

At any rate, this notable omission only served to highlight China's latest plan (gimmick?) to curry favor with other nations in the Asia-Pacific. After having its Noughties-era outreach efforts to ink economic agreements alike free trade deals undermined by its strident assertions to territorial disputes in the South China Sea and East China Sea, the PRC seems to attempting to return to a more diplomatic approach. The Silk Road was named after the commercial routes plied by China when it was an empire. At APEC, keynote speaker Xi Jingping's main talking point concerned the "Maritime Silk Road" which once again promises improved relations with neighbors through commercial ties.

On Oct. 3 during his trip in Indonesia, Xi [Jingping] said in a speech that China and the ASEAN will promote maritime cooperation and build a 21st-century maritime Silk Road. This was also brought up by Li [Keqiang] in his seven-point proposal on China-ASEAN cooperation in Brunei on Wednesday. [B]uilding a maritime Silk Road will involve a new consensus, including discussing the signing of a treaty on good neighborliness, friendship and cooperation, strengthening security exchanges, setting up an Asian infrastructure investment bank and prioritizing maritime connectivity development...

In the seven-point proposal, Li [Keqiang] said "the two sides should launch negotiations on upgrading their free trade area and strive to bring bilateral trade to one trillion U.S. dollars by 2020 so as to allow ASEAN countries to benefit more from regional integration and China's economic growth." Zhang Jiuhuan, former Chinese ambassador to Thailand, Singapore and Nepal, said, "Upgrading the free trade area is another significant step for the Chinese government to beef up China-ASEAN cooperation." 

President Xi and Premier Li have been flogging this idea for many months in ASEAN countries, although they have not yet taken it to the Philippines and Vietnam with which it has the most pronounced maritime disputes in Southeast Asia. Still, they allude to the success of the China-ASEAN FTA which they wish to use expand and use as a focal point in strengthening ties:

Starting operation in 2010, the China-ASEAN free trade area is the largest one among developing countries. China is the largest trading partner for ASEAN, and the association is the third largest trading partner for China. According to Zhang, bilateral trade volume between China and the ASEAN grew from 78.2 billion U.S. dollars in 2003 to 400.1 billion U.S. dollars in 2012. Volume reached 210.56 billion U.S. dollars in the first half of this year, up 12.2 percent year on year.

Zhang said "upgrading the free trade area" is needed for both sides. He said the area will help improve the trade of commodities and services and investment cooperation in order to provide convenience and freedom. "All-dimensional cooperation will create more favorable conditions for the maritime Silk Road," said Zhang. "China's economic growth will also bring about more opportunities." 

The idea remains the same in a liberal sense: improved economic ties will smoothen relations--including frayed ones over territorial disputes. However, reception of the Maritime Silk Road idea is mixed among Southeast Asian countries as you would expect: Malaysians are more sanguine, but then again their territorial conflicts with China are not particularly heated. How successful can the Maritime Silk Road project be in calming neighbors? I personally believe that building more economic ties is welcome, but they will be accompanied by more guarded opinions of China's broader intentions. That is, for how long can it afford to give security matters lesser priority while the "security dilemma" the PRC has created makes others feel insecure?

President Xi Jinping and Premier Li have toured ASEAN extensively; it reflects their strategic outlook of developing relationships with neighbouring countries. The new leadership is trying to diffuse tension in the SCS by using various techniques, of which MSR is one. However, a revival of the MSR looks bleak. Also, earlier the route was used for the import of precious stone, wood and spices but today it will used for oil and gas, which is directly connected to the energy security of not one but many countries. There is an emerging security architecture in the region which has led to an increased arms build-up, and the assertiveness of new regional powers has further complicated the regional military balance, which makes the MSR an unlikely prospect.

Moreover, isn't this the same China that disinvited the Philippine president from participating in a trade mission due to the South China Sea imbroglio? More commerce is welcome, but I believe that economic and security matters are becoming less positively correlated in terms of Sino-ASEAN dynamics. That is, stronger economic ties do not necessarily imply improved security ties. Remember, trade has been increasing against a backdrop of worsening conflicts over the South China Sea with the Philippines and Vietnam especially.

Lastly, wasn't the Silk Road at its height when China effectively enforced a tributary system on others in the region? Perhaps the metaphor China has chosen is not a good one since its original iteration had others accepting their subordinate position relative to the Middle Kingdom. The PRC always says it does not seek hegemony (alike white people do), but it has given the rest of us reason to doubt.

Read More

Why are the World's Best Central Bankers All Asian?

Ben Bernanke is the world's leading practitioner of what I call "Jive-A** Central Banking." It involves creating vast negative externalities for others. Easy money policies Stateside have not only led others to justifiably accuse the Fed of beggar-thy-neighbor policies via competitive devaluation (which he denies), but also cause further turmoil in the Hamlet-style drama of whether to end them or not. Suffice to say that these unconventional measures have done little to put the United States on a firm economic footing, let alone a sustainable path for growth.

