Domestic issues raise risk concerns

Domestic issues raise risk concerns

SINGAPORE (AFP): Indonesia, Malaysia and the Philippines are
the most politically risky nations in Southeast Asia because of
domestic problems, foreign business executives surveyed by a risk
consultancy firm said.

Financial bulwark Singapore could be vulnerable to any fall-
out from these political developments among its neighbors, the
Hong Kong-based Political and Economic Risk Consultancy Ltd.
(PERC) said in its most recent report.

Business executives who had been surveyed underestimated
political risks in China and Thailand, it added.

PERC, which specializes in political and business risk
analyses, asked 1,027 expatriate executives working in the region
to rate political risks against economic concerns in 12 Asian
economies.

"In general, it seems there is a lot more concern about
political risks in Southeast Asia at this time than there is in
East and Northeast Asia," it said in the report.

Outside the three Southeast Asian countries, Taiwan got a high
rating for political risk because of the military threat posed by
China to the island, it said.

PERC praised Singapore for "creating an image of high domestic
political stability" but said the city state was vulnerable to
external political developments such as those from Indonesia and
Malaysia, as well as the impact of China-U.S. relations.

Seventy-one percent of foreign executives in Singapore
attached more importance to economic risks and 29 percent gave
more weight to political risks, according to the survey.

The problem with focusing on economic variables "is that
Singapore risks giving its population and foreign companies
working there a false sense of security with respect to
formidable external challenges Singapore faces," said PERC.

"People know Singapore faces risks from developments in
Indonesia and Malaysia, but there is a lack of really in-depth
discussion about these issues and their implications for
Singapore," it added.

For Indonesia, 74 percent of respondents gave more weight to
political risks against 26 percent who gave more weight to
economic risks.

"The root of Indonesia's problems are political, and there is
little chance for a lasting improvement in economic conditions
until the country starts to get its political house in order,"
the report said.

It cited the challenges to President Abdurrahman Wahid and
violence wracking parts of the vast archipelago.

For Malaysia, 60 percent of the business executives said they
were more occupied with political risks, compared with 40 percent
who cited economic concerns.

"Foreign businessmen are disappointed with Malaysia's economic
performance and are worried that Prime Minister Dr. Mahathir
Mohamad may be holding on to power too long," it said.

The Philippines' failure to surge ahead after being one of the
countries least affected by the Asian financial crisis in 1997
and the problem of a resurgent Muslim separatist insurgency in
the south have heightened political concerns there, PERC added.

Fifty-one percent of the executives said they were more
concerned about political risks, while 49 percent cited economic
risks.

Although the Muslim rebellion was localized in the southern
region of Mindanao, "the negative fallout from such problems is
being felt nationwide," scaring away foreign investors and
increasing perceptions that President Joseph Estrada's government
"is incapable of maintaining stability on a nationwide basis."

Survey results for China showed that 40 percent saw political
risks as more important, compared with 60 percent who focused on
economic risks. The ratio for Thailand was 71 percent against 29
percent attaching greater importance to economic risks.

"China is a good example of where size really does matter,"
PERC said.

"International firms are more willing to accept a difficult
operating environment, including high economic and political
risks, if they believe that the market potential is large
enough," it said.

For Thailand, PERC said executives there "have not fully
appreciated the threat posed by a corrupt political system that
pervades business and the wider economy."