Prudent Investor Debates: Philippines in a State of Anarchy?

From this week's newsletter: Prudent Investor Debates

Philippines in a State of Anarchy?

Early last week I read an article by a local political analyst Mr. William Esposo of the Inquirer-GMA 7 website and found it initially repugnant. Since your prudent investor analyst do not want to succumb to confirmation biases, with an opened mind I digested the thesis that the Philippines is in an advance state of anarchy let me quote some important quips of Mr. Esposo’s arguments:

“The lethal combination of the most extreme poverty and runaway consumer prices, graft and corruption, public disillusionment over the political system coupled with the total absence of an inspiring leader-model and topped with an all-encompassing fiscal crisis lead to only one conclusion: we are headed for a period of anarchy…

“I’ve said in previous columns that this nation is already in revolt, in the psychological sense. In contrast to our previous political crises, people have become too disenchanted to even see hope in the changing of the guard. The people want a system overhaul. The yearning to change the system becomes even more intense as the pressures mount….

“More and more people I talk to have told me that they find an authoritarian regime an acceptable alternative to the present system. In his column several weeks back, my friend and Inquirer columnist Randy David wrote about Washington Sycip and F. Sionil Jose expressing support for an authoritarian regime and a revolution, respectively. Five years ago these mild-mannered gentlemen would have found these radical views unthinkable.

Writing as an investor, for a state that is on an initial phase of ‘revolt’, as Mr. Esposo suggests definitely is unworthy of investments. But is the country truly in a state of anarchy? Or is anarchy simply confined to the mindsets of political analysts with blinders and experts banking on controversial hugging headlines? While it is true that problems such as extreme poverty graft and corruption, public enchantment does exist, does this suggests that the Philippines must undergo a violent cleansing process to uplift its economy and its people? Will a change of political system guarantee the amelioration of the economic health of the country?

Well for Mr. Esposo arguably it is, hence their radical call for an authoritarian regime. This is sharp contrast to what foreign analysts think of our economic health as I have shown you lately. Warts and all analysts from Credit Lyonnais, Morgan Stanley, Goldman Sachs, the Economist and independent market maven the preeminent contrarian and my personal favorite thinker Dr. Doom or Marc Faber are economically bullish on the Philippines. So why these extreme nuances?

“Wealth distribution in Asia has been heavily skewed and has benefited relatively few. Second, poor governance suggests the danger of the collective wealth being squandered by rent-seeking and systemic financial risks. In addition, it is possible that inflation will be raised in the US to ease the debt burden of future generations, which could impair Asia’s inheritance.” notes Daniel Lian Southeast Asian Economist for Morgan Stanley. Wealth distribution (poverty levels), inflation (high prices) and rent seeking (patronage ‘palakasan’ culture, cronyism) and systemic financial risk (fiscal crisis) are well identified and similar to the observation of Mr. Esposo. In other words, these foreign analysts are fully aware of the disequilibrium in the economic and political structure. However unlike Mr. Esposo he identifies the risks of US inflationary policies from which Mr. Lian posits “may impair Asia’s inheritance”.

On the plus side Mr. Lian cites of a possible domestic investment boom which is of course is virtually impossible to the likes of Mr. Esposo. Mr Lian says, “Both Malaysia and the Philippines also have considerable scope for lifting investment. Malaysia has consistently generated very high savings (44% of GDP) and the Philippines has plenty of room to raise its savings rate to at least the low 20%s, if the present round of revenue-enhancement efforts, coupled with structural fiscal reform, result in a significant reversal in the government’s deficit trend. Raising the investment rate to the low-20% area COULD TRIGGER A SIGNIFICANT RISE IN INVESTMENT IN THE REPUBLIC. However, in the case of Malaysia, there is some uncertainty about the investment outlook due to the government’s attempt to reduce its investment role. In the Philippines, the battle in the current round of revenue enhancement moves and structural fiscal reform is far from over.”

Morgan Stanley is bullish on Asia and the Philippines not only in its outlook but it puts its money where its mouth is according to Bloomberg’s Hui-yong Yu “Morgan Stanley, raising $3 billion for its fifth global real estate fund, got a commitment of as much as $440 million from Washington state’s pension fund to invest in Asia and Europe… Morgan Stanley…is betting on economic recoveries in Asia and Europe to lift property values.”

In addition the latest news is the mining front is that Dr Marc Faber who sits in the board of Canadian Mining Ivanhoe Mines is in talks with local mining heavyweight and Philippines’ largest gold producer Lepanto Mining. According to the Philippine Daily Inquirer, “CANADIAN mining firm Ivanhoe Mines Ltd. is considering investing in mining projects of the Lepanto group Lepanto group chairman Felipe Yap said Thursday…Yap said he met with Ivanhoe Mines founder and chairman Robert Friedland to discuss the potential investment of the Canadian firm. “I am excited to look at investment opportunities here in the Philippines,” a Yap associate quoted Friedland as saying.” Money invested represents votes of confidence.

Now if the Philippines simmer into a revolutionary phase obviously this would be felt by these investor/analysts. Either these investors stall their investments or sell out. Apparently based on market data, manifestations of these conditions have not yet emerged. But Should it?

To suggest the likelihood of the return of authoritarianism is equally revolting. Name me a Latin American country (which has patently a similar culture to the Philippines than that of the rest of Asia) that has prospered economically out of dictatorship? Not Brazil, Argentina, Chile, Ecuador, Peru, Bolivia and Nicaragua. Some of our Asian neighbors had their encounters with Dictatorship and/or statism but has returned to the fold of democracy. You’ve got the likes of India, Indonesia, Thailand, South Korea and Malaysia. Myanmar (Burma) nor North Korea are no Thailand and is hardly your economic paragon. In fact both China and Vietnam are now gradually phasing in market based economies that are unlikely to prosper under a dictatorship, I believe that the Political transition would follow soon.