Recently, Global Finance released this year's list of the world's best central bankers, a sort of Pro Bowl for central banking. In a sign that the "Asian Century" has come to central banking at least, all of the featured top vote-getters were from Asia. (Perennial selection Mark Carney famously moved to the UK from Canada so the jury is still out on him.) Again, I believe this points out that since the Asian financial crisis, these states have learned their lessons about prudent monetary policy in the face of unusual situations: avoidance of extremely negative real interest rates, balance sheet abuse, market-misleading pronouncements and so on. Prudent central banking is not exactly a mystery; why so many violate sound practices is quite frankly galling.

Obviously none of these holds insofar as Ben Bernanke is concerned. Faced with its own crisis, the United States has embarked on Wild West experiments in central banking that, quite frankly, have not produced much of anything.

Anyway, to the press blurb:

Global Finance magazine has named the heads of the central banks of Malaysia, the Philippines and Taiwan as the World’s Best Central Bankers over the past year, in recognition of their achievement of an “A” rating on Global Finance’s Central Banker Report Cards. In addition, the central bankers of Chile and the European Union earned “A-” ratings.

The Central Banker Report Cards, published annually by Global Finance since 1994, grades central bank governors of more than 50 key countries (and the European Union) on an “A” to “F” scale for success in areas such as inflation control, economic growth goals, currency stability and interest rate management. (“A” represents an excellent performance down through “F” for outright failure.) Subjective criteria also apply.

It is almost surreal to me, but the Philippines' own Amando Tetangco is the "veteran" here, having won the award five times in 2006, 2007, 2011, 2012 and now 2013. He is becoming the Michael Schumacher of central banking for those keeping score. This representing a country that was among the hardest-hit during the Asian financial crisis continues to amaze. As I said before, some people learned from their crisis. Others didn't.

BTW: Mario Draghi getting an A- demonstrates that being a Western crisis-hit entity is no excuse. Good riddance, Bernanke. You will not be missed by your own people or the rest of the world.

Read More

East / Southeast Asia's Demographic Bifurcation

There's are always interesting demographic discussions about the "West and the Rest," but there are also interesting demographic variations within regions.Take the Asia-Pacific: While Japan is emblematic of the problems with a shrinking population, it will soon be joined in that situation by a number of East Asian neighbors absent large rises in fertility or large-scale inward migration:

"Japan was largely the only country that was aging and shrinking in terms of its labor force and population in the previous decade. But in the coming decade, several Asian countries – including China, South Korea, Hong Kong [...] will see their labor forces shrink. This will have important implications for GDP [gross domestic product] growth, consumer spending and asset prices, judging from Japan's experience..."

Japan is home to the fastest aging population in the world, with almost a quarter of its population over the age of 65. The country has struggled with sluggish growth stemming from a shrinking workforce, which has put pressure on the government to boost productivity levels.

OTOH, you have the more demographically promising Southeast Asian countries that have not yet reached a similar stage in the demographic transition as their wealthier northern neighbors:

The U.N. sees the working-age population in Indonesia and the Philippines peaking in 2058 and 2085 respectively, later than previously anticipated. At the same time it brought forward forecasts for other Asian countries including China, where the working-age population is expected to peak in 2015, and its total population, currently around 1.3 billion people, is seen decreasing after 2030.

BofAML's Chua says demographics are useful indicators of real GDP growth, noting a strong correlation between changes in working-age population and growth in the real economy over the past decade (2002-2012). 

To be sure, demographics alone do not drive economic growth. However, Japan's example does illustrate the pitfalls to having too few working-age people going forward. Previously marginalized as development laggards, more are taking notice of Indonesia and the Philippines as investment opportunities partly for demographic reasons. 

Read More

Singapore Needlessly Discriminates Against Expats

The cute (and very rare) Singapore baby

Here's another interesting feature about the politics of migration being waged right here in Southeast Asia. One of the reasons why the People's Action Party of (PAP) Singapore lost 40% of the popular vote in the 2011 elections is frustration over foreigners purportedly taking away plum jobs, scarce housing and using public services, leaving its citizens to seethe. It even seems its losses are widening. In response, the PAP has ushered in curbs on hiring foreigners--a "Singapore for Singaporeans" sort of policy. With anger not yet subsiding, the government is now seeking to advertise openings first to locals as a policy response:

Singapore will widen foreign-worker curbs to professional jobs as the government clamps down on companies that hire overseas talent at the expense of citizens, stepping up efforts to counter a backlash against immigration.

The Southeast Asian nation said yesterday it will set up a job bank where companies are required to advertise positions to Singaporeans before applying for so-called employment passes for foreign professionals. The unprecedented policy will target jobs that currently pay at least S$3,000 ($2,400) a month, an amount that will be raised to S$3,300 by January. 

In case you're curious, the unemployment rate in Singapore is 2.1%--3% for Singaporeans. While it is minuscule by Western standards, Singaporeans are apparently not keen to compare themselves with the old world:

The job bank will be set up by mid-2014, the Ministry of Manpower said in a statement yesterday. Companies with 25 or fewer employees will be exempt from the new rules, as well as jobs that pay a fixed monthly salary of S$12,000 or more, it said. The cap was set as that would include 95 percent of the local workforce, it said.

