Political risk exists across Asia in varying degrees, ranging from ‘extreme' in Indonesia to ‘low' in Singapore. As a whole, the region's political risk has varied little in the past year, with only minor fluctuations in a few countries.
Organised crime, traditionally focused on gambling and drugs, became involved with legitimate business when the economy soared in the mid-'80s. The attraction of easy money was too much for the Yakuza, or Japanese mafia, to resist. They invested heavily in the supercharged real estate market, but when the bubble burst in 1990 the Yakuza was not immune. Over the past decade, rather than write off bad investments, organised crime has operated alongside many banks, as both witting and unwitting partners, in propping up real estate values and masking non-performing loans. Western corporations participating in the sizeable M&A market in Japan are now in a ‘buyer beware' environment, requiring extreme caution and the exercise of prudent due diligence.
The South Korean economy recovered from the 1997 Asian financial collapse with GDP growth jumping to 10.2% in 1999 and to 6-7% in 2000. Despite a high OECD growth ranking, many Koreans have still to benefit. One consequence is worker discontent, manifest in frequent strikes and demonstrations. Labour-related crimes rose 93% in 1999, as a result of protests against corporate restructuring and general reforms.
While President Kim's anti-corruption initiatives are more convincing than his predecessor's, there have been corruption scandals involving Cabinet members. Kim has pledged to distance Government and business, introduced rules against corrupt practices, and stressed the need for broad reform and higher ethical standards. Unfortunately, corruption appears to be embedded in the South Korean business culture, and kickbacks, bribes and payoffs have long been accepted as normal practice.
People's Republic of China
Political risk is low in the in the run-up to President Jiang Zemin's scheduled retirement in 2002. While speculation continues about a power struggle inside the Communist Party, the question of succession is likely to dominate the political agenda until 2002.
Meanwhile, tensions in the Taiwan Strait between China and Taiwan frequently run high for a variety of reasons, and are one of the most common causes of instability in this region.
The acceptance of China into the World Trade Organisation presents a risk of social discontent amongst the rural poor, as the State is less able to provide support. There have been numerous cases of social disturbances by the rural unemployed, all of which have been rapidly suppressed. There has been a noticeable rise in the use of improvised explosive devices for revenge or to draw attention to an issue. Whilst there is potential for localised unrest in central and western China, the eastern coast, where much of the private enterprise is concentrated, is likely to remain stable. The risk to the individual is low on the eastern seaboard, but there is a great deal of organised crime in southern China. Attacks on foreigners have been rare, but it should be noted that kidnap and/or detention is a tactic sometimes used in business to resolve business disputes.
Taiwan is a stable, multi-party democracy, with a popularly elected president and legislature. President Chen Shui-bian's victory in March 2000 ended 50 years of rule by the Kuomintang (KMT), and resulted in the first democratic transfer of power in Chinese history. There are three main political parties, none of which commands a parliamentary majority. Major civil disturbances or politically motivated violence that would threaten the island's democratic institutions are highly unlikely.
While Taiwan has enacted legislation for the protection of intellectual property rights, enforcement is sporadic at best. There is a booming market for pirated goods, including software, pharmaceuticals, luxury items, branded goods, consumer products, music and movies.
The Chen administration has made the fight against corruption a top priority. Bribery is a criminal offence in Taiwan and carries potentially heavy penalties. The authorities, in general, will investigate and prosecute credible allegations of corruption. Foreign businesses report that corruption is most pervasive in local public procurement and construction projects.
Political risk in Hong Kong is low, although there is continued concern over Beijing's direct and strategic influence in Hong Kong affairs. This normally takes the form of concern over excessive Chinese interference in public works projects financing, and in the perception that businesses which are uncritical of Beijing receive favorable treatment.
Indonesia ranks just behind Nigeria as one of the most corrupt countries in the world. Her economy is precariously close to fiscal bankruptcy. A recent S&P report highlights a weak judiciary and law enforcement apparatus, and calls law and order “fragile,” while a number of multinationals have been caught in the darker side of the present political uncertainty and have been severely disadvantaged as a result.
In what are the early days of the new government, the country has already experienced renewed violence, with bombings in churches and shopping malls, and the assassination of a Supreme Court Judge in Jakarta. With lawlessness creeping across the nation, and on-going ethnic, religious and separatist violence, the tasks ahead for President Megawatti are monumental. In the worst case, Indonesia is in danger of losing its identity and fragmenting into a loose federation of nations.
In 1999 Mahathir's deputy, Anwar Ibrahim, was sacked and jailed. The suddenness and ruthlessness of the move caused a deep division in the Malay community. The government must try to accommodate the desires of conservative Muslim sectors without antagonising other racial groups.
There are signs of increased Islamic militancy. The past two years have seen the bombing of a Hindu temple in Kuala Lumpur, the raiding of a military armoury, and sporadic attacks on Western businesses. Many Osama Bin Laden followers are reported to be in Malaysia, which historically has been peaceful, largely due to the growing prosperity of the population. While there is no reason for immediate alarm, the recent arrest of militants believed to have trained in Afghanistan raises concerns.
Political risk in Singapore is low. However, the media is heavily censored, and the government strictly controls the release of information that might affect investor confidence or invite criticism. It has been reported that the Government uses some taxi drivers to gather intelligence information. Executive personnel should not discuss sensitive or proprietary information when using taxis.