The usual argument for a return to authoritarianism is predicated on virtuous of discipline and central control. And this is premised largely on model leaders that would be ideal or in Mr. Esposo’s words ‘inspiring leader model’. And in most occasions, the premier model would be Mr. Lee Kwan Yu of Singapore. Singapore’s 8 million people is largely a homogenous society and could be easily controlled. The Philippines is a technically heterogeneous considering that it has more than 172 dialects, 7,100 islands, and 15 regions including National Capital Region (NCR), Autonomous Region of Muslim Mindanao (ARMM)and Cordillera Autonomous Region (CAR). Hence even amongst ourselves unity can hardly be attained, simply observe the Philippine organizations abroad, as much as the local political butterflies, Filipinos abroad could hardly foster unity.

The best parallels could be seen with Indonesia which also underwent a plentiful horrid years of Dictatorship (1967-1998), yet if one notices in economic terms according to World Bank 2002 the Philippines ranked 133^rd against Indonesia’s 145^th based on GNI Atlas methodology per capita income, as measured in Purchasing Power parity the Philippines ranked 126^th against Indonesia’s 140^th.

In terms of corruption according to Transparency International the Philippines ranked 77^th in 2002 against Indonesia’s 96^th place. Moreover according to the same corruption watchdog, President Mohamed Suharto ranks as the most corrupt leader with an ill-gotten wealth estimates of around $15-35 billion, our own Ferdinand Marcos was ranked second with an estimated stash of about $5-$10 billion. Of course there would be an update on these as Iraq’s deposed despot Saddam Hussein and his cronies were reportedly able to skim over $21 billion out of the UN Oil for Food scandal which were originally intended for food and medicine provisions for the Iraqi people.

The additional list of most corrupt leaders includes Mobutu Sese Seko of Zaire, Sani Abacha of Nigeria, Slobodan Milosevic of Serbia/Yugoslavia, Jean Claude Duvalier of Haiti, Alberto Fujimori of Peru, Paulo Lazarenko of Ukraine and Arrnoldo Aleman of Nicaragua. Now note, most of these most corrupt leaders were tyrants. In other words, authoritarianism breeds corruption rather than slays them. Corruption under an authoritarian regime is and has been the rule and their much touted Singapore’s Mr. Lee Kwan Yu is an exception to the rule which means that in context of probabilities, under an Authoritarian regime the likely outcome would be a more corrupt government. So be careful of what these analysts wish for.

In terms of Business conduciveness, World Bank’s Doing Business shows that the Philippines has a more attractive business environment COMPARED to Indonesia it takes 25 procedures 380 days and costs about 50.7% as percentage to debt to set up a business in the Philippines compared to the Indonesia’s 34 procedures 570 days and 126.5% of costs. So if there was any country that needed a revolution it would have been Indonesia.

And for one to believe that a country can emerge as immaculate is delusional according to Director of Global Governance at the World Bank Institute, Daniel Kaufmann, “there is no such thing as zero corruption, even in countries that rate at the highest levels in terms of ethics and the control of corruption.” This not to mean that your analyst would be tolerant of these malfeasance this is to say that reforms are required and not some iconoclastic actions that would exacerbate rather than alleviate our present predicament.

But of course, these local revolution inciting analysts have their self-serving agenda, either they bear an irresolvable personal difference with the present administration or they seek other agendas such as outmoded left leaning political paragons or have personal interests on an alternative government or are simply dolts engaged in oodles of tarradiddles.

Finally I would like quote Mr. Lew Rockwell of the Ludwig Von Mises Institute about the corruptions of governments, “In a free market, big isn't the same as corrupt or inefficient. Bigness is the reward of market success. If you give the consumers a good product or service at a price better than the competition, your business tends to grow. No matter how large the firm, its managers are always accountable to the public. Moreover, no market position, however exalted, is permanent. Private business must earn its keep every day, or suffer losses and even bankruptcy. This is what makes market institutions accountable; the watchdogs of the system are investors and consumers with their own property at stake.

“In government, the opposite is true. Big and corrupt go hand in hand. The worse the government is, the more it grows at public expense. So long as the coerced revenue pours in, government can disregard the public interest, and go about its usual business of rewarding its friends and punishing its enemies. Rules, regs, and whistle-blowing that attempt to keep conflicts of interest at bay work about as well as prison bars of thread. For mankind has never discovered a method for keeping the robber state from acting according to its nature.”

To diminish corruption we need less government not more.

*****
For a sample of the horrors of Authoritanism read the Economist article about Myanmar "Forced and other customs"

Mineweb: They love gold and they’re trading gold – but will they buy more?

They love gold and they’re trading gold – but will they buy more?
By: Rhona O'Connell
Posted: '21-DEC-04 12:00' GMT
© Mineweb 1997-2004

LONDON (Mineweb.com) -- The gold market has long been seen as global, in the sense that gold can be totally anonymous and has been traded either as a commodity or a currency the world over for thousands of years. The recent proliferation of “formal” gold trading is a not a modern day phenomenon, as there have been commodities exchanges, on and off, going right back through history, with Commodities Exchanges in Amsterdam in the Middle Ages. This year, however, has seen a proliferation of announcements of planned new formal exchanges or trading centres.

