Relevance Of Slumdog Millionaire To Asia

Came across the DVD of Slumdog, rewatched it and still thought this was a brilliant movie. However I still remembered how many Asians were deriding the movie as exploitation or showing poverty porn. First and foremost, its a bloody good movie, pass me the papadams. Secondly people, its a movie. Thirdly, its fiction, although it was based on 'real events' and 'real people'.

Why is it that when a movie portrays disturbing images on the screen, there will be citizens and politicians yapping that its a dishonour, a disgrace, a slap in the face to national pride and/or to national dignity. People, its a MOVIE. The only kind of films that you may get offended if they portray your country or its people wrong is IF its a DOCUMENTARY - repeat after me, D-o-c-u-m-e-n-t-a-r-y, now go look it up in the dictionary. If its a documentary, its should be like a snapshot of history, go and refute it if it never happened or did not paint a full picture.

If its not a documentary, then its a movie, even if its based on real events, its still a movie. You may not agree with the story being told, but you cannot stop others from enjoying them. Asian nations have this huge bloody chip on their collective shoulders - every time a movie comes out that ruffled their senses, be it a swipe on some shoddy past history or capturing pockets of disenfranchised people/community or highlighting corruption and other bad behaviour of certain people, etc... Asians will protest that it paints its people, its country and/or its history in the wrong shade.




I mean c'mon... Zhang Zhiyi in Memoirs of A Geisha also got complaints??!! I agree when Japanese government totally whitewashed the Nanking Incident from their history books, that you should be angry, you should never alter history. Do you think any film makers will even dare do a picture about King Bhumibol of Thailand? If you do, you better never step foot in Thailand. If you asked me, I would like to make a movie about how Thailand basically negotiated with the Japanese, and sold their neighbours (Malaysia and Singapore) to the abattoirs when they allowed Japanese troops to cut through Thailand and into Malaysia and Singapore in exchange for the country not to be attacked by the Japanese - pragmatic yes, reprehensible, a bigger yes.

In the West, the most amount of protests will come after every religious movie. Doesn't matter if its Jesus or Moses, there will be people disagreeing. Disagree ok, go and rant and rave at home or to your friends, why take to the streets? By doing the latter you are trying to impose your your beliefs on others, the same way if you don't agree with gays and lesbians lifestyles, there is no need to go to the streets, if you don't agree to some being Buddhists, does it mean you go to the streets as well? You can argue your case but remember there is a line in presenting your case and stuffing things down other people's throat.

If Slumdog Millionaire was TOTALLY FICTITIOUS, i.e. these slums never did existed, I doubt very much it would have been such a big hit. Its the knowledge that these things are present even till today, its that gritty bit of reality that not many want to face up to, its the desperate lives of many that the rest wants to get out of their minds, its the hordes of begging children crowding you when you go to work every day - you want to desensitise yourself from the realities in order to carry on your daily lives. You cannot seriously be empathetic every day, every hour, every minute with the down-trodden, the poor, the sick, the broken... when they are around you all the time - its an open wound that no one wants to see and be commented on, look at the pus!

The detractors called Slumdog "poverty porn", c'mon... so if its Rambo then its "violence porn", if its a chick flick would it then be "romance porn"? Global audiences might be accustomed to thinking about India in terms of a country divided by extravagant wealth and dismal poverty, but Indians themselves still seem uncomfortable with that reflection. That seems to be the crux of the matter, Asians generally are not yet comfortable to see their surrounding, their people or history being portrayed in a not too flattering manner - misplaced pride or lack of self identity or lack of confidence in national identity or ...



If there were movies about the going-ons in Petaling Street or Jalan Tuanku Abdul Rahman after midnight, we should be OK with it, if there is a movie about police corruption or brutality in Malaysia, we should be OK with it ... but I rather want it to be called a documentary though!

Good movies will cause people to be entertained, great movies will cause people to reflect and remember. Slumdog should be the catalyst where the people responsible may finally do something to help eradicate or at least reduce the abysmal poverty in India. These slums cannot be allowed to exist in this day and age, its inhumane, our pets have better lifestyle. The slums are not just in India, its everywhere, in the Philippines, Thailand, Indonesia and even Malaysia. We should not close an eye to injustice, we need to uphold human dignity.

The scenes where children are maimed or blinded to be better beggars was a stark reminder to all Asians, because we all know its true and not just in India. There have been too many cases of kids being kidnapped by gangs, smuggled to another country and have their limbs amputated to be beggars - you know and I know its out there but to be forced to come to terms with it is not something we want to confront. The poverty in the movie is tainted with the infernal caste system and religious bigotry - both being huge issues in many countries. Be open, start to deal with it, open up people's minds about it - education and information.

Bollywood star Amitabh Bachchan said: “if SM projects India as a third-world, dirty, underbelly developing nation and causes pain and disgust among nationalists and patriots, let it be known that a murky underbelly exists and thrives even in the most developed nations.” Yes Ami baby, we all know that, its not just India, don't go nationalistic on people.

There is the chasm between a country’s self-perception and projection and any reasonable measure of its achievements - in particular China and India, both countries are proud and yet coming to terms with globalisation and being an economic force at the same time. Trying to find their feet amidst the global stage - be open, take a backseat to reflect and don't take things personally.

Many Bollywood filmakers derided Slumdog as pandering to Western curiosity - hey, to film the slums probably cost Danny Boyle very little, its right there, no artificial stage or backdrop, its there ... the bloody song and dance (which I loved) at the end of the movie probably cost a lot more than the all the filming done in the slums! Fact - around half of Mumbai's population live in slums and authorities in the state of Maharashtra have long been under pressure to improve conditions there.

The movie has a lot of relevance to Asia as a whole because this continent has more than its fair share of social injustice, plenty of disenfranchised groups, desperate poverty .... Slumdog is not just a movie about India.



