Financial Times

Corporate jitters over the JM
First it was the tsunami which battered the economy and, going by the financial results of companies being released now, affected corporate earnings.

Then soaring oil prices dealt another blow, and became an added burden on the economy. Now it is political uncertainty generated by the JVP threats to topple the coalition government if it went ahead with the deal with the Tigers to set up a Joint Mechanism to distribute tsunami aid.

The uncertainty has already unnerved the capital markets and sent the stock indices sliding, although the slide began before the latest political jitters when those investors who had been fixing share prices and artificially inflating the market sold off, allowing share prices to fall to their natural levels, as the regulators began probing their share dealings.

So far the political uncertainty appears confined in its economic impact to the stock market. The market was overheated anyway and many had been expecting a correction and some even a crash as share prices had been artificially inflated.

Opposition to the Joint Mechanism appears to stem from fears that it could be a stepping stone to Eelam, which no doubt the Tigers are hoping it would be. The government has been at pains to stress that the Joint Mechanism has limited powers and is confined only to a narrow strip of land on the coastline but that has not stopped a monk launching a death fast and making an already complicated situation even more explosive. The government has only itself to blame for not enlightening the public early enough about the JM and leaving it till the last moment when emotions are running high.

The J-Biz, or Joint Business Forum, that represents much of the organised business sector has given a measured response to the Joint Mechanism saying it was willing to support it as long as it does not infringe on the country's sovereignty.

Several listed firms that had announced their annual results, including heavyweights such as the conglomerates, have reported that their performance would have been better if not for the impact of the tsunami and have warned that political uncertainty was affecting business.

Hussein Esufally, CEO of Hemas Holdings, has expressed concern that the prevailing political uncertainty in the country could stall the conglomerate's growth. He has noted that at least a modest GDP growth is essential for their businesses, which depend on consumers with disposable incomes. Another business leader, DFCC Bank chairman Dr Nihal Jinasena, has said the external operating environment was not conducive to maintaining earnings growth at previous levels. He has warned of "stresses and strains" building up in the political and economic spheres. Both these comments were made before the latest round of uncertainty.

However, not everything is doom and gloom. Those investors with a long term view are continuing to invest, a good example being Telekom Malaysia, the parent company of Dialog Telekom, which has announced plans to invest $ 100 million more in next two years to expand its coverage here.

Nor is political uncertainty something new to us. In fact we have lived with it for more than 20 years, ever since the ethnic conflict began, and we will probably continue to have to live with it for the foreseeable future. The present type of uncertainty, generated by the inherent weaknesses of coalition governments, has been with us since the advent of coalition governments in the 1990s. We have lived with such uncertainty for so long that it is now routinely factored in by investors and the business community. This is demonstrated by the resilience shown by the private sector and overall economy.

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