“This is a step up from the government’s efforts to tighten the quality and the quantity of the foreign worker inflows,” said Chua Hak Bin, an economist at Bank of America Corp. in Singapore. “We’re moving to another phase now where they’re looking to ensure that opportunities for the middle-income Singaporeans are maintained.”

The nation’s unemployment rate rose to 2.1 percent in the second quarter, with the resident jobless rate at about 3 percent. That “translates to 50,000, 60,000 Singaporeans without jobs,” Tan, the minister, said. “What the regime allows is that there may be a better matching of demand and supply” between companies and job-seekers, he said. 

At any rate, I am convinced that there is nothing structurally amiss with immigration to Singapore for the very simple reason that its total fertility rate is well below the replacement rate of 2.1 children per woman. It has not reached that level since 1976. Barring migrants wholesale would result in depopulation in quite short order since its current total fertility rate is 1.2:

My take is that there is currently slack in Singapore's mostly white-collar labor market due to a number of factors such as reduced hiring in service sectors alike banking post-global financial crisis. These will soon even out, though, easing complaints from locals that foreigners are "stealing their jobs" and so forth. Natalist policies haven't exactly born fruit.  Make no mistake: Singapore's real problem in the medium- to long-term is not having too many people, but having too few of them. (Cue Barbra.)

PS: Besides, isn't Singapore supposed to be the world's most adaptive nation?

Read More

Cola's Final Frontier: Coke v Pepsi in Myanmar

He thought he was the King of America
Where they pour Coca-Cola like vintage wine

In 1986 Elvis Costello penned the lyrics above to the first song of his album King of America, "Brilliant Mistake." I thought it was pretty crafty way back when, but even then, the snobbery against drinking carbonated beverages was their cultural unsophistication as Costello intoned. Nowadays, of course, we are more concerned with the unhealthy amounts of sugar and caffeine they contain. Such concerns have caused cola consumption to steadily fall Stateside since 2005, but it remains a highly saturated market with the average American drinking a whopping 714 8 oz servings of carbonated beverages in 2012.

Supersaturation of the home market has caused both Coca-Cola and Pepsi to take on a two-pronged strategy. The first is developing ostensibly healthier drinks. The second, of course, involves going abroad in search of new or undersaturated markets. Reflecting the latter concern, it is unsurprising that the current heads of these venerable American brands are foreign-born and that they gained their reputations by growing business abroad: India-born Indra Nooyi has been Pepsi CEO since 2006 and Turkey-born Muhtar Kent has been Coca-Cola CEO since 2009.

Together they have been duking it out in cola wars waged around the world in a battle for carbonated supremacy. Compared to the 714 colas each American consumes, there is room for much sales (and waistline) growth elsewhere. Nowhere is this competition as intense in Southeast Asia as Myanmar. Returning to this market for the first time since Eisenhower was president after decades-long US sanctions were lifted. Coke finds challenges and opportunities in equal measure. While Pepsi was first to re-enter Myanmar last year, it has had to up its pace in market development with the entry of Coke by signing new bottling agreements. Over a third of Pepsi revenues are now in the developing world. OTOH, Coke's Muhtar Kent compares Myanmar opening up to the world to the fall of the Berlin Wall, and fellow MNC Unilever likens it to "another Vietnam" in terms of possible future returns. (Should we be glad that "Vietnam" is now shorthand for promising new markets as opposed to unpromising battlefields?)

The stage is thus set for another battle royale for the hearts and waistlines of the Burmese consumer. (Coca-Cola counters with CSR efforts on the latter point, though.)  Indeed, the only ones losing out economically may be domestic firms that grew during the years of international isolation (see the clip above). Local firms are going into a cost-leadership strategy from what I can tell while ceding the foreigner / upscale segments to the MNCs. Either way, there may be no greater beverage grab of this magnitude to come for years unless North Korea opens to the world, too.
***

NPR has a very interesting write-up concerning Myanmar's isolation: Coca-Cola went back to its promotional strategies during the 1800s to account for ways to gain product attention in a "media dark" environment:

[Southeast Asia Marketing Director Shakir] Moin says he started to go back in the Coca-Cola archives. He was looking at how the company marketed its product before the internet, before TV, even before radio. Eventually he found his perfect model for Myanmar, place where nobody knew anything about Coke — Atlanta, 1886.

Back then the hot advertising trend was wall posters. Moin noticed that in the beginning, Coke didn't use the posters to talk about friends or happiness or style. It talked about what the product tasted like. It simply described it. Moin pulled out two words in particular that would form the core of his Myanmar campaign — "delicious, refreshing." Those two words from the 1800s are now on the Myanmar bottle, and on the billboards and fliers that advertise the product.

Moin pulled another trick from the early days of Coke. They offered free samples. Samples has brought people into the pharmacy soda counters in Atlanta in 1886, now free samples attract crowds at Buddhist festivals in Myanmar. It's a way to get people to taste the product, but just as importantly, it's a way to show off Coke at its best.