That's the serious bit, back to the movie, its a bloody great movie. It has the underdog factor, gritty mini-stories within the movie. A truly great movie will make you feel empathetic with the main characters - Danny Boyle did a marvelous job, you feel for the characters, you know what they were thinking, what their priorities were, why they kept on going.

Yes its a bit about love but more than that, its about the triumph of the human spirit against adversity. In life, we all will face our fair share of adversity, some more than others, that's a given and a definite. How each of us respond to them, is still up in the air. As bad as things are in this world, God will give you the armory and grace to face them: "My grace is sufficient.

India's Economic Strength Compared To China

Why is China the “workshop of the world” when Indian labour is even cheaper and her entrepreneurs admired worldwide? There are many reasons, including (until recently) the anti-foreign-trade policies and small-scale industry reservation policies as well as poor infrastructure in power, roads, water and ports. Perhaps even more important are the restrictive labour laws and certain other regulations, which encourage Indian manufacturing units to “stay small”, thereby forgoing the classic industrial economies of scale and scope.

Both China and India have sizable population, both are seeing a growing middle class by improving the economic livelihood of those in the rural areas. Yet as an economic engine or superpower, India seems to be bogged down by certain factors. The biggest division is that one is state planned centralised economy while the other is probably to most democratised country in Asia with many "almost independently managed states". However, thats the big picture, the reality would show that India's economy is more powerful and resilient in many ways when compared to China.

As a percentage of GDP, China's domestic consumption is the lowest of all major economies, hovering at just 1/3 of GDP. Most of China's growth in 2009 had come from infrastructure spending or speculation in domestic assets. In India, the domestic consumption accounts for 2/3 of GDP - now that is food for thought. China's artificial suppression of the yuan restricts domestic spending. As great as the surpluses are, more than 3/4 of China's capital goes to the 120,000 state controlled entities. That being the case, most of the profits in China end up in state coffers.

The OECD’s Investment Policy Review of India says India has designed policies to encourage investment as part of market-oriented reforms since 1991 that have paved the way for improved prosperity.

“Restrictions on large-scale investment have been greatly relaxed. Many sectors formerly reserved to the public sector have been opened up to private enterprise. Import substitution and protectionism have been replaced by an open trade regime,” the OECD report notes.

But further reforms are needed. India’s policy framework for FDI still remains restrictive compared with most OECD countries. Meanwhile, its investment needs remain massive, with poor infrastructure holding back improvements in both living conditions and productivity.

India’s growth is led by domestic demand and growing incomes in the coming years will continue to boost domestic demand and industrial activity. Reforms, the growth of home-grown corporations and rising scale of foreign direct investment are also pluses. Large domestic savings (37% of GDP in 2007), both by households and corporations, have played a pivotal role in India's economic growth. High domestic savings and the development of homegrown corporations have boosted investment (39% of GDP in 2007), helped by cheap foreign capital. Combined with a large private consumption (55% of GDP in 2007) base and a low trade dependence (imports and exports account for around 20% of GDP), the Indian economy is perceived by foreign investors as a "domestic demand-led story".

Due to the economic slowdown in 2008, household savings in financial assets fell to 10.9% of GDP in 2008 from 11.5% in the previous two years led by the large decline in holdings of shares and debentures. Households also shifted their savings from mutual funds to bank deposits due to an increase in risk aversion in 2008. With the decline in risk aversion in 2009, households will slowly shift back to equities. India's gross domestic saving rate might have declined from 37.7% in 2007 to 31% in 2008-09.

Indis' middle class stands at a formidable 300m while China's figure is around 150m. Half of China's population is in rural areas while India still have 2/3 of them in rural areas. According to a recent study by MIT School of Management, China's absolute levels of poverty and illiteracy have doubled since 2000, while India's have been halved! In India, economic growth in rural areas have outpaced growth in urban areas by 40%. Rural India now accounts for half of India's GDP, it was 42% in 1982, and it contibutes about 2/3 of India's growth . Rural China accounts for only 1/3 of China's GDP, and contributed to just 15% of the country's growth.

Increasing the growth potential and attaining the Chinese type of economic growth is constrained by India's democratic set-up, which requires political consensus to implement economic reforms. Coalition governments in the recent years have slowed the approval of reform and liberalization-oriented legislations. However, policymakers argue that slow and sequenced reforms and liberalization over the years have in fact helped India achieve strong and sustainable economic growth and limited the impact of global cues on the Indian economy.

India's medium term challenges include reducing dependence on foreign oil, increase efficiency in oil consumption to reduce its impact on fiscal and trade deficits. Cutting down oil and agriculture subsidies to reduce unproductive fiscal spending and large budget gap. Structural reforms include improving agriculture yields, development of infrastructure, health care and education access to increase absorptive capacity of economy. Other challenges include: The stance on Foreign Institutional Investors (FIIs) and capital inflows, and managing their role in generating credit and asset bubbles. Balancing private sector and foreign investors' role with concerns about social stability. Reducing corruption, and income and wealth inequality, especially between states and between rural and urban areas. Boosting human capital development and job creation can raise consumer spending, especially for the lower and middle income groups and in rural areas. Liberalizing foreign investment caps, broadening and deepening the domestic capital markets, easing capital controls on companies to borrow from abroad, and improving financial intermediation of domestic savings can buoy investment.

We should reconsider India in relation to China in their path to dominating the global economic scene over the next 20 years. Both will be taking very different path and will have major consequences to the global competitive paradigm. China's still lags in a several areas and the rural dislocation and to a certain extent the "forgotten group" being left behind will have grave social and economic costs in the coming years, if not properly managed and improved on.

p/s photos: Asin

The Nasties Of Hot Money In Asia

Is there "hot money" in the system? Yes, the Fed's and ECB's low interest rates policy has already started the USD carry trade a few months back, and it could add a Euro carry trade to its banner soon. So, where do you think the money is headed or has been residing? Its Asia. The easy way to see where it has been headed over the past few months is to look at Asia's strongest currency this year. At the top of the heap was the Indonesian rupiah, followed by the Korean won and then the Indian rupee. So much so that the central banks at South Korea and Indonesia have expressed strong concerns over the inflow of hot money into their system. Beware of the current gains you have been seeing in stocks, property and currency in these two countries. They could just as easily disappear overnight. It also appears that the new favoured son by these carry trades is Taiwan.

