Political Risk in Asia: Fact or Fiction?
November 2001
Rather than assuming that a negative media
report automatically implies a corresponding increase in political risks, the
international business community would be wise to separate fact from fiction.
Daniel Wagner explains.
by Daniel
Wagner
AIG
Indonesia is not about to fall off the
end of the earth. I know this may come as a surprise to some, especially those
who were expecting that the demise of Gus Dur and ascension of Megawati to the
Presidency of Indonesia would result in widespread rioting and anarchy. Pandemonium
did not break out, and Indonesia is still intact. The latest political drama
in Indonesia is a perfect example of how a perceived level of political risk based on media reports or outside opinions may differ
from the actual degree of political risk,
based on experience.
Economic Performance
Consider the case of Indonesia's economic performance last year and the first
quarter of this year. The country exported $62 billion worth of goods last year,
which included 23 percent growth in non-oil/gas exports, and the economy grew
4.8 percent. Since the Indonesian economy is not dependent on electronics manufacturing
and sales for its livelihood, first quarter growth for 2001 was 4 percent.
So, while countries like Taiwan and Malaysia suffer as a result of the slowdown
in electronics purchases in the United States, Europe, and Japan, Indonesia's
economy turned in a respectable performance at the beginning of the year. However,
since the bulk of media reports about Indonesia continue to be overwhelmingly
negative, the business community does not focus on some of the more positive
news and the perceived level of political risk is as a result higher than what
the actual degree of political risk may in fact be.
Unlike people outside the region who read media reports on Asia's various
political, economic and social woes, businesspeople in Asia usually know the
difference between fact and fiction when discussing political risk in Asia.
Unfortunately, as a result of a tendency to rely on media reports and an absence
of on-the-ground fact-finding, many decision-makers outside the region are more
inclined to believe that Asia may implode at any moment.
Media Exaggeration Examples
Take the example of the Philippines. The media has much of the world believing
that they will be kidnapped if they step foot in the Philippines. The truth
(based on my own experience and from speaking with a variety of people there)
is that while kidnapping is indeed an issue, it is largely confined to a few
of the more than 7,000 islands in the country. Wealthy local Chinese businessmen
are far more likely to be kidnapped in the Philippines than are tourists. And
yet, because the media continue to harp on the Abu Sayyaf, the negative impression
created about the business climate in the Philippines persists, and, because
of all the attention given by the media, the kidnapping continues.
Another example is how the media have completely exaggerated the risk of
armed conflict between Taiwan and the People's Republic of China (PRC), prompting
some foreign businesses to question the wisdom of doing business in Taiwan.
Based on my own experience and conversations with people in Taipei, while the
risk of armed conflict is obviously possible, it appears to be remote (as 52
years of history demonstrates). Both sides know that Taiwan and the PRC gain
much more by engaging in cross-border trade and investment than by rattling
sabers. The two countries have far more in common culturally, linguistically,
and historically than they have issues that separate them.
A Personal Perspective
From my perch, traveling widely in Asia and interacting with hundreds of
traders, investors, and lenders in the region, the subject of political risk
in Asia is ever-present. As is the case with every other area of the world,
political risks exist in every country in Asia—not just developing countries
but in the developed countries too. Most of the people I speak with are not
deluded about the existence of political risk in the region. They know it exists,
but they also realize that in large part political risks are manageable.
The areas of concern tend to focus on ensuring smooth conversion and transfer
of currency and having confidence that government payment and performance obligations
will be honored. As in every other part of the world, these will be concerns
regardless of what the political climate may look like at any given point in
time.
There is no doubt that political risks such as currency inconvertibility,
political violence, and contract frustration are real and impact the business
landscape throughout the region at any given time. What is less clear is what
effect ongoing political and socioeconomic change has on these risks for traders
and investors in specific countries. Sometimes the impact will be profound and
immediate; other times there will be no effect at all.
Rather than assuming that a negative media report automatically implies a
corresponding increase in political risks, the international business community
would be wise to separate fact from fiction.
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