Sun, Jun 02, 2002 page10

• Three lessons Asian's can't learn from Americans

  • By Patrick Smith / BLOOMBERG
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  Curious to note that the Indonesian government now plans an inquiry into Merrill Lynch & Co for a possible conflict of interest. This completes a circle, it seems to me. A nation once the very model of corruption looking into the affairs of a company that has been, until recently, the very model of rectitude: The geometry of irony doesn't get much more exquisite.

  Officials in Jakarta are investigating Merrill's sales last week of shares in PT Indonesia Satellite Corp. The complication is that Merrill is advising Indosat on a rights offering of stock scheduled for later this year.

  Indosat's stock fell 4.6 percent the day of these alleged sales. The market was full of talk that the rights offer wouldn't bring the price previously anticipated, and Stockwatch, a local data provider, has suggested that Merrill led the selling wave with 38 percent of the day's trading in Indosat. That would translate into about 4 million shares moving off Merrill's books.

  Merrill officials deny any impropriety.

  We won't know the facts until Bapepam, the Indonesian market regulator, completes an investigation now promised by Laksamana Sukardi, the minister for state enterprises, who is concerned about both a conflict of interest and insider trading. We don't have to wait for that to step back and consider the implications of the piece.

  I've been gathering string for weeks on the chicanery now rife in American corporate life. What started with Enron Corp -- remember when that was supposed to be an isolated case? -- has spread to accounting firms, Wall Street, and everywhere you look, it seems. Finally, the cult of the heroic chief executive is dead.

  And apart from the problems of corruption in its numerous guises, public borrowing in America is set to rise dramatically. So much for the less-government-is-more idea.

  My personal favorites in these matters are two. There's Phil Gramm, the Texas senator leading the charge against corporate reform, whose wife, Wendy, sat on Enron's board.

  Which is more picturesque -- the fact or the stunning reality that nobody seems to think it is worth remarking much upon? A little less prominently, there's the case of Edison Schools Inc.

  I've always considered privatizing public schools a distinctly terrible idea -- the open abandonment of the public sphere, as if all we share in common were dispensable -- and Edison is the pioneer in the field.

  Now we read that Edison has settled with the Securities and Exchange Commission for misstating revenues and failing to maintain acceptable financial controls. It's one of those deals in which the company doesn't have to admit the wrongdoing it wants to avoid paying penalties upon. The SEC imposed none, it turns out.

  Asians should be taking careful note. Just as I would worry about what any child attending an Edison school might be learning in either math or civics class, I worry that officials and executives across the Asian region still think they have anything to learn from a teacher who looks less and less worthy of his position at the head of the class.

  Few Americans seem willing to come out and say that the model they espoused for the planet's economic future is a ruin. But Asia can see this for itself: It has been touched directly enough with the unfolding American mess. First came Enron, then Global Crossing Ltd, and now, on a smaller scale, Merrill's little problem in Indonesia.

  There are lessons to be drawn from these corporate situations.

  As the Merrill case suggests on both sides of the Pacific, little more than a decade of rigorous deregulation has left the US a swamp in terms of conflict of interest. The most august companies in the land are mired in it. And more self-regulation -- the proposal implicit in the so-called Merrill reforms -- indicates only that Americans aren't learning their own fundamental lessons.

  In the case of Global Crossing, with its huge overhang of excess capacity, we see that misallocation of capital in the name of market forces is among the least acknowledged calamities of the great, thank-goodness-they're-gone 1990s.

  Markets don't lead. They are reactive, and too often over-reactive. Global Crossing brought this truth to Asia, and one hopes that one of the Asian bids to take over the regional subsidiary is accepted and leads to a well-considered rationalization.

  As to Enron, it's hard to say more, but there is this: Transparency is a dream to which we may wish to aspire, but the Americans have nothing whatsoever to teach or give the world in this respect.

  This is the take-home lesson of Enron's engagement with Asia, notably in that grossly wasteful electricity project in India called Dabhol Power Co.

  The last and largest lesson is that Asia is on its own, finally. The region needs to consider some of the principles espoused by Americans advancing their interests at home and abroad. Over-regulation is a problem here, under-regulation there.

  The absence of transparency is a problem, and conflict of interest is a problem. They're all familiar enough around the region.

  But Asians should distinguish between worthy principles and the unworthy way they have been corrupted in the US. For once, do as they say, not as they do, is the sensible way to view the unraveling of the American model.

  Asians should absorb the universal principles, and then find their own ways of incorporating them. If there's any silver linings in the mess of American corporate life today, confirmation of this truth ought to be on the list.

  Patrick Smith is a former correspondent in Asia. The opinions expressed are his own.
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