Incumbents win elections in Taiwan and Malaysia in contrasting styles

Save for a possible vote recount in Taiwan, the elections are over in Taiwan and Malaysia. Incumbents won in both elections, but the manner of victory and the impact on financial markets have been quite different for the two countries.

In Taiwan, Chen Shui-bian of the Democratic Progressive Party (DPP) won re-election to the presidency on 20 March by beating his opponent, Lien Chan of the Kuomintang (KMT), by a margin of less than 30,000 votes, or 0.22 percent of the votes cast. The narrow margin has resulted in members of the KMT demanding a recount of the votes. Protesters supporting Lien Chan have camped outside the presidential palace since Saturday night, with some alleging vote-rigging and election fraud on the part of the DPP.

The Taiwanese police has already ruled out the possibility that the shooting that injured President Chen and Vice-President Annette Lu on Friday could have been staged. President Chen had been hit in the abdomen while Vice-President Lu was hit in the knee. The shooting, occurring on the eve of the election while Chen and Lu had been campaigning, very likely helped him garner some sympathy votes and might have tipped the balance in his favour.

However, the narrowness of the victory, the uncertainty created by the possibility of a recount, President Chen's well-known pro-independence inclination, his antagonism towards China and his reluctance to promote communication and business dealings with China all make the election outcome somewhat unfavourable to business. As a result, the Taiwan Weighted Index has fallen from 6,815.09 at the end of last week to 6,213.5601 yesterday, a drop of 8.8 percent over three days.

In Malaysia, the election ended on 21 March in contrasting style. The ruling Barisan Nasional (BN) coalition decisively defeated its main rival, Parti Islam SeMalaysia (PAS). It captured 198 out of 219 seats in parliament and regained one state, Terengganu, from PAS, leaving the latter in control of only Kelantan, where it won by a narrow margin of 24 seats against BN's 21.

The result shows that Islamic fundamentalism is not as popular it had previously been thought to be. In contrast to the diminished fortunes of PAS, the secular opposition party, the Democratic Action Party (DAP) performed better than in the previous election. The good showing by PAS in the previous election can probably now be attributed to the electorate's distrust of then-prime minister Mahathir Mohamad. Mahathir had sacked his own deputy prime minister Anwar Ibrahim -- who ended up in prison -- and was associated with many prominent businessmen handling big projects for the government.

In contrast, the present prime minister, Abdullah Ahmad Badawi, is widely seen as promoting good governance, fighting corruption and cancelling mega-projects in favour of rural projects. Such actions cannot help but make him out to be, in the words of Suhaini Aznam in The Star, "the kindly father figure: sincere, caring for the ordinary people and moderate in his interpretation and implementation of Islam".

The decisive election result in favour of a secular party undoubtedly goes down well with the business community. The Kuala Lumpur Composite Index has held relatively steady this week, closing at 895.31 yesterday, down from 904.45 at the end of last week, a one percent fall that is more or less in line with most other Asian markets.

With more elections around the world still to come this year -- Indonesians go to the polls on 5 April and, of course, Americans on 2 November -- politics will continue to be among the top watch items among businesses and investors for quite a while.

Singapore economy starts off 2004 on strong note

After three years of sub-par growth, the Singapore economy appears to be finally showing signs of strength going into 2004. On 26 February, the Singapore government announced that it had raised its growth forecast for 2004 after the economy expanded at a faster-than-expected rate in the fourth quarter of 2003 on strong growth in both the manufacturing and services sectors. How long this strength can be sustained remains a question mark, though.

In the fourth quarter of 2003, gross domestic product rose at an annualised rate of 11 percent quarter-on-quarter, exceeding an earlier estimate of 7.9 percent, the Ministry of Trade and Industry (MTI) said. In the third quarter, the economy had expanded at an annualised rate of 16.1 percent quarter-on-quarter, the fastest pace since 1997.

For the full year, GDP grew 1.1 per cent year-on-year in 2003, faster than an earlier estimate of 0.8 percent growth but less than the 2.2 per cent rate in 2002.

The strength in the economy appears to have spilled over into 2004. Factory output in January 2004 rose at a seasonally-adjusted rate of 18.1 percent over December, led by strong growth in pharmaceuticals production. This was the sixth straight month of expansion for manufacturing.

These and other indicators of continuing strength in the local and global economies prompted the MTI to increase its forecast for 2004 growth to 3.5-5.5 percent from 3-5 percent. It did warn of risks -- a sharp fall in the US dollar due to the US budget and trade deficits, an overheating Chinese economy, bird flu, the re-emergence of SARS, acts of terrorism, and geopolitical uncertainties -- but did not assign very high probabilities to these risks.

Perhaps reflecting that confidence, the budget announced by the Ministry of Finance on 27 February contained few stimulatory measures, concentrating mainly on continuing the economic restructuring process that had been set in motion over the past two years.

Nevertheless, many economists remain uncertain over the sustainability of the economic strength. Even as the good news on the Singapore economy was announced, indicators from the US were showing less optimistic readings. Orders for durable goods fell 1.8 percent in January, led by a 10.4-percent plunge in orders for transport equipment. First-time claims for state unemployment insurance benefits rose to 350,000 in the week ended 21 February, up 6,000 from the prior week. And sales of new single-family homes in January slipped 1.7 percent from December to their lowest level since May last year.

In the meantime, the world got a reminder that a trade war between the European Union and the US remains a risk. After a meeting with the chairman of the US House of Representatives Ways and Means Committee on 26 February, the EU Trade Commissioner Pascal Lamy told the European American Business Council that the EU would impose trade sanctions on the US for allowing American firms to benefit from reduced export taxes by operating through subsidiaries in offshore tax havens.

And pessimists like Morgan Stanley's Stephen Roach never tire of reminding anyone who cares to listen that the global economy relies too much on the already over-leveraged US economy. With the US dollar now weakening, Roach wrote in the Global Economic Forum on 23 February that he expects "a back-up in real interest rates that would ultimately suppress domestic demand and lead to a long overdue recovery in America's national saving rate...To the extent that hiring in high-wage developed economies continues to lag, the sustainability of any impetus to private consumption can be drawn into serious question".

The MTI may be sanguine about Singapore's economic prospects for this year, but it is worth remembering what happened in 2001. Early in that year, most economists -- including those in the government -- had been similarly sanguine. Forecasts of economic growth rates largely fell between 3-5 percent for 2001 and as high as 6 percent for 2002. As it turned out, real GDP fell 1.9 percent in 2001 and rose only 2.2 percent in 2002.

With the bird flu raging in many parts of Asia this time, let's hope that precious eggs don't end up on anyone's face.