It is a truism to say that when political risk rears its ugly head, investors run for cover. And at the moment, Asia has the most risky political situation seen since the worst days of the crisis. In nearly every country in Asia, political unrest is upsetting the markets and that means financial transactions and secondary markets are suffering.
Including the farce in the US election process, most countries in Asia have specific political troubles as well, all of which have corked the deal pipeline from the region. In the Philippines, Indonesia and Taiwan, three presidents are under the threat of impeachment. This creates political turmoil and a leadership vacuum. Not surprisingly all three countries are suffering economically for their political woes. In the 11 months so far this year, Indonesia's main stock index is down 37.2%, Taiwan's composite index is down 31.7% and the Philippine Stock Exchange index is down 31.4%.
In Thailand, a particularly nasty election campaign is being waged between the incumbent, Prime Minister Chuan Leekpai and the Democrat Party, and the challenger, telecom tycoon Thaksin Shinawatra, head of the Thai Rak Thai party. Expect all normal investment activity to cease in Thailand until after the January elections are over.
In Korea, the country is geaing up for parliamentary elections in April next year which early polls suggest the opposition Grand National Party will win. This could mean a split government, between President Kim Dae Jung and his Democratic Party, and the opposition-run parliament. The further economic reforms that are so needed for the continued growth of the country are likely to be stymied in such a political deadlock.
Even in China, over the next two years, communist party cadres will go about the byzantine process of selecting the President and Prime Minister who will replace Jiang Zemin and Zhu Ronji when they retire in Autumn 2002 at the 16th Party Congress. This shadow play is all about power and money and expect foreign investment, WTO reforms and the economy to be deciding factors in who emerges on top.
Although their markets are suffering by the contagion of uncertainty that is strangling the region, only Malaysia and Singapore seem to be spared from this round of political turmoil among investable Asia, showing once again that it is always safest to invest in a dictatorship.
What makes this round of political turmoil so disturbing for the business and financial sectors is that so much is at stake. Asia has still, to a large degree, failed to reform its way out of the crisis. And the amount of reform that is still needed can only be delivered by politicans, because the corporate elites have refused to reform themselves.
In such a situation, who gets impeached, who wins elections and how those elections and impeachments are processed, become vitally important factors in the health of the economy. It is a sign of how intertwined politics and business still are in Asia that the political rumblings are being felt so strongly in the economy. It is a cruel blow to the region's financiers and business people that so much politics is happening in so many countries at exactly the same time.