We have already outlined the plans for the Dubai Commodity Exchange and its intention to commence gold futures trading in the first half of 2005. The National Multi Commodity Exchange of India is already operating gold futures contracts (fully computerised and online rather than open outcry). Now hard on the heels of these developments in Dubai and India come two more countries announcing plans for formal exchanges, in the shape of Pakistan and Vietnam. While these two countries are not among the world’s largest consumers in terms of overall tonnage, they are nonetheless enthusiastic for gold investment, being among the world’s heavier consumers of gold on a per capita basis.

The accompanying table shows overall tonnage in jewellery and bar hoarding form recorded by GFMS Ltd for 2003 in these countries (and for the world as a whole) and how they compare on a per capita basis. It shows quite clearly that the UAE, of which Dubai is an important part, is by far and away the heaviest consumer of gold on a per capita basis with a hefty 23.9 grammes, or 0.77 ounces, in 2003 (on a more comprehensive analysis, only Saudi comes particularly close, with 6.1g per capita). The world average, by contrast, is a mere 0.44g or 0.014 ounces while it the US it worked out at 1.21g per capita. These number s should be interpreted with caution, as some recorded UAE demand will be tourist purchase, as is also strongly the case in Turkey. Even so the fact that UAE offtake is more than 50 times he world average does talk to the love of the Middle East fro gold.

Country	Exchange	First Trading Date	Jewelry Demand	Bar Hoarding 2003 (source:GFMS Ltd)
			tonnes	Per capita
USA	COMEX	Dec-74	348	1.21
JAPAN	TOCOM	Mar-85	84.5	.66
TURKEY	ISTANBUL	Aug-97	155.8	2.24
CHINA	SHANGHAI	Oct-02	203	.16
INDIA	MCEX	2003	547.5	.55
UAE	DMCC	First half 2005	90.9	23.92
VIETNAM	HANOI, HO CHI MINH	Early 2005	58.8	.73
PAKISTAN	NCEX	Early 2005	59.5	.41
World			2715.1	.44

World Bank: Corruption - What Can be Done to Fight It?

World Bank: Corruption - What Can be Done to Fight It?

The global cost of corruption tops a trillion dollars a year in bribery alone. Corruption drains treasuries, delays development and is even linked to high rates of infant mortality. All of which makes fighting corruption a top priority around the globe, writes the Voice of America (12/17).

General Suharto of Indonesia... Ferdinand Marcos of the Philippines... and Mobutu Sese Seko of the former Zaire... they represent some of the most corrupt leaders in recent history. Global governance expert Daniel Kaufmann of the World Bank calls them 'kleptocrats' who ravaged their nations. But he says the face of corruption is changing. "There are many countries nowadays where, thanks to a move towards democracy, the leader has integrity, and the problem of corruption is still absolutely enormous." For example, in Nigeria, democratically elected president Olesegun Obasanjo and his cabinet face political constraints in an environment where corruption is deeply ingrained. And using traditional methods to attack the problem just don't work.

Kaufman says that is a waste of money. "You have a big corruption problem in a country, (so) throw another institution (at it) and start an anti-corruption commission, anti-corruption agency; a lot of funds have gone to that. We do not see major positive fruits out of that."

At the World Bank one new idea is to 'name and shame' companies that don't play by the rules. "It is no secret that we have made mistakes in the past and some World Bank funded projects have been tainted," said Kaufman. "There is a much tougher approach now." The World Bank sponsors an anonymous phone line to take tips. Then it bans companies found guilty of wrongdoing and posts their names on the Web.

The Internet and technology can also help nations create transparency. Kaufman provided an example. "In Chile, 80 percent of individuals are filing their tax returns on line -- probably the highest in the world nowadays." That means the government picks up more money to spend on development. But Kaufmann adds that fighting corruption is not just a job for governments or the World Bank. It's up to every exporter, business owner, judge, and citizen to build a world of integrity.

Yahoo News: Global Mining Firm Eyes Philippines

Prudent Investor Says: Welcome Dr. Marc Faber!!!

Global Mining Firm Eyes Philippines

MANILA, Dec 20 Asia Pulse - The Ivanhoe Capital Corporation (ICC), one of the world's leading mining companies, has expressed interest in the possibility of investing in the country after the Supreme Court recently decided to allow foreign companies to explore and develop the country's mineral resources.

President Gloria Macapagal-Arroyo welcomed ICC Chairman Robert Friedland and ICC legal representative Edward Rochette during a courtesy call at the Malacanang's Music Room on Friday.

Accompanying them were Trade and Industry Secretary Cesar Purisima and Philip Romualdez, who represented the local mining chamber.

ICC's Ivanhoe Mines, with operations in the Asia Pacific region, is a producer of copper, gold and iron ore products. The company's sales revenue in 2003 was US$89.7 million.

Purisima said ICC would likely tie up with Lepanto and Benguet Mines in exploring mineral deposits and promoting mining entrepreneurship in the country.

Purisima said Friedland, who was due to proceed to China on Saturday, would be back in Manila next year for a mining conference scheduled from February 2 to 4.

Purisima said ICC has discovered the largest copper deposit in Mongolia and the largest nickel deposit in Canada.

Currently, Ivanhoe Mines is evaluating coal, copper and gold discoveries in central and southern Mongolia and exploring for copper and gold in the Chinese province of Inner Mongolia and in Australia.

A study conducted by the National Economic and Development Authority (NEDA) has placed the potential mining wealth of the Philippines at $840 billion (P47 trillion), or 10 times the country's annual gross domestic product (GDP), and 15 times more than the total foreign debt of $56 billion.

