Tuesday, 26 March 2013

China plays the ‘Russia Card’

During the Cold War in the 1970s, United States President Nixon played the 'China Card' against Soviet Union. The 'China Card' was powerful enough to trump most anything played by America's Soviet opponents. The US won that hand. That was several decades ago.

In 2013, Red China is adeptly playing its own game of global diplomacy. China watchers have replaced yesterday's Cold War Kremlin watchers.

Modern China holds several strong cards. Global financial markets analyze each and every statistic – no matter how trivial – released by the People's Republic of China (PRC). Every move of influential members of the Communist Party of China is analyzed. Hence, when the new Chinese president makes Russia the destination of his first foreign trip, theories about the tour's significance abound. However, the reason for the visit is simple.

China is playing the 'Russia Card,' directed against the US. China is signalling to the US that the world is not completely unipolar; that public hacking allegations against the Chinese military may have consequences.

The US may be the only nation with the ability to intervene militarily in countries far from its own borders, like Iraq, but even the US has constraints. Those restraints come partially in the form of Russia and China.

To be sure, Russia and China are neighbours with shared interests. Close relations between the two erstwhile communist neighbours makes sense. Nonetheless, Russia and the US clearly feel the need to form a loose alliance against the current dominant world power. Neither country wishes to grant the US a license to ride roughshod over the world – something the US did spectacularly unsuccessfully in Iraq.

History is destined to repeat itself, often only with changed names and dates. Surely that is the case with the present Sino-Russian relationship? The American-Chinese relationship of the 1970–80s was something similar: a marriage of convenience built on a mutual mistrust of the Soviet Union. In the new millennium, a 'China-Russia' axis has been partly catalyzed by shared suspicions about US foreign policy actions.  
Imran is a business and management consultant. Through his work at Deodar Advisors and the Deodar Diagnostic, Imran improves profits of businesses operating in Singapore and the region. He can be reached at imran@deodaradvisors.com

Wednesday, 20 March 2013

Lessons for Singapore from the island of Cyprus

Singapore's strict banking secrecy laws, sound fiscal management and reputation as a robust legal jurisdiction all combined to transform Singapore into an international private banking hub within the last few decades. Like Singapore, Cyprus too relied upon private banking to act as a vehicle for growth for its residents.  

Cyprus is located in Europe and, despite being a politically divided island, qualified for European Union (EU) membership in 2004. Like the country's 'Big Brother' Greece, Cyprus underwent an attitudinal change following EU membership.

Suddenly, a small island with a population of just over one million people had its future guaranteed by behemoth states like Germany, France and Britain. Cypriot banks became less risky. Russian wealth searching for a 'legitimate' home within the regulated borders of the EU looked no farther than Cyprus.

The Cypriot banking system became awash with cash. Partly as a result of these inflows into its banking system, the Cypriot economy racked up almost USD 107 billion of external debt; a princely amount for an economy with a total Gross Domestic Product (GDP) of USD 22.5 billion. By 2012, the services sector, primarily finance and tourism, accounted for almost 81 percent of the Cypriot economy. The finance sector could make or break the small island's economy.

Almost a decade after joining the EU, Cyprus is negotiating a tough economic bailout package with the International Monetary Fund and the EU. As part of the package, depositors in Cypriot banks are expected to pay a levy on bank deposits. In other words, savers will likely be penalized for squirreling money away for a rainy day. Why? Cynics argue the tax is necessary simply because, somewhere along the line, economic managers and bankers got too greedy and precipitated the recent Global Financial Crisis.

Surely, Cypriots should address their economic problems without interference from a Singaporean blogger. The 'if, when and how' of any bank deposit levy is a Cypriot debate.

Nonetheless, there are some lessons for Singapore from recent events in Cyprus, particularly given the importance of financial services and private banking to Singapore.

1.   Singapore must continue to manage its public finances prudently. Economic managers must resist the temptation to 'socialize' the economy and liberally hand out more 'free' services to the population at large. In reality, 'free' services are paid for by taxpayers. Only by avoiding financial crises can the Little Red Dot maintain the confidence of global investors, especially as the government administered Central Provident Fund begins to see net outflows of cash as Singapore's ageing population draws from the mandatory savings scheme.

2.   Financial services rely heavily on an aura of confidence around the Singapore brand. Major unexpected negative events could result in large and rapid outflows of moneys from Singapore's banking system – a catastrophic event for the country's economy. To avoid such an eventuality, policy makers must avoid drastic and unexpected shifts. Additionally, the central bank must continue to work with banks to make certain bank capitalizations are (and remain) more generous than international Basel requirements, even if that means lower bank profits. Singapore is not a member of the EU and the country's lender of last resort should remain the MAS and not an IMF bailout program.

3.   Economic policy makers ought to be conscious of Singapore's dependence on financial services. The ongoing efforts to diversify the economy across several value added service sectors of the economy will be helpful.

Singapore is no Cyprus in the making. Singapore's economy is not drowning in external debt. Typically, the government runs an annual budget surplus. However, like Cyprus, Singapore has a large (oversized?) banking sector reliant upon a high volume of offshore cash deposits. If not properly managed, Singapore's economy contains many of the ingredients required to cook up a domestic financial crisis at short notice.
Imran is a business and management consultant. Through his work at Deodar Advisors and the Deodar Diagnostic, Imran improves profits of businesses operating in Singapore and the region. He can be reached at imran@deodaradvisors.com

Sunday, 10 March 2013

Singapore turns to populist politics?