Read More

Third World Solidarity? Petronas Ditches PDVSA

Just when you thought things could not get worse for Venezuela's economic situation, they do. In recent times, Venezuela has sought to partner with other developing countries for exploiting its energy reserves in the likely belief that they would be more understanding of its political-economic situation. Having offended American oil giants through forced nationalization, it arguably had little choice but to look East.

Today's case in point is Malaysia. Just as Venezuela uses its control over a state-owned oil firm to further national objectives, so does Malaysia. Alike that of Venezuela, Malaysian leadership has also been accused of despotic tendencies--especially its perennial party in power UMNO. Allegations of electoral irregularities? Check that too. Despite similarly relaxed attitudes towards Western-style platitudes about good governance, however, it appears Malaysia has its limits and is now fed up with Venezuela. As a result, Malaysia's state-owned oil firm Petronas wants to sell its stake in a partnership with Venezuela's counterpart PDVSA:

Malaysian oil company Petronas said it is exiting one of the biggest petroleum projects in Venezuela's Orinoco belt, after what sources close to the venture and within the firm said were disagreements with Venezuelan authorities and state-run PDVSA. The flagship project, called Petrocarabobo, has planned investments of about $20 billion over 25 years and calls for building a 200,000 barrel per day upgrader to convert heavy crude into light crude oil.

When the venture was formed in 2010, Venezuela touted it as a sign that oil companies were willing to put up with demanding fiscal conditions in exchange for access to the world's largest oil reserves. Petroleos de Venezuela (PDVSA) has 60 percent of the project. Petronas belongs to a consortium that holds 40 percent. Its other partners are Spain's Repsol, India's ONGC and two smaller Indian firms, Oil India and Indian Oil Corp. Petronas holds an 11 percent stake. Sources close to ONGC and Oil India said on Wednesday they were unlikely to buy the stake being shed by Petronas. 

I wonder why there are no takers. To begin with, Venezuelan crude in the Orinoco is heavy and sour, which makes it difficult to refine unlike light, sweet crude oil. On top of this challenge, you have the Venezuelans constantly changing revenue-sharing arrangements adding to the confusion:

"This should not come as a surprise. We have not been excited about this project for the past two years because of the dealings with the government," said the source, who requested not to be identified as he was not authorized to speak to media [...]

One source close to the project told Reuters that frequent changes in the fiscal framework, disagreements with the government of Chavez's successor - Nicolas Maduro - about the business terms, and long delays led to the decision to withdraw. 

So much for third world solidarity since even Malaysians are no longer willing to put up with the arbitrariness of Chavez's successor Maduro. If even the Chinese withdraw next given their unconcern over Western conceits alike transparency and good governance, who will be left to provide the technical capabilities to extract this heavy and sour crude? 

Read More

S China Sea: PRC Unwelcomes Philippine President

All China's hard work building economic ties with Southeast Asia is now in peril: Hot on the heels of the Philippines taking China to the International Tribunal on the Law of the Sea (ITLOS) against China's wishes--the PRC has constantly reiterated that it wants to solve the maritime dispute bilaterally--comes this latest blow to China-Philippine relations. Not only are there obvious legal complications to the Philippines unilaterally calling for arbitration which is usually called for by both parties, but rousing the ire of China may have negative economic repercussions.

China has what I call a petulant brand of diplomacy over maritime disputes. If it doesn't get its way, it throws a tantrum seemingly unbecoming of a would-be challenger to American hegemony. Simply, it doesn't stay cool. This is especially true in China's willingness to let security-related tussles spill over into the economic sphere. Witness it boycotting last year's annual World Bank/IMF meetings which were being held in Tokyo as trouble over the East China Sea resurfaced.

Now to the snub: Since 2003, part of China's charm offensive aimed at Southeast Asia aside from concluding an FTA with ASEAN has been hosting the CAExpo trade fair for encouraging Chinese foreign investment in Southeast Asia (see image above). In past years it has been customary for the head of state of the "country of honour" to go to China. This year the Philippines has this designation, and its president scheduled a trip to the Middle Kingdom despite strained ties. However, the Chinese recently rolled back the red(s) carpet, telling him he has was not welcome:

When Malacañang [the Philippine president's residence] got word on Wednesday that it was not a “conducive time” to set foot in Chinese soil, President Aquino, who was supposed to attend a trade fair and business conference in the southern Chinese city of Nanning, changed his mind and backed off. “The President has decided not to proceed to Caexpo (China-Asean Expo), taking into consideration China’s request for him to visit the country at a more conducive time,” said Raul Hernandez, spokesperson of the Department of Foreign Affairs...

China’s request was relayed to Secretary of Foreign Affairs Albert del Rosario late Wednesday, he said.Amid China’s apparent snub of President Aquino, Del Rosario is choosing to stay calm. Del Rosario yesterday opted to hold back in reacting to China’s decision to virtually uninvite Mr. Aquino from attending the regional trade expo as he still hoped to save the relationship between Manila and Beijing.