Hugo Salinas Price: Silver's Three Flags published by 321gold

Prudent investor says: And the movement for Hardmoney BEGINS....IN MEXICO!!!

Silver's Three Flags
Hugo Salinas Price
Asociación Cívica Mexicana Pro Plata, A.C.

20 December, 2004

This article, translated by the author, appeared in Spanish on the 11th of December, 2004, in "La Jornada," a Mexico City newspaper.

Silver as a vehicle for popular savings, has turned out to be a very effective flag that has gathered support amongst the principal Mexican political parties, which in everything else are deeply at odds with one another.

This past 30th of November, the 31 governors of all the states that make up the Mexican Republic sent a communiqué to the "Ways and Means" Committee of the Mexican House of Representatives, in which they expressed their unanimous approval of the monetization of silver and urged the Committee to approve a bill which aims to achieve precisely this objective.

176 Mexican newspaper writers put their signatures to full page declarations by the Journalists' Club in the main newspapers of Mexico City, also in support of the monetization of the "Libertad" silver ounce.

A permanent organization of ex legislators also expressed their support for the measure in favor of the monetization of silver.

A poll by national T.V. Azteca, revealed that 96% of viewers approved of the monetization of the silver ounce, when asked if they were, or were not, in favor.

The Bank of Mexico, Mexico's Central Bank, is adamantly opposed to this measure. It does not want the public to have the opportunity of saving in monetized silver. It wants to maintain its unblemished monopoly on the printing of Mexico's money, which has no intrinsic value, and does not want the public to have any alternative for its savings, other than bills or bank deposits.

The Bank of Mexico sent a group of twelve men to the meeting of the Ways and Means Committee on the 30th of November, in order to confuse and cow the members of this committee, and forestall a favorable vote on the bill to monetize silver.

We do not know how the members of the Committee will cast their decisive vote, when the time comes.

Even in case their vote should be negative, we can predict, by the support given to this reasonable and salutary measure in the interest of Mexico, that the idea of monetizing silver will not die. The idea of using silver as money that cannot be devalued, for savings by the people, is now firmly rooted in the public conscience of Mexico. An idea on the march is a force that does not die easily. Suppressed, it will only gather more strength. Such is the history of all ideas. But silver flies another, more important flag.

In the mid-19th Century, when modern Italy had not yet taken shape and was still under the domination of Austria-Hungary, there was sown the idea that Italy should be reborn as a united and self-governed State, and that the domination of Austria-Hungary should be expelled.

Garibaldi came forward as a leader of this "resurgence" of the Italian fatherland. A young composer, Giuseppe Verdi, composed an opera to symbolize Italy under the heel of Austria-Hungary: Nabuco was its name. The Hebrews captured by Nabuco, the Babilonian king, symbolized the Italians under the rule of Austria-Hungary.

One hymn of this opera was so moving, that it spread like wildfire among the population. It became impossible to frustrate the resurgence of Italy. Verdi's hymn is, to this day, the national anthem of Italy.

This is silver's second flag: national union, with a consciousness of our own worth, our own culture and our independence. A national consolidation will take place when we once again take up silver, our ancestral money.

However, there is another still greater flag for silver:

Silver turned into Mexican money, circulating in parallel with paper money, no matter how insignificant the importance of that small amount of silver in the nation's economy, means that Mexicans will always remember that silver can actually be used as real, honest money. And that as the years pass, it will always be there, inviting us to use it in the most dangerous and dark times that may come.

Silver in circulation will serve to remind us that it is possible for a society to use silver and benefit from the use of real money, honest money.

Otherwise, it is possible that we may forget this, as has happened to many nations in the world. When Mexico monetizes silver, it will become a lighthouse of hope for the world, a light that shows the way out of the swamp of slavery and perpetual impoverishment that comes with paper money. Paper money, which is today the only kind of money in the world, ensures economic and therefore political control over the populations that use it. The planet's banking caste that issues paper money and virtual, electronic money, threatens to become the sovereign power through the fictitious money it issues, and aspires to dominate all humanity.

The outcome of paper money is the dehumanization of the human race.

This is silver's third and most important flag: the cause of humanity.

Silver's flags, therefore, are three:

The flag of people's savings.
The flag of national union.
The flag of the preservation of men, from dehumanization.

The silver coin as money: an idea that has taken life and will not be suppressed.

Metals boom sends investors back to Latin America

Metals boom sends investors back to Latin America
Thu Dec 16, 2004 01:23 PM ET

By Pav Jordan

MEXICO CITY, Dec 16 (Reuters) - With metals prices flying high, Latin America's gold, silver and copper mines from Mexico to Chile are a hot spot for foreign investors and modern-day treasure hunters looking for new mining projects.

"Latin America in its totality has now overtaken, in terms of exploration expenditure, countries like Canada, Australia and so on that used to be the leading countries," Peter van der Veen, mining policy and reform manager at the World Bank, told Reuters at a recent mining forum in Guatemala.

In Mexico, mining production was up 8.4 percent in the first nine months of this year. Gold output jumped 20 percent and silver and copper production also showed hefty double-digit gains.

"In the last couple of months, Mexico has caught fire again and is getting a lot more play," said Brad Aelicks, a spokesman at Vancouver-based Great Panther Resources Ltd.

Great Panther is working on rehabilitating a silver-lead-zinc mine in Mexico's Durango state, which was formerly owned by Industrias Penoles (PENOLES.MX: Quote, Profile, Research) , the world's largest silver miner. Great Panther hopes to bring it on line next year.