Hence, we may well appreciate the efforts of Bank Negara a bit more over the past 18 months because Zeti refused to join in the bandwagon to "allow" the ringgit to appreciate too much. Rightly or wrongly, much of the hot money bypassed Malaysia and the ringgit because the ringgit is still not "that accessible and free-floated". By maintaining a disciplined approach, Bank Negara has basically staved off any future problems that may have to do with hot money moving too fast into the system and then too fast out of the system.

Many have been wondering why the Malaysian markets did not rise by as much as their regional peers. In fact Malaysian stock market has been in the bottom quartile in performance when compared to other Asian bourses. A huge part of the answer lies in the currency issue just discussed. Safe to say that taking that point further, we may argue that much of the rise in asset prices in other Asian markets may have been mostly "inflated" by the liquidity rush.

Is the region in grave danger of a collapse when these funds exit? What would cause the funds to exit? Well, if the Fed starts to raise rates, not likely over the next 6 months at least. Well, if there is a fresh war or political instability somewhere that causes people to rush to the reserve currency, and/or a massive jump towards risk aversion. The key I guess, is to monitor the rumblings and big trades in USD and the interest rate policy discussions.

On November 10, 2009, Taiwan's Financial Supervisory Commission barred foreign investors from parking their money in time deposits after bringing funds into the country. Plus, foreign investors will not be allowed to extend the deposit maturity beyond three months. Until now, foreign investors were allowed to deposit 30% of the inflows in time deposits for three months with a possible extension for another three months. Portfolio investors can still invest 30% of the net inflows in government bonds, money market instruments, money market funds and derivatives. As of October 2009, foreign investors had parked US$15.5 billion in Taiwan dollar accounts, almost five times the level considered appropriate by the central bank. The central bank has voiced concerns that beside investing in Taiwanese stocks, foreign investors were putting money into Taiwan Dollar deposits to earn interest plus currency arbitrage given the appreciating Taiwan dollar.

The move follows large capital inflows into Taiwan's dollar accounts recently which is putting upward pressure on the Taiwan Dollar and hurting export competitiveness. The central bank has been intervening in the FX market and had recently hinted at capital controls to contain currency strength.

This need not be an explosive issue as it seems that the central bankers in the affected countries are aware of the situation. The danger is when the central bankers do not have the political will to act as they should, or they act too slow to temper the liquidity inflow. One can easily reduce the inflow with various measures, so as to minimise the ill-effects of withdrawal of these kind of hot money.

Funnily, the US Federal Reserve Bank of Philadelphia president Charles Plosser said that the capital flows into Asia are a result of a stronger recovery in the region. He added that the flows are not such that he would consider them to be threatening or inconsistent with fundamentals. OMG, the danger is when enough people in high places in Asia believe that diatribe. These are not long term FDI, its short term, its a play on currency outlook and interest rate differentials, is short term - how in the world can Plosser say its not threatening. It can move asset prices up by 30%-50% in 6 months, and we know its seriously never going to be long term, so when they exit, how can Plosser say that it won't be threatening???!!!


p/s photos: Reon Kadena

Asia Rising - Part Three

"Dictatorship Has Given Asia an Advantage."

No. Autocracies, mainly in East Asia, may seem to have made their countries prosperous. The so-called dragon economies of South Korea, Taiwan, Singapore, Indonesia under Suharto, and now China experienced their fastest growth under nondemocratic regimes. Frequent comparisons between China and India appear to support the view that a one-party state unencumbered by messy competitive politics can deliver economic goods better than a multiparty system tied down by too much democracy.

But Asia also has had many autocracies that have impoverished their countries-consider the tragic list of Burma, Pakistan, North Korea, Laos, Cambodia under the murderous Khmer Rouge, and the Philippines under Ferdinand Marcos. Even China is a mixed example. Before the Middle Kingdom emerged from self-imposed isolation and totalitarian rule in 1976, its economic growth was subpar. China under Mao also had the dubious distinction of producing the world's worst famine.

Even when you look at autocracies credited with economic success, you find two interesting facts. First, their economic performance improved when they became less brutal and allowed greater personal and economic freedoms. Second, the keys to their successes were sensible economic policies, such as conservative macroeconomic management, infrastructural investment, promotion of savings, and pushing exports. Dictatorship really has no magic formula for economic development.

Comparing a one-party state like China with a democracy such as India is not an easy intellectual exercise. Obviously, India has many weaknesses: widespread poverty, poor infrastructure, and minimal social services. China appears to have done much better in these areas. But appearances can be deceiving. Dictatorships are good at concealing the problems they create while democracy is good at advertising its defects.

So the autocratic advantage in Asia is, at best, an optical illusion.

"China Will Dominate Asia."

Not likely. China is on course to overtake Japan as the world's second-largest economy this year. As the regional economic hub, China is now driving Asia's economic integration. Beijing's diplomatic influence is expanding as well, supposedly thanks to its newfound soft power. Even China's once antiquated military has acquired a full plethora of new weapons systems and significantly improved its ability to project force.

Although it is true that China will become Asia's strongest country by any measure, its rise has inherent limits. China is unlikely to dominate Asia in the sense that it replaces the United States as the region's peacekeeper and decisively influences other countries' foreign policies. Its economic growth is also by no means guaranteed. Restive secession-minded minorities (Tibetans and Uighurs) inhabit strategically important areas that constitute almost 30 percent of Chinese territory. Taiwan, which is unlikely to return to China's fold anytime soon, ties down substantial Chinese military resources. The ruling Chinese Communist Party, which views perpetuating its one-party state as more important than overseas expansionism, is not likely to be seduced by delusions of imperial grandeur.