He admitted, however, that exercising such restraint is tough, considering the gravity of what happened. “For the sake of preserving our relations with China, I think it is best to limit our remarks to what had previously been stated,” Del Rosario told the Inquirer via text message yesterday. “As may be evident, we are all having the greatest of difficulties in exercising restraint for what they had done to our President,” said the official.

It's partly a demonstration of China's growing economic clout that the Philippines is still sending a sizeable delegation hoping to drum up business, but how exactly would you interpret your president being declared persona non grata in China affecting prospects for attracting investment? The symbolism is not promising.

UPDATE: The Associated Press reports that Philippine officials were aghast at China's two conditions for allowing Aquino to visit China, including withdrawal of its arbitration case at ITLOS:

Two Philippine officials told The Associated Press that China wanted Manila to withdraw a U.N. arbitration case over disputed islands in the South China Sea. The officials spoke on condition of anonymity because they were not authorized to speak to reporters.

Chinese officials have also cited a new standoff between China and the Philippines over the Second Thomas Shoal, which is called Ayungin Shoal by Filipinos and Ren’ai Reef by the Chinese, the Philippine officials said. China has asked Manila to remove a navy ship that ran aground on the shoal years ago, but the Philippine officials said the area was well within their territorial waters.

This could be true or hearsay; at the end of the day, the fact remains that the Chinese told the Philippine president to stay home.

Read More

Obstacles to the Global Mobile Banking Era

In many parts of the developing world, mobile banking or "m-banking" has largely supplanted conventional banking as the primary interface of customers with the financial system. For starters, many of the poor cannot meet minimums to open bank accounts. And, even if they did, bank branches are often sparse outside of urban centres. (Some m-banking heavy countries have generations of customers who've never even really used bank branches.) Just as cell phones have become far more plentiful than land lines in LDCs, though, people have needs for financial services as well as communications. Hence the ongoing popularity of using cell phones as "mobile wallets" to make purchases, pay off loans, receive salaries and so forth. As such, they can be quite handy in countries where financial services are sparsely available.

Truth be told, though, the diffusion of m-banking services has not been so swift outside of innovative countries in this space alike the Philippines in Southeast Asia, India in South Asia and Kenya in Africa. Just in time, a batch of three new articles from Global Briefing, the online publication from Commonwealth nations, tell us not only about their prospects but also why their diffusion has been slow.

First, there are competitive pressures from traditional banking institutions. Especially in the developed world, traditional bricks-and-mortar banks are afraid about what virtualization of money may do to their income. That is, what would m-banking do to their addiction to fees, fees, fees in a world where consumer choice is more unfettered in sending and receiving money across borders? There may even be broad systemic implications for the international monetary system should virtual currencies gain acceptance and replace national ones. Virtual money supplanting the dollar? I'm all in favour of it! Still, American authorities may not be so keen given the implications of such a shift...

So M-payments are a small part of the financial universe, but they are growing. In terms of the number of transactions, they are mushrooming fastest in emerging economies, although, inevitably, there is more growth in the value of transactions in developed economies. But it is not the mere expansion of transactions that is getting banks and governments hot under the collar about M-payments. What is driving the debate is the potential that mobile money has for changing the way that money works. Consider this: mobile communications are an alternative infrastructure, controlled not by private financial companies, or central banks, or governments, but to a large extent by the people who use them [...] The financial impact may only just be gathering momentum. Could it be that mobile communications will become the medium for new forms of unregulated money, beyond the reach of conventional banking and conventional financial regulation?

If that were to happen, the way the world uses and thinks about money would change beyond recognition. Bank regulation, instead of being a topic of urgent debate, would become an irrelevance. Economic management through monetary policy – the control of interest rates and the issuance of money – would be a relic of the past. Capital controls would disappear entirely. There would be no more offshore banking havens, because everything financial would effectively be offshore. Both risk and profit would be in the hands of individuals, along with whichever companies manage to grab a piece of the new commercial action. Far fetched? In fact, there are many who would welcome such a zero-regulation financial world, in which there are no safety nets and no taxpayer-funded bank bail-outs.

Second, aside from prospects for revolutionizing how the international monetary system works, less drastic regulatory concerns abound. In particular big, bad America's insistence on stringent anti-money laundering and counter-terrorist finance (AML/CTF, not AML/CFT as the article mentions, actually) is saddling consumers worldwide with additional costs:

Given modern technologies, it is hard to believe that sending money costs nine per cent on average and, in some south-south corridors, 15-20 per cent of the principal amount remitted. The fee structure is also highly regressive – the smaller the remittance, the higher the fee. International regulations, especially anti-money laundering and countering the financing of terror (AML/CFT) regulations, are increasing the cost of using mobile phone technology and internet to send money across international borders. These regulations are also preventing global banks from operating bank accounts of money transfer companies, thus contributing to higher costs. Exclusive partnership agreements between national post offices and major money transfer companies are increasing the market power of the latter and stifling competition from new players. Capital controls are preventing outward remittances from many developing countries. And exchange controls, together with dual exchange rates, are discouraging remittances in many countries.

