Mon, Jan 19, 2004 page10

• Election year in Asia may impact investment plans

  ECONOMIC UNCERTAINTY Deutsche Bank says the high degree of political risk posed by elections in six nations could cause investors to put projects on hold

  • AFP
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  Elections in several Asian countries this year pose varying degrees of economic risks that are expected to defer many big investment plans until after the polls, German lender Deutsche Bank said.

  India, Indonesia, Malaysia, the Philippines, South Korea and Taiwan are scheduled to hold presidential and parliamentary elections this year, the results of which could result in important policy changes.

  This could disrupt the bank's otherwise rosy 7.2 percent growth forecast for the Asian region outside Japan, which should be powered by strong export growth and a pick-up in domestic demand.

  "In our view, the biggest risk to domestic demand growth in the region stems from the unusually high degree of political risk," the bank said in a report released here.

  "A climate of political uncertainty such as this is unlikely to encourage investors. Instead, we expect many large-scale investment plans to be on hold until after elections are over," it said.

  Deutsche Bank chief economist for Asia Michael Spencer singled out the Philippines and South Korea as the countries where the elections would most likely result in significant policy shifts that could unsettle investors.

  "It is possible, probably not likely but possible, that the [elections] in [South] Korea could lead the National Assembly to a more rightward direction in terms of economic policy than the current government has been trying to pursue," he said at a seminar organized by the bank in Singapore on Friday.

  South Korea is scheduled to hold parliamentary elections in April.

  For the Philippines, Spencer said there was a chance the next president after the May elections would not have the same commitment to fiscal sustainability than the current government of President Gloria Arroyo.

  Arroyo, an economist, is being challenged by movie actor and school dropout Fernando Poe Jr, whose lead in popularity surveys is giving jitters to business executives and investors because of his lack of political experience.

  Poe's long-time close friend and disgraced former president Joseph Estrada is on trial for corruption after being deposed in an uprising in 2001.

  Deutsche Bank said it expected investments to suffer in the first half of this year in South Korea and the Philippines as companies sidelined spending plans until after the polls.

  The risks in Taiwan's presidential elections in March seem to be more on the polls' impacts on relations with China.

  In other countries, although elections by nature add to economic uncertainty, the status quo is expected to be preserved.

  While the process of choosing a president in Indonesia is complicated and drawn out, there should be no drastic shifts in policies whoever is elected, the bank said.

  "Economic policy is not the issue in the election and we see broad support for the current policy framework of relatively tight fiscal policy and slightly expansionary monetary policy," it said.

  Indonesia is to hold parliamentary elections in April, the first round of presidential voting in July and a second round in September.

  India's ruling Hindu nationalists have suggested an early election in March ahead of the scheduled date of October.

  General elections in Malaysia must be called by the year-end but there is speculation they could be called earlier.

  Foreign policy issues such as North Korea's nuclear program and terrorism also pose significant political risks, the bank said.
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