China has formidable neighbors in Russia, India, and Japan that will fiercely resist any Chinese attempts to become the regional hegemon. Even Southeast Asia, where China appears to have reaped the most geopolitical gains in recent years, has been reluctant to fall into China's orbit completely. Nor would the United States simply capitulate in the face of a Chinese juggernaut.

For complex reasons, China's rise has inspired fear and unease, not enthusiasm, among Asians. Only 10 percent of Japanese, 21 percent of South Koreans, and 27 percent of Indonesians surveyed by the Chicago Council on Global Affairs said they would be comfortable with China being the future leader of Asia.

So much for China's charm offensive.

p/s photos: Michelle Yip Shuen

Asia Rising - Part Two

"Asian Capitalism Is More Dynamic."

Hardly. With the United States brought low by Wall Street and the European economy enfeebled by its welfare state and inflexible labor market, most Asian economies appear in great shape. It is tempting to say that Asia's unique brand of capitalism, by seamlessly weaving together strategic state intervention, corporate long-term thinking, and insuppressible popular desire for material betterment, will outcompete either the greed-devastated U.S. model or the hidebound European variant.

But though Asian economies-with the notable exception of Japan-are among the fastest-growing in the world today, there's little real evidence to suggest that their apparent dynamism comes from a mysteriously successful form of Asian capitalism. The truth is more mundane: The region's dynamism owes a great deal to its strong fundamentals (high savings, urbanization, and demographics) and the benefits of free trade, market reforms, and economic integration. Asia's relative backwardness is a blessing in one sense: Asian countries have to grow faster because they're starting from a much lower base.

Asian capitalism does have three unique features, but they do not necessarily confer competitive advantages. First, Asian states intervene more in the economy through industrial policy, infrastructural investment, and export promotion. But whether that has made Asian capitalism more dynamic remains an unresolved puzzle. The World Bank's classic 1993 study of the region, "The East Asian Miracle," could not find evidence that strategic intervention by the state is responsible for East Asia's success. Second, two types of companies-family-controlled conglomerates and giant, state-owned enterprises-dominate Asia's business landscape. Although such corporate ownership structures enable Asia's largest companies to avoid the short-termism of most American firms, they also shield them from shareholders and market pressures, making Asian firms less accountable, less transparent, and less innovative.

Finally, Asia's high savings rates, by providing a huge pool of indigenous capital, undeniably fuel the region's economic growth. But pity Asia's savers. Most of them save because their governments provide inadequate social safety nets. Government policies in Asia penalize savers through financial repression (by keeping deposit rates low and paying household savers measly returns on their savings) and reward producers by subsidizing capital (typically through low bank lending rates). Even export promotion, ostensibly an Asian virtue, seems overrated. Asian central banks have invested most of their massive export surpluses in low-yielding, dollar-dominated assets that will lose much of their value due to the long-term inflationary pressures generated by U.S. fiscal and monetary policies.

"Asia Will Lead the World in Innovation."

Not in our lifetime. If you look only at the growing number of U.S. patents awarded to Asian inventors, the United States appears to have a dramatically receding edge in innovation. South Korean inventors, for example, received 8,731 U.S. patents in 2008-compared with 13 in 1978. In 2008, close to 37,000 U.S. patents went to Japanese inventors. The trend seems sufficiently alarming that one study ranked the United States eighth in terms of innovation, behind Singapore, South Korea, and Switzerland.

Reports of the death of America's technological leadership are, to paraphrase Mark Twain, greatly exaggerated. Although Asia's advanced economies, such as Japan and South Korea, are closing the gap, the United States' lead remains huge. In 2008, American inventors were awarded 92,000 U.S. patents, twice the combined total given to South Korean and Japanese inventors. Asia's two giants, China and India, still lag far behind

Asia is pouring money into higher education. But Asian universities will not become the world's leading centers of learning and research anytime soon. None of the world's top 10 universities is located in Asia, and only the University of Tokyo ranks among the world's top 20. In the last 30 years, only eight Asians, seven of them Japanese, have won a Nobel Prize in the sciences. The region's hierarchical culture, centralized bureaucracy, weak private universities, and emphasis on rote learning and test-taking will continue to hobble its efforts to clone the United States' finest research institutions.

Even Asia's much-touted numerical advantage is less than it seems. China supposedly graduates 600,000 engineering majors each year, India another 350,000. The United States trails with only 70,000 engineering graduates annually. Although these numbers suggest an Asian edge in generating brainpower, they are thoroughly misleading. Half of China's engineering graduates and two thirds of India's have associate degrees. Once quality is factored in, Asia's lead disappears altogether. A much-cited 2005 McKinsey Global Institute study reports that human resource managers in multinational companies consider only 10 percent of Chinese engineers and 25 percent of Indian engineers as even "employable," compared with 81 percent of American engineers.

p/s photos: Nancy Wu Ding Yan

Asia Rising - Part One

The esteemed Foreign Policy magazine has been putting out great perspectives on the rise of Asia, both as an economic power and militarily, albeit the latter is much more fragmented. The first part looks at the realistic predictions of China or India as economic powers in their own right. While growth rates and population strength have been often cited, its still a long way off.

Asia is nowhere near closing its economic and military gap with the West. The region produces roughly 30 percent of global economic output, but because of its huge population, its per capita gdp is only $5,800, compared with $48,000 in the United States. Asian countries are furiously upgrading their militaries, but their combined military spending in 2008 was still only a third that of the United States. Even at current torrid rates of growth, it will take the average Asian 77 years to reach the income of the average American. The Chinese need 47 years. For Indians, the figure is 123 years. And Asia's combined military budget won't equal that of the United States for 72 years.