Are Singapore's ruling party members losing their cool? Some of them seem to be extremely worried about losing their seats at the next elections – that is if one goes by some of the 'populist' statements which have started surfacing recently in parliament.

Populist policy ideas do not fall in line with the normal characteristics of the People's Action Party (PAP) historical ruling style. Typically, PAP MPs lead from the front and in a paternalistic fashion, i.e. as a PAP MP I am better qualified to make decisions about Singapore's future so please just trust me; it's for your own good.

These unusual ideas – clearly designed to catch the eyes of voters and popular sentiment – include a National Defence Duty for foreigners as well as providing free public transport for commuters during off-peak hours. (Do these officials remember that Singapore's train and bus companies are publicly listed entities and the Board of Directors has fiduciary obligations towards shareholders?)

To be sure, it is good that elected representatives are suddenly more responsive to their constituencies. Nevertheless, Singaporeans must be concerned about the direction some of its elected leaders appear to be taking. In fact, if such thinking reflects broader views within the ruling party then alarm bells should start to ring.

Singapore did not go from Third World to First World by appeasing all constituencies every step of the way. The political leadership demonstrated a fair balance of vision and compromise. For example, when much of the developing world embraced 'socialism' and left wing thought, Singapore turned to the right and free market policies.

It took courage to go against the grain.

Surely, Singapore faces real issues about the country's future. The city state's economic model – which hitherto relied heavily on population growth through immigration – is under pressure. Its 'true blue' citizens are disturbed as their 'traditional' way of life is disrupted by an unprecedented influx of foreigners: approximately two million in the last two decades. The 'taken for granted' yearly improvement in living standards has sputtered during the last few years.

Expectations are not being met. The traditional social contract is under stress. Singapore's leadership must put its head down and address these issues. Populist, pseudo socialist policies will take Singapore nowhere fast.

Singaporeans like having their voice heard but they still wish to be led by thinkers. Not by people who are willing to sacrifice the country's long term stability for short term gains.
Imran is a business and management consultant. Through his work at Deodar Advisors and the Deodar Diagnostic, Imran improves profits of businesses operating in Singapore and the region. He can be reached at imran@deodaradvisors.com

Monday, 4 March 2013

Reflections from Pakistan X: Lahore’s Mogul heritage

"His eyes might there command whatever stood
City of old or modern fame, the seat
Of mightiest empire, from the destined walls
Of Cambalu, seat of Cathian Can,
And Samarcand by Oxus, Temir's throne,
To Paquin of Sinaen Kings, and thence
To Agra and Lahore of Great Mogul..."

John Milton, Paradise Lost.

Lahore is more than just the city of my mother's birth. It is one city in Pakistan which inherited a significant heritage from the Mogul Empire. The numbers of major and minor Mogul monuments in the city are counted by the dozens. The major architectural sites include the Shalimar Gardens, the Lahore Fort with its Sheesh Mahal (Palace of Mirrors) and Emperor Jahangir's tomb.

From the time that Central Asian warlord, Babur, found his way to Delhi's throne in 1526, it was some years before Lahore got the attention it deserved. Lahore perhaps first came into prominence during Emperor Jahangir's rule (1605-27). Jahangir was the fourth king and son of the Mogul-e-Azam, Akbar.

Emperor Jahangir, the fourth Mogul Emperor and son of Mogul-e-Azam Akbar
One of the lesser known Moguls, perhaps Jahangir's wisest act of state was not to interfere too much with the Empire's machinery he inherited from his father, Akbar. In 1605, the year Jahangir ascended the throne, the Mogul Empire was well established although still expanding its borders geographically. The treasury's coffers were well supplied with revenue from taxation and tributes received from vassal states.

A financially stable empire permitted Jahangir to pursue his interests in arts and culture – and remain inebriated for most of his waking hours! Consequently, while Jahangir's wife (or mother) was running affairs of state Jahangir remained busy enjoying nature, hunting and patronizing the arts.

Possibly due to his love of nature, Jahangir travelled frequently from the Empire's administrative capital in Delhi to Srinagar, Kashmir. Fortunately for Lahoris, the most convenient route to the Kashmiri city went through Lahore. Consequently, Lahore received a fair amount of time and attention from the Jahangir.  

In 1606, some of the King's time was spent constructing 'Hiran Minar' or 'The Deer / Antelope Minaret.' Hiran Minar is a pavilion set in a body of water. The site is dedicated to honouring the memory of the Emperor's pet antelope, Mansraj. To Lahoris, Hiran Minar is just another picnic spot.

Hiran Minar: located on the outskirts of Lahore

In 1627, while en route to Kashmir, Jahangir died at the age of 57. Fittingly, Jahangir is buried in Lahore. In Mogul style, Jahangir's mausoleum is surrounded by lavish gardens creating another recreation spot for Lahoris and tourists alike.

The Mogul fascination with Lahore did not die with Jahangir. It lasted until near the end of the empire. The last of the 'Great Moguls,' Aurangzeb, built the famous Badshahi Masjid – an icon and landmark for modern Lahore. The mosque can accommodate 100,000 worshippers in its prayer halls and courtyard.

Lahore is neither Pakistan's capital nor its commercial hub. However, the capital of Punjab province has rightfully staked a claim as the country's cultural center. One hopes the present generation of Lahoris will do justice to the deeds of their ancestors.
Imran is a business and management consultant. Through his work at Deodar Advisors and the Deodar Diagnostic, Imran improves profits of businesses operating in Singapore and the region. He can be reached at imran@deodaradvisors.com