Mexico abounds with stories of new, renewed or extended explorations with droves of Canadian junior explorers in search of the next major gold or silver play.

New investments from major miners like Penoles and No. 3 copper producer Grupo Mexico (GMEXICOB.MX: Quote, Profile, Research) also point to growing enthusiasm in an industry that recently emerged from years of depressed prices.

The story grows as the mining pick is cast further south.

OPTIMISM ABOUND

In Chile, total output of copper -- the country's biggest export and the backbone of the economy -- is expected to rise 10 percent this year while overall mining output is up about 6 percent.

"The mood is very positive and optimistic and I think it's going to stay that way and hopefully prices will as well," said Alfredo Ovalle, president of Chile's Sonami group of midsized mining firms.

BHP Billiton Ltd. (BHP.AX: Quote, Profile, Research) , the world's biggest miner, is developing a $990 million Spence copper project in northern Chile. And Antofagasta Plc (ANTO.L: Quote, Profile, Research) , a Chilean-owned company listed in London, is spending $750 million to expand and upgrade its flagship Los Pelambres mine.

In Panama, Canada's Petaquilla Minerals Ltd. and its joint venture partners are aiming to raise around $1 billion to begin mining a large copper deposit.

Petaquilla says the project, given new life by prices near 16-year highs, would be the world's 14th largest copper mine.

Global prices are up for most metals, both in the precious and base metal categories.

Given the dollar's weakness this year, many investors have moved to gold as a safe haven. Meanwhile, prices for industrial use and base metals have been boosted by unexpectedly high demand from China, the resulting scarcity in concentrates and lower metal-treatment quotas.

"People had not truly calculated what was happening in China," said the World Bank's van der Veen. "The mineral intensity of that development and economic growth is taking everybody, not just suppliers but everybody, by surprise."

For Brazil, demand from China and higher prices have been a major driver of iron ore production.

"It has had an impact on mining, especially iron ore for which there is strong Chinese demand," said Marcos Antonio Maron, special advisor to the Energy and Mining Ministry.

Brazil's Companhia Vale do Rio Doce (CVRD) (VALE5.SA: Quote, Profile, Research) (RIO.N: Quote, Profile, Research) , the world's biggest iron ore miner, saw a surge of at least 25 percent in 2004 output and expects it to rise another 50 percent over the next four years. China buys about 20 percent of its iron ore from Brazil. (Additional reporting by Fiona Ortiz in Santiago, Peter Blackburn in Rio de Janeiro and Frank Jack Daniel in Guatemala City)

© Reuters 2004. All Rights Reserved.

World Bank Snippets: Press Freedom -- Prometheus Unbound, A Bit. and Sri Lanka Needs Reforms, Rural Investment

Press Freedom -- Prometheus Unbound, A Bit.

The world's media are much freer than they used to be, The Economist writes. The Soviet Union's collapse sent liberating tremors not only through Russia, but also through its array of colonies and satellites. Furthermore, the cold war's end prompted western donors to stop propping up anti-communist dictators and to start insisting on democratic reforms, of which unshackling the press was one. Of the former members of the Soviet block, only a few, such as the Czech Republic and Lithuania, have managed to become proper democracies where speech is truly free. But only a few, such as North Korea, Cuba and Turkmenistan, still silence dissent completely.

The most uniformly repressed region is the Middle East, writes the weekly.

But even there new voices are being heard. Though they try, the most dictatorial Arab regimes have failed to insulate their people from the legions of (sometimes wildly conspiratorial and unpleasant) Arabic current-affairs websites. Neither have they stifled the pugnacious new satellite television news stations, such as al-Jazeera and al-Arabiya.

Dictators are rarer than before in Latin America and East Asia, and censorship laxer. Progress has been most striking, however, in sub-Saharan Africa. In the late 1980s, when Africa was still a battleground for the superpowers, only three countries (Botswana, the Gambia and Mauritius) allowed their people to say, write and broadcast what they pleased. The rest were more like Zaire (now Congo), where state television showed President Mobutu Sese Seko's image descending godlike from on high. Private newspapers are now available almost everywhere in Africa, and the number of independent local radio stations has risen 100-fold, from ten in 1985 to over 1,000 today. Television is still state-dominated, but, in general, relatively unfiltered news is reaching far more people than ever before.

The media watchdog Freedom House says that few poor countries are as free as they should be, though most are heading in the right direction. China is an example. It is less oppressive than it was under Mao Zedong, and that is reflected in its media. The number of Chinese newspapers soared from 382 in 1980 to 2,119 in 2003, says the government. Direct criticism of the Communist Party is still taboo, but other comment is a bit freer. Chinese journalists can write about economics, foreign affairs and practical problems facing their readers in a way that would not have been tolerated 20 years ago. At a local level, they can also expose corruption, even among party officials. Freedom House also reports that since 1985, the proportion of the world's population living in places where the media are “not free” has fallen slightly, from 46 percent to 43 percent. On the other hand, the proportion who live in countries classified as “free” has also fallen, from 29 percent to 17 percent. This does not mean that lots of countries have regressed from “free” to “partly free”. Rather, it reflects faster population growth in poor countries.

Sri Lanka Needs Reforms, Rural Investment: World Bank.

Sri Lanka badly needs rural infrastructure investment and reforms to boost a stagnant agriculture sector to speed up economic growth, the World Bank said on Thursday, saying future aid may depend on it, reports Reuters.