In any case, it is meaningless to talk about Asia as a single entity of power, now or in the future. Far more likely is that the fast ascent of one regional player will be greeted with alarm by its closest neighbors. Asian history is replete with examples of competition for power and even military conflict among its big players. China and Japan have fought repeatedly over Korea; the Soviet Union teamed up with India and Vietnam to check China, while China supported Pakistan to counterbalance India. Already, China's recent rise has pushed Japan and India closer together. If Asia is becoming the world's center of geopolitical gravity, it's a murky middle indeed.

Those who think Asia's gains in hard power will inevitably lead to its geopolitical dominance might also want to look at another crucial ingredient of clout: ideas. Pax Americana was made possible not only by the overwhelming economic and military might of the United States but also by a set of visionary ideas: free trade, Wilsonian liberalism, and multilateral institutions. Although Asia today may have the world's most dynamic economies, it does not seem to play an equally inspiring role as a thought leader. The big idea animating Asians now is empowerment; Asians rightly feel proud that they are making a new industrial revolution. But self-confidence is not an ideology, and the much-touted Asian model of development does not seem to be an exportable product.

"Asia's Rise Is Unstoppable."

Don't bet on it. Asia's recent track record might seem to guarantee its economic superpower status. Goldman Sachs, for instance, expects that China will surpass the United States in economic output in 2027 and India will catch up by 2050.

Given Asia's relatively low per capita income, its growth rate will indeed outpace the West's for the foreseeable future. But the region faces enormous demographic hurdles in the decades ahead. More than 20 percent of Asians will be elderly by 2050. Aging is a principal cause of Japan's stagnation. China's elderly population will soar in the middle of the next decade. Its savings rate will fall while healthcare and pension costs explode. India is a lone exception to these trends-any one of which could help stall the region's growth.

Environmental and natural resource constraints could also prove crippling. Pollution is worsening Asia's shortage of fresh water while air pollution exacts a terrible toll on health (it kills almost 400,000 people each year in China alone). Without revolutionary advances in alternative energy, Asia could face a severe energy crunch. Climate change could devastate the region's agriculture.

The current economic crisis, moreover, will lead to huge overcapacity as Western demand evaporates. Asian companies, facing anemic consumer demand at home, will not be able to sell their products in the region. The Asian export-dependent model of development will either disappear or cease to be a viable engine of growth.

Political instability could also throw Asia's economic locomotive off course. State collapse in Pakistan or a military conflict on the Korean Peninsula could wreak havoc. Rising inequality and endemic corruption in China could fuel social unrest and cause its economic growth to sputter. And if a democratic breakthrough somehow forces the Communist Party from power, China is most likely to enter a lengthy period of unstable transition, with a weak central government and mediocre economic performance.

p/s photos: Yuna Ito

The Asian Response

• 10 ASEAN nations planning for a crisis fund to tap from if they face severe liquidity crunch due to global financial crisis; Fund can also be used to purchase bad assets, recapitalize troubled financial institutions and private companies; ASEAN+3, ADB, IMF will contribute to the fund while World Bank has contributed $10bn; also include plans for stand-by liquidity facilities
• In spite of limited exposure to US bank losses, risks from external funding crunch, higher borrowing costs, bank panics and deposit withdrawals are growing for banks and corporates in Korea, HK and Taiwan
• Asian central banks had been injecting liquidity into banking system and cutting rates (discount/policy rate) and/or bank reserve requirements to ease liquidity squeeze and spike in short-term rates (swap, overnight, inter-bank rates and spreads) since Sep; Some banned short-selling, guaranteeing deposits, considering fiscal stimulus; following global central bank intervention, these rates have somewhat eased in recent days
  
• Australia: $7.3bn stimulus for pensioners, middle and low-income groups, first-time home buyers; additional stimulus may follow; deposit guarantees; cut overnight cash rate to 6% from 7%, offering 6-mo/1-yr repos; Term Deposit lending facility, expanded types of collateral, loan maturity under bank lending facility as difference b/w inter-bank and overnight indexed swap rate surged; doubled swap agreement with Fed from $10bn to $20bn; banned short selling; to purchase $3.2 bn in residential-backed mortgage securities to help small lenders offer home loans
• Japan: supplementary budget for fiscal stimulus; providing unlimited dollar funds to banks at a fixed rate against pooled collateral until Jan-09 under swap agreement with Fed; eased rates under lending facility, expanded range of bonds under repos, suspended program of selling bank shares; Injecting liquidity amid spike in Yen overnight LIBOR; banks' exposure to Lehman had led to decline in stock prices and short halt in trading on Sep 15
• India: Raised cap and credit cost on external borrowing of firms; cut interest rate 100pbs to 8%; conducting 14 day Repos to help banks provide credit to MFs; allowed banks to lend to MFs against CDs; Allowed Savings bond holders to borrow from banks against govt paper; to infuse capital into commercial banks to raise CAR up to 12%; cut bank reserve ratio thrice in Oct from 9% to 6.5% (first time in 5 yrs); raised FII limit in corporate bonds; raised interest rate on non-resident deposits by 50bps following similar move in Sep; eased limits on banks to raise foreign capital, restrictions on FII equity investment; eased Liquidity Adjustment Facility; continues to sell FX reserves
• HK: to use forex reserves to guarantee bank deposits, set up a fund for banks to access capital; Cut base rate by 150bps to 2% twice in Oct to contain jump in HIBOR; providing additional liquidity to banks via 3-mo repo window, expanded acceptable collateral
• Korea: cut 7-day repo rate 75bps to 4.25% and lowered the base rate 75bps on loans to SMEs amid high commercial paper and loan refinancing costs, household debt; up to $100 bn to guarantee maturing foreign currency debt; to use forex reserves to inject $30 bn liquidity in won-dollar swap market after an initial $10bn; might buy govt bonds from the market to reduce USD shortage; temporary ban on short selling
• Taiwan: Guaranteed bank deposits; Cut discount rate on 10-day loans to 3.25% on Oct 9 (second time in 2 weeks following first cut since 2003), cut reserve ratio (first time in 8 yrs) and ratio for passbook deposits; injecting liquidity into foreign-currency interbank market; lending via repos to insurance companies w/ extended maturity up to 180 days; banned short selling; instructed 4 major funds and state-owned banks to buy shares after stock market fell to 3-yr low on Sep 15
• Indonesia: allowed commercial banks to use central bank debt and govt bonds as secondary reserves; extended FX Swap tenor to 1 month; passage of foreign currency via banks for firms; abolished limit of daily balance position; eased foreign currency min reserve req; Cut bank reserve ratio 1.58bps to 7.5%; exempted banks from mark-to-market rule, eased rules/cap for firms to buy back shares; Suspended trading on Oct 8/9 following 10% slide in stock market; banned short selling for Oct; injected over 3bn via 6-day repo; lowered overnight repo rate, adjusted rate of liquidity facility; might increase infrastructure spending, fiscal stimulus for exporting firms, households
• New Zealand: overnight Cash Rate cut 100bps to 6.5%; introduced opt-in deposit guarantee scheme; accepting (longer term) bank paper in daily market operations, ABSs from local banks for swapping foreign cash into NZ dollars
• China: Chinese banks reluctant to extend loans to foreign banks in the interbank market; reduced 1-yr lending rate (second time in 3 weeks, first since 2002) by 27bp to 6.93% and 10yr deposit rate to 3.87% and cut bank reserve requirements by 50bp to 17%; eliminated stamp duty on stock purchases with plans to buy shares in state-owned banks; to introduce short selling and margin trading to ease pressure on share prices
• Singapore: guaranteed deposits; Injecting liquidity via market operations; prepared to provide further liquidity if necessary and also to individual banks amid spike in 1-mo and 3-mo SIBOR, BEA bank run, CDS also rising; but rates have eased somewhat following central bank measures
• Malaysia: guaranteed deposits; Might inject liquidity, move interest rates if necessary; planning for an economic stabilization stimulus
  