Third, then, is the rather slow uptake of virtual currencies. At present, none can yet fulfil the traditional functions of money: store of value--no one is sure if any of these currencies are going to be around in a few years' time; medium of exchange--even fewer still are accepted by an appreciable user base; and unit of account--valuations of these virtual currencies remains...irregular. So, we still need a trustworthy virtual currency that many will be willing to use and hold:

The next step in the mobile money revolution is the emergence of virtual currencies. At present, mobile wallets use established currencies but parallel digital currencies are now being introduced that can be traded across any digital platform on a peer-to-peer basis. The first – and best known – was Bitcoin, which, unlike alternatives, is not restricted to a single website, nor used solely in gaming. The currency is created by ‘Bitcoin mining’, where rival servers compete to solve maths tests, the complexity of which regulates the supply. The winner gains the virtual money created and it can enter the market, in much the same way that currency created by a central bank is distributed.

Bitcoin has attracted criticism, not least because its founders are unknown, its market value volatile and it has proved attractive to drug dealers. Each Bitcoin was valued at $15 at the start of this year but quickly rose to more than $100 on investor interest. In six hours in April, the exchange rate plummeted from $266 to $76 then rebounded to $160. Other convertible virtual currencies have followed, including Ripple. Developer OpenCoin has created a fixed number of 100 billion Ripples, most of which it will give away for free. It hopes limiting the supply will increase the currency value over time, thus making the Ripples it retains worth a fortune.

The more I read about it, the more I believe that the emergence of m-banking is a necessary step in moving further into a better, post-American world. Escaping from the shackles of their junky national currency which causes American busybodies to stifle innovation over "security" concerns post-9/11 involves the development of a better alternative. In many parts of the developing world, it is already emerging with m-banking. The obstacles are not insurmountable if innovation progresses at the rate it has in the developing world, leaving America far, far, behind in the sophistication of such services.

As always, necessity is the mother of invention.

Read More

Subsidies or Thailand's Descent Into Egyptification

One of the biggest (fiscal) drags on the Egyptian economy is its continued use of massive subsidies for food and energy. At a touch less than a third of the national budget, it eats up a lot of money arguably better spent elsewhere. Moreover, you can hardly say that these subsidies have bought the country peace as the natives have been restless for years and years now and seemingly enjoy killing each other for the heck of it. Having (temporarily) exhausted Detroitifaction as a metaphor for industrialized countries descending into Hades, let us now talk of something happening in the developing countries. You guessed it--Egyptification.

Unfortunately, there is something of the sort going on right here in Southeast Asia. A few weeks ago I discussed the mounds and mounds of rice being hoarded by the Thai government. Not only is the national purse being hurt by this open-ended commitment to buy these crops at well over market prices, but so much food is simply spoiling away since this massive stockpile cannot be sold without significantly denting prices commanded by rice. Thai PM Yingluck Shinawatra tried to roll back the price at which rice was purchased, but quickly chickened out once rice farmers complained. Since her electoral base lies not among city slickers in Bangkok but rather farmers in rural areas, she knew better than to commit political suicide. No matter how economically ruinous, there is little turning back from rice subsidies.

Almost unbelievably, instead of backing down, Yingluck and Co. are now extending subsidies to include rubber. As one of it not the world's largest producers of natural rubber, Thailand is also buffeted by global price fluctuations of this commodity.

Thailand has offered 30 billion baht ($959 million) in aid to rubber farmers to help offset a plunge in the price of the commodity, the latest in a string of costly populist policies the government has aimed at rural communities. Farmers are welcoming the promised funding, though marches are still planned across the country for Monday aimed at keeping up pressure on Bangkok and to ensure the policy is enacted. 

This effort comes on top of (unsuccessful) initiatives to buoy rubber prices by withdrawing supply alongside other major Asian exporters Indonesia and Malaysia given slack global demand. Having caved in to key constituencies alike rice and rubber farmers, the fear is that the Yingluck government will now be obligated to entertain every other agricultural interest group:

The government is walking a tightrope—providing subsidies and other benefits to farmers as soft commodity prices fall while trying to keep a lid on expenditures, which are nevertheless booming. This week's subsidy offer comes in the wake of an aborted government effort to pull back on its rice subsidization program, which has led to massive stockpiles of the staple grain.

The worry, though, is that withholding money from farmers may risk fueling social unrest in a country prone to political violence. "Now that rice farmers and rubber farmers get subsidies from the government, farmers of other crops will want to have their share," said Aat Pisanwanich, director of the Center for International Trade Studies at Thai Chamber of Commerce University. "The government has to come up with longer-term measures because this subsidy isn't sustainable."

These subsidies tend to be self-perpetuating: once granted, they are hard to rescind--especially in light of the current trend towards softening commodity prices. You wish the Thais well, but I do not see a smooth transition out of these subsidies. Already, Thailand has slipped into recession, and you can only imagine calls for these market-distorting measures to increase from agricultural interests whom the Shinawatras have become exceedingly obsequious towards lest they lose this key constituency.

UPDATE: Not that the rubber farmers are content already as they are out in force to, well, ensure the government buys rubber at uncompetitive prices. 