Sri Lanka should trim its fiscal deficit, cut back public debt equal to 100 percent of gross domestic product and focus on poverty reduction, the bank said in a new development policy review. Ensuring lasting peace between the government and Tamil Tigers rebels after two decades of civil war was also vital to the Indian Ocean island's economic prospects, it added. "There is a need for agricultural reform," said World Bank country director Peter Harrold, launching the review in Colombo. "But it won't work unless it is accompanied by investment in infrastructure like roads and power."

Fiscal deficit and public debt reduction, investment in transport, education and the power sector and reforms to increase rural productivity are the best ways to tackle poverty reduction and broaden the base of economic growth, the report said. "These the World Bank regards as the key issues that would need to be considered in defining a more pro-poor growth strategy for Sri Lanka, and which will be guiding our assistance to Sri Lanka in the coming years," the report added. The government's newly approved 2005 budget focuses spending on rural infrastructure, as well as incentives for power generation projects and small and medium businesses.

Sri Lanka's road and rail networks have deteriorated in recent years as the government channeled spending into defense to fight Tamil Tiger rebels and neglected areas like health and education. The bank estimates the civil war between the rebels and government, which has killed more than 64,000 people on both sides, reduced GDP growth by 2.0-3.0 percentage points per year on average between 1983-2002. "Sri Lanka is at a crossroads on its development path," the report said. "Any resumption of conflict poses a major risk to Sri Lanka's development prospects." The government is targeting 6.0-8.0 percent growth in 2005 and 6.0-7.0 percent growth in the medium-term. But inflation is expected to rise to 8.0 percent in 2005 from 6.0-7.0 percent his year, the rupee is at all-time lows and the budget deficit is forecast at 7.6 percent of GDP next year compared to 8.6 percent forecast for 2004.

Bloomberg's William Pesek Jr. : Investors Got Asia Right in 2004. And 2005?

Investors Got Asia Right in 2004. And 2005?

by William Pesek Jr.
Bloomberg

Dec. 17 (Bloomberg) -- Anyone looking for a reality check on Asia could do worse than come to the scene of the crime, so to speak. That would be here in Bangkok, where this region's worst financial crisis in decades was set in motion.

Thailand didn't cause the meltdown, though its currency devaluation in July 1997 marked the beginning of the end of the double-digit growth rates investors came to expect from Asia. In the seven-plus years since, Thailand's economy and markets have often been the vanguard of investors' sentiment toward Asia.

Scenes in this spirited city of 8 million do indeed say much about Asia's strong post-crisis revival. So strong is Asia's ninth- biggest economy these days that Thailand's central bank just unexpectedly raised its key interest rate to 2 percent from 1.75 percent for the third time in four months to curb inflation.

Wandering Bangkok's streets, it's not hard to see why. While there is still considerable poverty, increasing numbers of twenty- somethings linger in trendy downtown cafes, nursing cappuccinos or French wine. Fashionably dressed Thais saunter from boutique to boutique shopping for the latest styles from Louis Vuitton and Gucci. And hotel lounges are again abuzz with foreign investors on the lookout for opportunities.

It's a striking contrast from just a few years ago, when Thailand, like much of Southeast Asia, lay coughing and wheezing amid Asia's financial crisis.

`White Hot'

``Asia is certainly white hot at the moment,'' says Callum Henderson, head of currency strategy at Standard Chartered Plc. ``It reminds me of 1996.''

There's a key difference, though: Investors' exuberance toward Asia is far less irrational than it was back then.

2004 has been a year when many investors got Asia right. Stock markets in Australia, Hong Kong, India, Indonesia, Malaysia, New Zealand, Pakistan, the Philippines, South Korea and Sri Lanka are recording double-digit gains this year.

Japanese stocks are up 8 percent, while Taiwanese shares are up more than 7 percent. Thailand, even with 6 percent growth and its role as a barometer for Asia, is one of the few laggards; its SET Index is down 13 this year. Yet much of the loss can be explained by the fact Thai shares jumped 117 percent in 2003. Investors are waiting see if 2003's rally was justified.

Will investors' bets on Asia also pay off in 2005? It's quite possible.

Risks and Wild Card

Asia, after all, has what the West doesn't: rapid gross domestic product growth, swelling populations, emerging middle- class consumer sectors, growing cities and evolving markets. Many investors believe Asia's equity markets are trading at much lower price-to-earnings ratios than larger ones.

Furthermore, many investors are underweight Asian equities because of their small role in indexes like the MSCI World Free Index. Foreign investors fed up with paltry returns on bond yields in the West may increasingly look toward the East.

This region also has a rising superpower in its backyard: China. Asia's No. 2 economy is boosting intra-Asian trade to an unprecedented degree. China's 9 percent growth even gets most of the credit for Japan's return to the plus column. Not bad, considering China's economy is a one-third the size of Japan's.

Much could go wrong, of course. A U.S. dollar crash is but one of the risks facing a region that's still too dependent on exports. Further declines in the dollar would damp Asia's economies.

China is another wild card. If policy makers in Beijing err in their efforts to slow growth and inflation, Asia's outlook would change dramatically. China's efforts to avoid a hard landing are, at best, a work in progress and may include a possible currency revaluation.

`Buy Asia'

Finally, the ``buy Asia'' dynamic coursing through global markets leaves the region in a put-up-or-shut-up position in 2005. It's crucial to continue building a sound economic foundation to underpin the 1996-like construction boom one sees in cities such as Bangkok.

One of the best ways to do that is reduce debt. Asia cut foreign-currency debt and its banks reduced non-performing loans after the 1997-1998 crisis. Yet growth in local-currency public debt in the second half of the 1990s was too rapid for comfort; it went from about 40 percent of aggregate GDP in 1996 to about 65 percent. If Asia uses today's growth to trim debt levels, tomorrow's prosperity will look even better.