• Pakistan: declining capital inflows/outflows in inter-bank and open market causing currency depreciation; central bank injected $100-200 bn, raised limit on investment bonds and term finance certificates under banks' statutory requirement
• Easing commodity prices, peaking of inflation, growing risks to exports, economic growth might also shift central banks' bias towards monetary easing; Taiwan, Pakistan, Vietnam had earlier intervened in stock market by narrowing trading band, introducing stabilization fund to contain volatility; India, S.Korea, Thailand, Philippines, Indonesian intervening in forex market to contain downward pressure on currency (led by capital outflows, decline in external balances)

Comments: Malaysia and Singapore are still the last to act. Hinting that their fundamentals are more solid than the rest. Safe to say that there is "no attack" on the currency so far. The difference is that Singapore was adamant in defending the strength of the Sing dollar - which could very well bite them in the back as their property side is headed for a substantive fall.

p/s photos: Haruna Yabuki

Roubini On Emerging Markets' Risks

You cannot afford to ignore Nouriel Roubini nowadays, especially since he has been so correct over the past 12 months. Roubini has now latched onto the risks spreading to emerging markets' debts and balance sheet frailty. First thing first, Malaysia is not on the list (phew), but Indonesia, South Korea and India are. How do these risks play out in the mentioned countries? The currency will be under immense pressure, local rates will have to jump sky high to protect value and flight of capital, foreign investment will dry up quickly, short term foreign investments will flee, government and corporate bonds will be downgraded, cost of borrowing will jump, companies on high leverage will suffocate ...

Today we focus on those emerging economies that are falling victim – or are at risk of falling victim – to the ongoing global financial crisis. The escalation of the crisis revealed or exacerbated existing vulnerabilities, such as current account deficits, that were ignored when times were good - ie capital was plentiful. Emerging Market sovereign bond spreads over U.S. Treasuries have risen significantly, more than doubling since late August. Several emerging economies – including Iceland – are in talks with the IMF or regional institutions to provide capital in the face of the global liquidity shortage. While it is still unclear what the role the IMF will have in resolving the crisis, there is no doubt that the debate on its role in international crisis management has been revived.

Iceland

Iceland has been at the forefront of the global credit crisis. What was essentially a banking crisis has turned into a national crisis as Iceland’s banks appear too big for the government to rescue.

Highly leveraged, Iceland’s banks heavily relied on wholesale funding to finance their aggressive expansion abroad. With the rapid depreciation of the local currency and the seize-up of credit markets, Iceland’s banks were having trouble refinancing their debt and appeared headed for collapse when the government stepped in and nationalized the three biggest lenders.

Now reports suggest Iceland’s government is poised to announce a reported $6 billion rescue package from the IMF. While such a package would be a positive step in providing liquidity, there is no question that a severe economic contraction is coming. Some analysts predict Icelandic GDP could shrink by 5-10% after almost 5.0% growth in 2007.

Hungary

Also hard hit by the global credit crisis is Hungary. While it’s not suffering a banking crisis a la Iceland (in the sense that its banking sector is mostly foreign-owned, rather than made up of highly leveraged, internationalized domestic banks), it is similar to Iceland in that the global credit crisis has exposed long-simmering vulnerabilities. High levels of foreign currency lending, slow growth (1.3% in 2007), twin deficits (both current account and budget), and heavy reliance on non-deposit foreign funding all contributed to making Hungarian assets sell-off targets.

The ECB came to Hungary’s rescue last week, saying it would lend as much as EUR5 billion ($6.7 billion) to Hungary’s central bank to help revive the local credit market. But the verdict is still out on whether the ECB credit line and government measures are enough to prevent Hungary from becoming an ongoing hotspot.

Given Hungary’s woes, eyes are focusing on the rest of Eastern Europe for signs of trouble. The slowdown in the region’s key export market, the Eurozone, is expected to dent growth across the region. Meanwhile, high current-account deficits and widespread foreign currency lending are particular risk factors. Poland and the Czech Republic are considered among the least vulnerable, but they are far from immune. Meanwhile the Baltics, Bulgaria, and Romania have long been on analysts’ radar as particularly weak links.

