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Dollar
seen weakening further Chinese Prime Minister Wen Jiabao told an East Asian summit in Indonesia this month that Beijing will not let its currency float freely until further financial reforms are in place while Beijing announced last week it was cutting some of its export subsidies. Amid the mood of optimism permeating today's new bull market, Richard Duncan, author of The Dollar Crisis, struck a sombre note at the World Economic Forum. He expressed concern over the burgeoning US current account deficit which he put at half a trillion dollars a year, roughly two percent of global GDP. Duncan said that it was this deficit that made the US the engine of world economic growth, but that it was almost certain that with net debt at already a third of US GDP and rising at a rate of five percent per year, the situation was unsustainable. "In the not too distant future the US will be too heavily indebted to act as the world's buyer of first and last resort. At that point, the easy era of export-led growth in Asia will come to an abrupt end." An extreme case in point is China, which is likely to show a trade surplus with the US of a US$ 130 billion this year, roughly 10 percent of China's GDP. That's also the rate at which China's GDP will grow this year. "In other words, take away China's trade surplus with the US and China has no GDP growth. It also has no money to buy things from Japan, or Korea, or the rest of Asia." Another problem he noted originating from the US current account deficit is the problem of economic bubbles resulting in those countries that have large current account surpluses with the US. Those dollar surpluses are fed into the banking systems and sparking off an explosion of credit creation. Once the bubble bursts, we're left with systemic banking crises and deflation, and a whole host of attendant problems including reduced corporate profits, falling interest rates, a rise in unemployment and increased protectionist tendencies. Gerard Lyons, Chief Economist and Group Head, Global Research, Standard Chartered Bank, United Kingdom, said that China should not change its currency policy despite pressure from the IMF, needing instead to focus on domestic economic stability. And as China absorbs so much of the world's imports for re-export and given that two thirds of the companies that export from China are foreign, it may not necessarily be a bad thing for the rest of the world for the renminbi to stay put.Lyons said he didn't see any significant near-term change in renminbi policy. He added we should not criticize the US for having such a large trade deficit, but we should instead put pressure on the rest of the world to boost growth. We should look to Asia and Europe to take on some of the burden from the US. Asia also needs to do more in terms of translating a high savings rate into greater investment and consumption. Moving on to the dollar, Lyons said we should not be shocked at the dollar's decline so long as it was gradual. After rising 40 percent from 1995 to 2002, the dollar has given up just 10 percent of its value against all currencies and 20 percent against the currencies of industrialized countries. He said it is probably halfway through its decline and that unless the adjustment is against the Asian currencies, the burden of the losses would probably be against the euro and the Canadian dollar, against which the dollar has already lost substantial ground. Separately,
Lyons said there was a real risk that Japan could become too optimistic
and force the yen too strong too quickly and the Bank of Japan needed
to step in. The country's foreign currency reserves have surged. Narayan was also optimistic about the growth of the Indian economy given the sharp drop in internal interest rates, soaring corporate profits, rising productivity and developments in IT. He is looking for a growth rate of over six percent this year. James Walker, Chief Economist, CLSA Emerging Markets, Hong Kong SAR, agreed with Lyons over the increasing importance of China's role in Asia. He said that Asian currencies were likely to be stable in coming months given that there was no longer a dollar bloc in Asia, but a renminbi bloc. Regarding the value of the renminbi, he sees policy remaining on hold until the second half of next year, when we could see a slight broadening of the policy band, a "dirty" float around 2005-2010, and then only full convertibility by 2020. Security
challenges in the 21st century: Is Asian business ready? Because terrorists consider aircraft, ships, hotels and even shopping malls targets, businesses must take steps to make sure they do not become hapless victims. In addition to beefing up security around their facilities, he said, businesses should take steps to make sure they can continue to operate if they are attacked. They should diversify their supply chains and develop robust disaster recovery plans, he said. Most of all, businesses need to continue to cooperate with government to find ways to deter terrorism and mitigate its potential impact. Amien Rais, Speaker of the House of People's Representatives of Indonesia, said that to win the war against terror, Indonesia needs to win the hearts and minds of its people against radicals - well organized and well funded - who carried out the Bali bombing. Islam is a religion of peace, he said, but terrorism has cast the faith in a less favourable light. Indonesia should re-examine its Islamic schools to make sure that radicals are no longer able to use them to propagate their extremist beliefs and enlist new followers. Next year,
Indonesia will conduct its first direct presidential elections.
The plebiscite, he said, will give the nation a new leader with
an unprecedented mandate and, at the same time, give Indonesians
a stake as never before in their government. "Indonesia shall be sending a clear signal to terrorists that force is not needed to implement changes," he said. The lives of Indonesians could be improved without an ideological battle or jihad. "Terrorism has chosen a feeble target," he said. So Indonesia has to work to strengthen its economic institutions, attacking corruption, collusion and nepotism. To that end,
Indonesia will retrain its civil servants and pay them more, he
said. Indonesia will also upgrade the capabilities of its armed
forces and police to fight terrorism. He called on the media to
take a constructive view of Indonesia's efforts. China, he said, strives to maintain friendly relationships with the rest of the region, emphasising their shared interest in maintaining peace and security. In addition to agreements on lowering trade barriers, China and South-East Asia have agreed to peacefully resolve their dispute over territory in the South China Sea. The outbreak
of SARS earlier this year also led to new cross-border cooperation. China remains committed to a nuclear weapons-free Korean peninsula and has urged North Korea to abandon its nuclear weapons programme, he said. |
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Transnational
terrorism poses a challenge unlike the kind of terrorism the world
has seen in the past, participants told the World Economic Forum.
"It rejects modernity and strikes at the very heart of the
globalized system of prosperity," said Cedric Foo, Minister
of State for Defence of Singapore.