Read More

If I Were On Drugs, I'd Do Ratings Like Moodys

So, just how "moody" is Moodys? For reasons I'll explain, it makes me want to take large amounts of hallucinogens to acquire their "expertise." The global financial crisis revealed that, if anything, major credit rating agencies are not trustworthy. Conflicts of interest and plain negligence abounded. When push comes to shove, it's ultimately up to us to perform due diligence on prospective investments and not have some self-proclaimed rating agency do the job (poorly) for us.

This introduction brings me to the Philippines seeking to complete all major credit rating agencies giving it an "investment grade" designation. On March 27 of this year, Fitch granted the country such a rating after waiting for it for quite some time. On May 2, Standard and Poors followed suit in doing so. All this leaves just Moodys to grant the Philippines such a designation.

During the past week, Moodys people were in Manila assessing what rating to give the Philippines. These discussions were somewhat ridiculous given how low yields are on Philippine sovereign debt. If we take international capital markets as our gauge of investor perceptions of trustworthiness, the Philippines' performance is laudable: In case you're wondering, 10-year Philippine bonds are yielding lower than solidly investment grade nations that have been considered as such for a long time including Israel, Australia, Poland, New Zealand, Chile and Mexico. (And no, the government isn't faking low yields by buying its own papers alike certain governments.) The real question to me isn't whether the Philippines is investment grade but rather why its credit rating isn't higher.

And here's the kicker: The Moodys folks are questioning the government's "failure" to spend all of its budget within the fiscal year. Last I checked, it was called "coming in under budget." Correct me if I'm wrong, but in this era of trillion-dollar American deficits, isn't this a rather desirable outcome?

The government’s failure to spend its budget within schedule will be one of the main issues to be discussed in meetings between state economic managers and representatives from Moody’s Investor Service this week. Moody’s representatives are in Manila as part of the debt watcher’s process in reviewing the Philippines’ sovereign credit rating.

Moody’s still considers long-term peso and dollar bonds issued by the Philippine government as “junk” investments. The firm’s peers, Standard & Poor’s and Fitch Ratings, already rate the Philippines at investment grade. “Funding is not the issue. The issue is capacity to spend the money,” Moody’s senior analyst Christian de Guzman said Monday. 

You apparently don't need an understanding of finance to work for Moodys. Heck, if I took lots of drugs, I'd prolly work for Moodys, too. For them, true-to-life market evaluations don't matter--and underspending is "bad."

Read More

Private Banking: When Will Asia Overtake Europe?

As more fortunes are being built with each passing day in Asia than in Europe, it is inevitable that the former will overtake the latter as the world's top region for HNWI (high net worth individual) accounts. Remember, the Forbes Rich List already had more Asian billionaires than European ones last year. Yet for historical reasons, it appears that assets under management (AUM) in Europe exceed those in Asia still. To be sure, there is some way to go before Singapore overtakes Switzerland, or Hong Kong overtakes London in country-country / city-city comparisons. From the Financial Times:

Singapore could yet overtake Switzerland as the word’s biggest wealth management centre, marking another landmark shift in the economic balance of power between east and west. Yesterday, the MAS [Monetary Authority of Singapore] revealed that the value of assets under management in the city-state had jumped by 22 per cent last year to a record S$1.63tn ($1.29tn), from S$1.34tn a year previously.

Earlier in the month, consultancy PwC predicted that Singapore could dislodge Switzerland as early as 2015. According to the Swiss Bankers Association, which draws on data from the SNB, there were SFr2.8tn ($2.99tn) of foreign assets under management in Switzerland in 2012. The reasons for such a projection are clear. For some years, and especially since the 2008 crisis, more wealth has been created in Asia, and faster, than in any other region at any other time.

The "supercharger" for Singapore is apparently rapid wealth creation in Southeast Asia which it is a part of. Rather than leave their money at home with the accompanying political and financial risks--remember the Asian financial crisis--many in the region prefer the relative "safe haven" that is Singapore with its sounder and better-regulated financial services industry:

While North America and Japan continue to be home to huge amounts of private wealth, Asia is accumulating wealth faster because it is being created by a new generation of entrepreneurs in the rapidly growing economies of southeast Asia...Singapore has also made a virtue of its position in the centre of southeast Asia to attract wealth from families in Indonesia, Malaysia, Thailand and the Philippines.

And what I find particularly amusing is that there is a lack of (qualified, private) bankers in Asia, when most Europeans probably believe that their countries would be better off with rather fewer of them:

In addition, banks say that they struggle with a shortage of qualified “relationship managers” to attract and keep clients. That job is made harder by the fact that wealthy entrepreneurs in southeast Asia typically like to hand their business to more than one bank at a time. Unlike in Europe, loyalty is low. UBS has tackled this by training its own managers at a local “wealth management campus”, housed in former British colonial-era military headquarters. But, for many players that lack the scale of UBS, they are forced to deal with significant costs.