Baltics

All three Baltics (Estonia, Latvia, and Lithuania) boomed over the last seven years and posted double-digit growth rates at their peak, helped by cheap credit from Scandinavian parent banks and EU membership in 2004. Before the the global credit crisis reached fever-pitch, these economies were already headed for a sharp slowdown, with Latvia and Estonia now officially in recession.

There is no question that the global credit crisis will exacerbate the Baltics' slowdown, but will it lead to an Iceland-level crisis? The risk is that foreign capital inflows could dry up and lead to an even sharper slowdown that could infect the financial sector and trigger devaluations. But there are some factors that suggest the sharp slowdown might not evolve into a full-fledged, Iceland-level crisis. For one, external deficits in the Baltics are funded to a large extent by inflows from Swedish parent banks, and sharply cutting off credit would not be in these banks' best interest. Two, substantial foreign ownership of banking assets limits the governments’ contingent liabilities, as Swedish parent banks would be expected to provide support to their Baltic subsidiaries if they get into trouble. Three, the Baltics’ sharp slowdowns have led to speculation that devaluations (they have exchange rate pegs to the euro) could be in the offing. While devaluation cannot be completely ruled out, such fears may be overblown as these countries tend to have shallow financial markets, relative little hot capital, and successfully defended against speculative attacks earlier this year. Nevertheless, without devaluations, these countries' external competitiveness will likely continue to erode, which will impact their growth prospects.

Bulgaria and Romania

Bulgaria and Romania – the so-called ‘gravity defiers’ – are also on the short-list of CEE economies most at risk of being the next hotspots in the global credit crisis. Despite massive current-account deficits (projected to hit 23% of GDP in Bulgaria and 16% of GDP in Romania this year), booming credit growth, and high inflation, these economies have not hit slowdown mode yet – hence the term ‘gravity defiers’.

In the case of both countries, the financing of their current-account deficits has deteriorated, with foreign direct investment (seen as less subject to reversal than other forms of financing) only plugging about a third of Romania’s current account gap and over half of Bulgaria’s. As a result, these economies are highly susceptible to capital outflows, which would trigger a harsh real adjustment.

Another risk is these countries’ high degree of foreign currency lending, particularly notable in Romania which has a flexible exchange rate, meaning unhedged borrowers are highly exposed to currency swings. Romanian households’ high levels of foreign currency lending are similar to those in Hungary (55% in Romania vs. 60% in Hungary of total household loans). And like Hungary, Romania has a budget deficit of over 2% of GDP. Meanwhile, Bulgaria has a budget surplus, which potentially gives its government more room to maneuver if outflows trigger a sharp slowdown. Bulgaria and Romania will be key countries to watch as the global credit crisis unfolds.

Balkans

The negative effects from the credit crunch on the Balkan region have been limited so far. Growth has remained strong, ranging between 4.3% for Croatia and 8.2% for Serbia in Q1 08. Nonetheless, the significant widening of the current account deficit experienced by most of the countries is a source of concern as both external credit and FDI inflows are likely to slow. Croatia may feel severe pressures since it has the highest foreign debt in the region, at 90% of GDP, and the share of foreign currency mortgages and personal loans is near the level seen in Hungary.

Turkey

A number of analysts have cited Turkey as particularly vulnerable to global market turmoil given its large current account deficit. At 5.8% of GDP in 2007, Turkey’s deficit – while substantial – is lower than many of its emerging Europe peers. The financing quality, however, has deteriorated of late and it will be important to watch how this trend evolves. Compared to other CEE countries, however, Turkey is less likely to face a bank-related credit squeeze, since the banking sector is relatively liquid with a loan-to-deposit ratio well below 100% and since wholesale borrowing is a smaller fraction of banking sector liabilities. So while Turkey is not immune to the global credit crisis and will experience slower growth, it is much better placed than earlier in this decade to weather the storm.

Ukraine

Ukraine’s high reliance on external finance makes it particularly vulnerable in this global economic downturn and credit crunch, leading it to seek financial assistance from the IMF. Worsening macroeconomic fundamentals including persistent inflation and a widening trade deficit and domestic and regional political uncertainty have contributed to deposit outflow, tighter domestic money market rates and exchange rate volatility, increasing near term risks for Ukraine's banking sector. The value of the Ukrainian currency, the hryvnya, sank by 20% so far in October forcing the National Bank of Ukraine to intervene and sell dollars at an artificially low rate. Moreover, the equity markets fell over 70% this year.

South Africa

Despite a growth rebound to 4.9% in Q2 2008, South Africa cut its growth forecast to 3% for 2009 on worries that a global recession would depress export demand (especially of metals) and investment inflows needed to finance its current account deficit. The fall in commodity prices has pressured the Rand, which fell to its lowest level since 2003, and domestic equity markets. The South African Reserve Bank left its benchmark interest rate unchanged at 12% for a second consecutive time, even after inflation reached a record 13.6% in August. Meanwhile, President Thabo Mbeki's resignation ushered in a period of political and economic uncertainty.

UAE

The UAE is one of several oil exporters starting to feel the pinch from the reversal of speculative capital that flowed in early this year to bet on currency revaluation. Long-term project finance costs already tightened throughout the GCC earlier this year and the freezing of global credit markets exposed UAE banks which financed rapid credit growth with foreign not local borrowing. As a result, local interbank rates more than doubled to over 4.6% despite liquidity injections and a central bank liquidity provision for UAE banks. However, although Dubai’s liabilities might be much greater than its assets, most participants and ratings agencies still assume that the federal government (read Abu Dhabi, home of the largest sovereign wealth fund) will step in if they get into serious trouble. Yet, with the oil price and capital inflows falling the UAE’s surpluses and will be smaller next year even if its budget still balances and worries about Dubai’s property market are looming.

