*{Investment Risk: Navigating Political Change and Economic Transition [http://www.weforum.org/site/knowledgenavigator.nsf/Content/Investment+Risk%3A+Navigating+Political+Change+and+Economic+Transition?open&topic_id=300250000&theme_id=300]

            11.09.2000

            Asia Pacific Economic Summit 2000}

            The session aimed to highlight the importance of political change as an integral part of the process of economic reform and financial development across Asia - and its attendant investment risks - in particular in the wake of the 1999 Asian financial crisis.

            Session moderator Jusuf Wanandi, Chairman of the Supervisory Board, Centre for Strategic and International Studies, Indonesia, said the critical questions facing institutional change relate to the rapid growth of the so-called "New Economy," coupled with the push towards financial/economic globalization. In the developing nations of Asia central political institutions are "still fairly weak", and investment risk therefore poses "much more of a challenge in these economies".

            Manu Bhaskaran, Managing Director and Group Head of Research, SG Securities, Singapore, said investment risk depends largely on changes within and by political institutions, and the scale of requisite change: the good news is that political institutions are a lot more robust than they are given credit for; the bad news is that the scale of change is growing to a level where these institutions will be seriously tested. Bhaskaran said the nature of the risks for Asia's economic transition will come in the form of a succession of "small-scale tremors." In some Asian nations government power has already been transferred without too much violence, and political stability has been retained despite [social and financial] dislocation of tens of thousands of people. His caveat was that most Asians live in rural sectors now "seething with changes*{…} many are now rising up", reflecting the threshold of tolerance being breached and manifest by the demographic shift from rural to urban areas. Bhaskaran said that the advent of globalization can lead to dislocation and to rapid changes in competitive advantage. What does this mean for business? Political institutions have shown some strength, and as a result he does not expect major upheaval - more a series of "localized shocks" instead. "The pace of reform will be fitful in the short-term," he says.

            Jomo Kwame Sundaram, Professor of Applied Economics, University of Malaya, Malaysia, expressed strong concern for the prospects of Asian economic recovery since the 1998 financial markets upheaval. Economic policy issues are of the greatest urgency, and since 1996 and the accompanying decline in investment in Asia, there has been room for financial recovery given existing infrastructure. But Asia would, he said, be ill advised to open up on all fronts: "It needs a well-sequenced process of liberalization and globalization."

            By contrast, Mirzan bin Mahathir, Executive Chairman and President, Konsortium Logistik Berhad, Malaysia, took a strongly commercial stance. He said that it is very difficult to generalize about risk because of the differences in political structures and economic systems throughout Asia. But he looks at political, economic and social risks in order to "understand the risks and opportunities: is this a business-friendly environment? Are decisions based on sound economic reasons?" Mirzan pointed out that the composition of investment risk changes depends very much on where as well as when one is looking to invest. Where there is political stability, he focused on economic valuation; where there is political uncertainty, he focused on governments.

            Kyosuke Shinozawa, Deputy Governor and Managing Director, Japan Bank for International Cooperation, Japan, pointed out that while governments boosted East Asia's economic growth up to the mid 1900s, and while the region in general does not have major risks, it is not an agile and flexible respondent to change - and it will need to be given unfolding economic globalization and the ongoing IT revolution. He stressed that direct foreign investment continues to play a key role in sustaining Asia's economic growth.

            Wanandi's summary on political change and economic transition was that both depend upon the pace of adjustment by institutions, the responsiveness of Asia's political systems, ensuring that social justice is seriously tackled and the application of justice in its most equitable forms. His closing remark: "We've only scratched the surface of this issue. The political side of this equation is a very important one."                  

                  *{Contributors:       Bhaskaran Manu
                  Jomo K. S.       Mirzan Mahathir       Shinozawa Kyosuke
                  Wanandi Jusuf}