President Arroyo has been criticised for placing loyalty above ability, and giving cabinet positions to those who played key roles in the overthrow of Estrada. Politicking is a national sport, and is increasingly being seen as distracting from the urgent issues of poverty alleviation and economic development. A trend that bears watching is the intensifying participation of the local Communist movement in mass protests.
Although several terrorist groups operate in the southern Philippines, no domestic terrorist group is considered to have any significant logistical infrastructure or grassroots support in the capital, making effective terrorist attacks in Manila unlikely. However, according to the US Embassy there were 219 incidents of kidnapping for ransom within the Chinese-Filipino community over the 12 months ending February 2001. Police and military syndicates are still believed to be behind many of these crimes.
Kidnapping is endemic in Mindanao and other remote areas where ethnic Chinese, and occasionally foreign businessmen, particularly Japanese, are targeted. Several well-known international insurance brokers now rank the Philippines the fifth most dangerous nation for kidnapping.
Cambodia is in a long-term rebuilding process following decades of civil war, which culminated in the near complete devastation of infrastructure by the Khmer Rouge in the late 1970s. Virtually every institution lacks the capacity, the funds and the know-how to continue; incremental improvements have been made, particularly in Phnom Penh. Just five years ago Cambodia was a nation ruled almost exclusively by the power of the gun – despite UN efforts in the early 1990s – but now the streets are safer, in general terms, and there is no credible threat to the government in power.
Vietnam is a Communist State moving gradually towards a market economy. The Party is the dominant force in nearly all economic decisions. Endemic corruption hinders development, and the tax system depends on – and penalises – foreign investment to a great degree.
Internal strife is very limited, and the majority of people are complacent to the point of ignoring politics.
Anti-party activities are normally controlled by former members of the South Vietnamese Government, and tend to be controlled from the US and Thailand.
In Thailand, all politics is truly local, and provincial constituencies fear Bangkok's influence. Accordingly, their representatives cater to local and regional projects, and reinforce a divisive view of national interests. Corruption and abuse of power are rampant.
A general election in early January 2001 resulted in an overwhelming victory for Thaksin Shinawatra. The Prime Minister has offered low-cost universal health care, a debt moratorium to farmers, and an aggressive war on drugs. Although Thaksin entered Government the subject of an enquiry over hidden assets, he was cleared of these charges.
As of result of the military takeover in 1998, the European Union and the US have ordered embargoes on conducting business in Burma. The Burmese leadership has developed extensive contacts with the People's Republic of China. The northern tier of Burma has operated in an almost semi-independent manner and the various ethnic clans there have formed their own armies, local government and economic base – usually dependent on illegal drug production. The high volume of drugs smuggled into Thailand has caused periodic conflict between the two countries. Thailand's harbouring of refugees deemed as enemies of Burma also heightens tensions.
Political uncertainty caused parliamentary elections to be held twice in quick succession in 1996. These were marred by a boycott by opposition parties, a very low voter turnout, and mass vote rigging. The next elections are scheduled for October, with the present Government having stepped down. Public demonstrations, marches and labour strikes are a widely used means of political expression in Bangladesh. Countrywide general strikes called by the opposition are common, resulting in the virtual shutdown of transportation and commerce, and attacks on individuals who do not observe the strikes. Clashes between rival political groups have often resulted in deaths. Violence is a particular problem on university campuses. Recently there have been numerous instances, especially in Dhaka, of violence due to political clashes involving activists torching vehicles, damaging public property, and causing injuries to people.
Democratic politics was introduced in 1991, but the country remains extremely fractionalised, with frequent changes of government. Nepalese internal security has come under increased threat from the insurgents of the Communist Party of Nepal – Maoist, who have resorted to direct and violent measures throughout their four-year Maoist ‘people's war'. Increasingly civilians are involved, and the rising death toll (1,500 people have died) does not bode well for short to mid term stability prospects in Nepal.
The overthrow of Prime Minister Nawaz Sharif on 12 October 1999, in a bloodless coup led by General Pervez Musharraf, heralded the return of military rule to Pakistan. In April 2000 Sharif was sentenced to life imprisonment on two charges of hijacking and terrorism.
Escalating tension between India and Pakistan has increased the risk of inadvertent nuclear war breaking out in South Asia. Incursions by Pakistani militants into Indian-held sections of Kashmir throughout 1999 produced an increase in hostilities. The shift in emphasis by the US away from Pakistan towards India could force Pakistan into adopting increasingly extreme measures in its quest to secure independence for Kashmir.
Pakistan's reputation as a hub for terrorism, and suggestions that the Government is actively involved in the promotion of terrorism, has further complicated the relationship. Ethnic, religious and sectarian violence continues to plague the country. A series of car bombs planted in Islamabad in November 1999 are an example of the threat to stability posed by domestic terrorism.
Looking ahead, there are several key events or developments that bear watching over the coming year or more. Foremost is the anticipated transfer of power within the Communist Party in China. Also worth following are the presidencies of both Gloria Arroyo in Manila, and Megawatti Sukharnoputri in Jakarta. Both leaders have immense challenges in front of them, but little experience. Finally, the recently declared elections in Pakistan, scheduled for October 2002, will be a true test of General Musharraf's democratic intentions and a bell-weather of future political stability in the region.