Still, this year's rise in stocks is a reminder of how far Asia has come since the late 1990s. It shored up banking systems, improved transparency, unpegged currencies, made central banks more independent and privatized many state-owned assets. Corporate balance sheets are cleaner and a sense of political stability has returned to many countries.

Japan Stabalizing

Even Japan is on more stable footing. Asia's biggest economy is still grappling with deflation and its recovery has been less vibrant than hoped. Yet for the first time in a decade, Japan is likely to contribute a bit of growth to the region instead of holding it back.

Throughout Asia there's a ``prevailing cautious optimism that the Japanese economy can resume its uptrend,'' says David Cohen, Singapore-based director of Asian economic forecasting at Action Economics.

It sure does feel like 1996 all over again in Asia. Only this time, the region's economies may be sound enough to keep the good times going.

Slate.com's Henry Blodget: "Born Suckers-The greatest Wall Street danger of all: YOU"

Prudent Investor says: THIS IS A MUST READ FOR YOU...

Born Suckers
The greatest Wall Street danger of all: YOU.
By Henry Blodget
Posted Tuesday, Dec. 14, 2004, at 5:11 AM PT

This self-defense guide would not be complete if I did not address the greatest Wall Street danger of all: you.

Human beings, it turns out, are wired to make dumb investing mistakes. What's more, we are wired not to learn from them, but to make them again and again. If there is consolation, it is that it's not our fault. We are born suckers.

In the past 30 years, academic research has progressed beyond efficient-markets theory, which mistook humans for robots, into behavioral finance, which acknowledges that we are, in fact, sweating, breathing, herding, hoarding, pleasure-seeking, pain-avoiding animals who employ a looser definition of "rational" than computer chips. A full enumeration of the innate tendencies that doom most of us to investing mediocrity would fill a hard drive. So, here are some highlights (thanks in advance to James Montier of Dresdner Kleinwort Wasserstein Research, Michael Mauboussin of Legg Mason Funds, Warren Buffett, and www.behaviouralfinance.net):

Self-attribution Bias: We attribute our successes to ourselves, and we blame our losses on others or bad luck. This hobbles us in two ways. First, we don't learn from our mistakes because we don't see them as mistakes. Second, we assume we are skilled or smart when we're just lucky.

The Gambler's Fallacy: We tend to believe, incorrectly, that if a flipped coin has come up heads three times in a row it is more likely come up tails next time. Similarly, just because a stock or market has gone up or down for a while doesn't mean it is more likely to go the other way soon.

Prospect Theory: We have an irrational tendency to sell our winners to lock in profits and keep our losers to avoid taking losses. This causes us to sell too early when the market is going up and too late when it is going down. We also feel the pain of loss more than the pleasure of gain and, therefore, blow out losing positions in panic when we should just hang on.

Conservatism Bias and Confirmatory Bias: Once we form opinions, we tend to overvalue information that reinforces them and undervalue information that undermines them (conservatism bias). We even tend to seek out supporting information (confirmatory bias). Thus, we irrationally cling to incorrect conclusions, and, to paraphrase Simon and Garfunkel, hear what we want to hear and disregard the rest.

Overoptimism: We tend to be overoptimistic and overconfident. According to James Montier, when students are asked whether they will perform in the top half of their class, an average of 80 percent say yes. This tendency makes it easier for part-time hobbyists to dismiss a century's worth of academic research showing that only a tiny fraction of full-time professionals can beat the market.

Outcome Bias: We tend to evaluate decisions based on outcomes instead of probabilities. Thus, we congratulate ourselves for stupid choices that happen to turn out well and vow to never again make smart choices that happen to turn out badly. Our errors get reinforced, and our wise decisions rejected.

Buffett's "Rearview Mirror": We base our expectations for the future on what has happened in the recent past. Thus, we are most bullish at the end of long bull markets, when we should be most bearish, and most bearish at the end of long bear markets, when we should be most bullish.

Hindsight Bias: When we reflect on the past, we imagine that we knew what was going to happen when we didn't. As James Montier puts it, "You didn't know it all along, you just think you did." This allows us to imagine, for example, that we knew that the tech boom of the late '90s was a bubble and that everyone who suggested otherwise was an idiot or crook. It also makes us overconfident about our ability to predict what will happen next.

A recent paper by Michael Mauboussin, one of the leading experts on behavioral finance (also a practitioner), discusses two of our most unsettling psychological tendencies: the extent to which we conform our decisions to those of other people and our willingness to defer to authority.

Mauboussin describes experiments conducted by psychologist Solomon Asch in which subjects were asked to make simple judgments in the presence of others. Unbeknownst to the one subject in each test, the other participants were actors. The group was asked easy questions—for example, "Which of these three lines is the same length as this other line?"—and then each person answered in turn. For the first few rounds, Asch's actors gave correct answers, and the real subject got the question right almost every time. Then the actors started giving answers that were obviously wrong. Some of the test subjects expressed shock at the obvious mistakes, but 35 percent simply went along with the group. As Mauboussin concludes, "group dynamics—often revealed as stock price performance—tempt investors to go along with the majority, albeit to varying degrees."

Mauboussin also describes the famous Milgram experiments, in which subjects were asked to administer a shock to another "subject" (an actor) each time the faux-subject got a question wrong. With each incorrect answer, the intensity of the shock increased. When subjects hesitated to administer additional shocks—for example, when the actor was screaming in agony or the gauge indicated that the intensity had reached a lethal level—the lab-coated test administrator simply said, "The experiment requires that you go on," or "It is absolutely essential that you continue." The results were horrifying: Approximately half of the subjects administered shocks that would have killed a real subject.

