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."