Kazakhstan

Despite its oil wealth, a reliance on short-term borrowing by its banks abroad has left Kazakhstan, one of the few oil exporters to run a current account deficit, exposed. However, unlike some of its neighbors, it will use domestic funding including the $27 billion National Oil Fund to cushion its economy. But with the oil price dropping and new output delayed, Kazakhstan is set for much slower growth next year, particularly as its previously bubbly property market is cooling quickly.

Pakistan

Pakistan, recently hit by a political crisis, is also on the verge of a balance of payments crisis as large capital outflows and decline in forex reserves – below-adequacy levels – pose risk to finance the oil-led ballooning fiscal and current account deficits, and external debt payments. To prevent debt default, the government is seeking $10-15bn in loans from IMF, ADB and World Bank and might approach strategic donors like Saudi Arabia and China. The stock market and currency slump have also led to liquidity injections by central bank along with restrictions on stock trading, short selling, and the establishment of a stabilization fund.

Indonesia

A single day double-digit plunge in stock indices in early-October pulled down Indonesia’s stock market and helped push the index down over 40% year to date, leading authorities to suspend trading and ban short-selling. Capital outflows, rupiah decline and credit tightening have invited central bank intervention in money and currency markets. But the rundown of forex reserves poses significant risk to the subsidy-laden fiscal deficit and commodity correction-hit current account. Balance of payments risks are only exacerbated by the high foreign-currency denominated debt causing the government to seek loans from World Bank and other multilateral institutions.

South Korea

South Korea is the most vulnerable of Asian countries to a sudden stop of financial flows. Korea looks set for another financial crisis given its vulnerabilities that include: the highest loan-to-deposit ratio in the region, rapid growth of short-term foreign debt, a current account deficit, a slowing property market, high food/fuel prices squeezing small- and medium-sized enterprises in the construction industry as well as consumers and large corporations facing an export slowdown. Its currency is down roughly 30% year-to-date despite the announcement of a bank support package as foreign investors have pulled out of Korean assets in a flight-to-safety and de-leveraging that marks the global credit crisis. Many fear Korea's credit crisis will shape up to a repeat of 1997 but others believe that, due to its large war chest of forex reserves and its status as net creditor to the world, Korea's interbank dollar funding squeeze is unlikely to become a 1997 redux. The most worrisome sources of a potential Korean credit crisis are not the foreign currency bank debt built up from hedging exporters' USD shorts and the interest rate arbitrage that resulted as a by-product. Such foreign debt can surely exacerbate the de-leveraging that Korea’s bank sector faces, however the real fire starter for a Korean crisis is domestic debt. Korea needs to restructure after having over-invested in construction/real estate companies and over-lent to households. With a slowing economy endangering asset quality, Korean banks will need to get pickier about who they loan to.

Argentina

The global financial meltdown has put Argentine's private pension assets in jeopardy. Argentina's government could move to take over the management of $28.7 billion in private pension funds that sharply declined in value this year due to global turmoil. The government is attempting to increase the pool of money it can borrow from in order to meet debt obligations next year. As of now, retirement and pension fund administrators manage private pension accounts for 9.5 million depositors, of which some 40% are active contributors. Essentially, most mandatory funds flow into the private pension system would now become part of the government's pay-as-you-go public pension scheme. Besides that, the government would have access to some USD 1.2bn per year in new flows currently deposited in the system. The idea of using social security funds to avoid a default (or to pay the debt) next year should cause a sharp drop in confidence in the country and in its government.

Venezuela

In Venezuela, the key problem is the fact that its sovereign wealth fund, known as Fonden, holds about $300 million in debt instruments that Lehman had agreed to cash. With Lehman’s bankruptcy, Venezuela will have a hard time selling the debt. Moreover, the Venezuelan's sovereign wealth fund has a significant amount ($2billion) allocated in structured notes that have lost part of their value amidst crumbling markets, and therefore they are hard to cash to cover expenses. Meanwhile the fall in the oil price may crimp Venezuela’s fiscal expansionism.

BRICs

Although the BRIC economies are not as vulnerable as these over-exposed and smaller Emerging markets, they do not appear immune to the global economic downturn and credit crunch.

The financial crisis has triggered downwards revisions in economic growth in Brazil for 2009. While the country is set to post 5.1% this year, the forecast for 2009 is 2.8%. The financial crisis and decline in commodity prices which tent to reduce the amount of exports contribute to lower growth.

So far, Russian consumers have remained insulated from the loss of wealth in the equity market and troubles that Russian banks face in rolling over their debt, but growth is likely to slow to 5-6% next year from 7% plus in 2007. Meanwhile financing costs are on the rise, eating into corporate profits and the falling oil price may limit a planned investment spree, particularly as a large amount of Russia’s savings are tied up in the domestic banking sector and attempts to avoid a bust in the Moscow property sector.

India is taking a severe hit from the global financial crisis with the stock market down over 50% year to date, FII outflows crossing $10bn and the currency plunging over 20% year to date. While the central bank is injecting liquidity, easing bank credit and capital inflows, cutting policy rate to contain risks to the financial sector and downtrend in asset markets, correction in the near-term seems inevitable. Double-digit inflation, high interest rates and global liquidity crunch will significantly impact domestic demand and industrial activity in 2008-09 pulling down the recent boom. Moreover, twin deficits, both approaching 10% of GDP, pose a challenge as forex reserves decline.

Q3 marked the fifth consecutive slowing of Chinese real GDP growth. Slowing industrial production and real fixed investment are suggesting more weakness ahead particularly if the worst consumer sentiment since 2003 persists. Slowing growth implies fewer commodity imports – even if government sponsored infrastructure projects pick up some slack – clouding the outlook for countries like Brazil, Chile and Australia, among others. The Chinese government fiscal and monetary responses, which have already begun, could cushion its fall and aid in its rebalancing. Yet falling asset prices are taking their toll on local and national fiscal coffers and corporate profits and consumption could be the next shoe to drop as robust retail sales may not stand up to slowing income growth.

p/s photo: Son Dam Bi