As Mauboussin concludes, "Investors—both professional and individual—have a tendency to defer to perceived authority figures, including successful investors, strategies, or other market prognosticators." When I was an analyst, I saw both sides of this. I placed too much stock in the opinions of those who seemed to know more than I did (my fault, not theirs). More unsettlingly, I saw others do the same with me.

People's natural tendency (here we go again …) is to view the conclusions of behavioral finance theorists as yet another indication of how dumb everyone else is rather than how handicapped we all are as we try to outwit the market and each other. But the biggest lie of the 1990s—the biggest lie of every bull market—is that investing is so easy that anyone can do it, that all you have to do to win is play. The reality, of course, is that only a tiny handful of people are dedicated and talented enough to overcome their DNA, confront the long odds, and come out ahead of the market averages, and they are as rare as world-class athletes. As for the rest of us, we may have fun trying (and this, in and of itself, is enough reason to play), but, alas, we are almost sure to lose.

Henry Blodget, a former securities analyst, lives in New York City.

Elliott Wave International's Robert Folsom: All the Success, Intelligence, Experience, and Street Smarts on Earth...

All the Success, Intelligence, Experience, and Street Smarts on Earth...

by Robert Folsom

Elliott Wave International
12/15/2004 6:31:56 PM

Tom Wolfe's Bonfire of the Vanities is the best treatment I've ever read of what it's like to be at the center of a media frenzy: People you cannot control seize control of who the world thinks you are. Your identity is extinguished.

This may be how Mr. Bernard Kerik feels after the past several days, not that I'm trying to solicit sympathy for the man. Nominated on Dec. 3 to be homeland security secretary, Kerik withdrew his name a week later, apparently because he employed a nanny "who may have been in the country illegally and whose taxes he had not paid."

Yet this was just the iceberg's proverbial tip. The press in New York (and elsewhere) has followed up with story after story of his scandalous behavior -- and if even a few of the allegations are true, he really is a rogue. With one mistress in his pocket and his wife pregnant, Kerik reportedly had an affair with Judith Regan, the most powerful book agent in the publishing business. The lady is known for a temperament and persona that could match Kerik's own toughness.

So, why the heck am I describing this vulgar political soap opera on a page devoted to financial topics?

Because it illustrates a basic truth about the human condition, one we would all prefer not to see in ourselves. We'd rather look at this story and chuckle over sordid details and think that that's all there is to it. But the question that begs to be asked is, How could such intelligent people behave so ... irrationally?

Bernard Kerik knew full well that he would face the FBI's ruthlessly thorough background check, never mind the media's scrutiny; yet he concluded that the allegations would not become public. As for Ms. Regan, one would like to assume that she would not take the kind of risk that could end up with her name in a banner headline on The Drudge Report.

In this case, arrogance led to the irrational choices. In financial markets, rational thinking is overcome by greed and fear. Either way -- all the success, intelligence, experience, and street smarts on earth do not immunize people from bouts of extraordinarily irrational behavior

New York Times Editorial: No Bang for Our Cheap Buck

No Bang for Our Cheap Buck

Published: December 15, 2004
New York Times Editorial

The Bush administration's de facto weak-dollar policy - its preferred "cure" for the American trade deficit - is not working. Yesterday's trade deficit report shows that imports outpaced exports by a record $55.5 billion in October. The huge imbalance was worse than the gloomiest expectations.

So far, the administration has been hoping that the weaker dollar will raise the price of imports, leading American consumers to buy less from abroad, and will at the same time make our exports cheaper so foreigners will buy more American goods. That's supposed to shrink the trade deficit and, with it, America's need to attract nearly $2 billion each day from abroad to balance its books.

But the dollar has been declining since February 2002 - it's down by 55 percent against the euro and 22 percent against the yen - and the trade deficit has stubbornly refused to shrink along with it. The falling dollar has done nothing to diminish America's appetite for foreign goods - such imports continue to rise at a faster rate than exports. According to yesterday's report, imports were some 50 percent greater than exports in October. Much of October's import growth was caused by high oil prices, which have since subsided. But that's no reason to shrug off the disturbing evidence of the weak dollar's failure to fix the trade gap. The United States is now on track for a trade deficit of more than $60 billion next June.

As the American economy heads for higher global imbalances, the need to borrow from abroad grows. And the more we borrow, the weaker the dollar becomes. That's because the markets that set the value of freely traded currencies, like the dollar and the euro, punish indebted nations by pushing down their currencies. The United States, by any measure - trade, the federal budget, personal consumption - is by far the world's biggest debtor. The need to borrow in the face of an already weak dollar portends higher prices and higher interest rates.

How high and how fast? Who knows? But one thing is sure: that American tourists need to pay $5 for a demitasse in Paris will be the least of our worries if mortgage rates spike, the stock market falls, and businesses curb their already modest hiring.

A cheaper dollar would not be as threatening if it was part of a comprehensive strategy to close the trade deficit. For instance, the United States must demonstrate to our trading partners and the currency markets that it intends to reduce the federal budget deficit - thereby lessening its need to borrow from abroad and reducing downward pressure on the dollar. Unless and until it does so, the United States will lack the credibility and the authority to press for changes that need to occur in other countries to balance out global trade. There are alternatives to a single-minded pursuit of a weak dollar fix. What is lacking is the leadership to pursue them.