It's a whole 'nother ball game in Asia as the Yanks say: the names may be familiar--UBS, Credit Suisse, etc.--but the rules of play are certainly different. Perhaps the mobility of the industry's big names to Southeast Asia is a reason why Switzerland itself is not too concerned about the Orient's rise.

Read More

Badluck Shinawatra's Failed Global Thai Rice Empire

I suppose that Thai PM Yingluck Shinawatra has received as much grief over her first name as Nigerian President Goodluck Jonathan. But oh, Yingluck, how your name has proven to be unworthy of your fate as of late! Let me explain...

Since her election, Yingluck Shinawatra has continued to court populist support from more receptive constituencies of her brother, the controversial exile Thaksin--folks in rural areas as opposed to the snooty Bangkok city slickers who have long been the most vicious Shinawatra haters. Given the need to enlist their support, what better way is there than to guarantee that the government would purchase agricultural produce at well above market prices? Thinking that they were smarter than your average global rice producer, Yingluck's advisers came up with a grand strategy whose logic went like this:

1. Thailand is the world's largest rice exporter, therefore its price-setting power is unmatched;
2. To court rural votes, the government would subsidize above-market purchases of rice;
3. Thailand would then hoard rice by not exporting it;
4. By withholding Thai rice from world markets, global prices commanded would increase significantly;
5. When a certain price level was reached, the Thai government would then be able to recoup earlier losses from buying farmers' rice at above-market prices (and even make a tidy profit).

As it turns out, Thailand vastly overestimated its influence on global prices since the slack was easily picked up by other producers. Further, India ruined Thailand's grand plans by re-entering the global market just as Thailand was hatching its plans. So, the Thai government is now sitting on a huge unrealized loss in the form of an estimated 17 million tonnes worth of rice reserves purchased at above-market cost:

The plan was simple: Thailand’s government would buy rice from local farmers at a generous price, some 50 percent above the market rates. It would hold the rice in warehouses, cutting off exports to the rest of the world. The sudden shortage from the world’s heavyweight champion of rice exports would cause a spike in global prices. Then, payday for the government as it swung open the warehouse doors and sold its stockpile to the world at a premium. Farmers win, the government wins, foreign consumers lose, but then they don’t vote in Thai elections, so what do they matter? The plan was a political no-brainer, except for one problem: Thailand’s government underestimated how quickly the market can kick back at any would-be puppeteers...

And it was Thailand’s great misfortune that exactly one week after it slashed exports, India lifted its export ban, flooding the market with 10 millions tons of rice. Rather than orchestrate a price hike, Thailand helplessly stood by as global prices sank.

All credit to a rating agency (yes, it is surprising) for noting the true cost of Thai shenanigans and calling them out. But still, the farmers have seemingly gotten used to selling at these ridiculously high prices so there's little turning back:

For a year, the government has shied away from public scrutiny of the program, but Moody’s, the credit rating agency, blew the lid off of the story last month when it warned that the program could swallow up an astonishing 8 percent of the national budget, forcing the agency to reevaluate the government’s credit rating. For a government already mired in debt, the warning shot from Moody’s “crystallized their thinking,” Dawe says.

Yingluck, whose Pheu Thai Party draws its support from the country’s rural northeast, has said the program has achieved its goal of boosting incomes for poor, rural farmers. She has now urged them to now give her administration the flexibility to modify the program. In a public address on a local television series, “Yingluck Government Meets the People,” she said the program would remain in place, and that the government would continue to purchase rice, but it may have to reduce its purchase price to make the program sustainable.  As for the Moody’s report, she has promised to rebut the findings with a government investigation into the true cost of the program.

Thai politics remain as contentious as ever, with Thaksinite "red shirts" alike sister Yingluck & company still slugging it out with royalist "yellow shirts." I shudder to think what the backlash from the opposition will be once those losses are realized given that Yingluck vows the programme will continue. I suppose Thais have gotten used to perpetual regime change by now, so what else is new?

Markets are already on alert that Thai rice dumping on world markets may occur as soon as next week in preparation for the government having to buy the upcoming harvest:

Bangkok’s rice buying policy, designed to boost farmers’ incomes, has led to a stockpile of 17m-18m tonnes. With the new crop set to be harvested in October, the Thai government needs to dispose of its existing inventory to raise money for the new purchases. 

Rice market experts are on high alert as Bangkok could issue tenders for about 350,000 tonnes of its rice as early as next week. Concepción Calpe, senior rice analyst at the Food and Agriculture Organisation in Rome, warns the effects on world prices could be serious if Thailand floods the market with its rice. “It could potentially have catastrophic consequences,” she said.

 At any rate, damage control is already underway to minimize the financial fallout--including a mooted ratings downgrade.

7/31 UPDATE: Thai authorities tried selling some of the stockpiles this week, but bidders are few since there are doubts about the quality of rice that has been stored for quite some time now:

The commerce ministry said Monday that the government's first sale from its stockpile this year is likely to move less than 100,000 tons, compared with a goal of 350,000 tons, as most offers to buy were too low. Traders said market prices are about $480 a ton, while bids for government sales are coming in at about $380 a ton because of concerns over quality.

Read More

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. 

Read More