India has come a long way since the 1980s, when high fiscal deficits precipitated the 1991 economic crisis.

Throughout the 1980s and 1990s, foreign investors looked to the East for investment and higher growth opportunities. East Asia did not disappoint, with GDP in some of these countries growing at an annual rate double that of any other part of the world between 1975 and 1995, Gfmag.com reported.
Foreign investors’ optimism gave rise to the “Asian tiger“ phenomenon, which defined the 1990s. The collapse of the former Soviet Union in 1991 also saw the emergence of previously untapped markets in Central Asia, including the former Soviet states of Kazakhstan, Uzbekistan and Kyrgyzstan, which have since embraced market reforms and sought foreign investment for their burgeoning hydrocarbon industries.
However, as the 1990s came to a close, foreign investors’ perceptions of developing Asia altered drastically. Speculative attacks on the Thai baht in 1997 exposed structural weaknesses such as an over-reliance on foreign capital and the stockpiling of short-term debt, which spilled over into neighboring Indonesia, Malaysia, South Korea and the Philippines.
Overnight FDI levels declined by 66 percent, and the past 10 years has been spent redressing those imbalances, with the abandonment of fixed exchange rates in most Asian markets, the development of local and regional equity and debt markets, and increasing adherence to international standards concerning corporate governance and risk management.
The past two decades has also witnessed a major shift in focus toward Asia’s new tiger economies, India and China. Economic reforms that were instituted as early as 1978 saw China’s agricultural and industrial output grow by an average annual rate of 10 percent throughout the 1980s, and its increasingly important role in global and regional trade flows was also boosted by its accession to the World Trade Organization in December 2001.
China is likely to remain a dominant force in the region for some time, with economists predicting it will become the world’s second-largest economy, behind the United States, by 2030. In the short-term, however, the Chinese authorities are putting the brakes on rapid economic growth, increasing interest rates and restricting bank lending, which will see annual growth slow from 10.7 percent in 2006 to an estimated 10 percent in 2007.
India has come a long way since the 1980s, when high fiscal deficits precipitated the 1991 economic crisis. Following the crisis, the government instituted major macroeconomic and structural reforms and loosened government controls on investment and trade.
By 2005 India ranked as the world’s 12th-largest economy and is predicted to become the third-largest economy behind China by 2050. Last year South Asia, including India and Pakistan, had one of its best years, growing at a rate of 8.7 percent, with India recording the highest level of growth, at 9.2 percent.
While growth in the former Asian tiger economies directly affected by the 1997 crisis slippedÑby an average of 2.5 percent a year from 2000 to 2006 (according to figures from the Asian Development Bank) compared with the period 1990 to 1996Ñlast year Southeast Asia as a whole expanded by an aggregate of 6 percent, which ADB figures show is above the average growth of the preceding five years.
The threat of geopolitical risk remains a constant in the region, with President Gloria Macapagal-Arroyo of the Philippines surviving two impeachment attempts and last year’s military coup in Thailand affecting that country’s economic growth.
Overall, though, the region appears better prepared than it was 10 years ago to deal with any upheaval. The stockpiling of FX reserves and budget surpluses means the region is more resilient and better able to deal with the fallout from events such as an anticipated slowdown in the US economy.

Despite the US Trading With the Enemy Act, which governs Washington’s 45-year-old embargo, sales on Cuba are lining the pockets of corporate America, reported AP.
Dozens of American brands are on sale in Cuba--and not in some black-market back alley. They’re in the lobbies of gleaming government-run hotels and in crowded supermarkets and pharmacies that answer to the communist government.
The companies say they have no direct knowledge of sales in Cuba and that the amounts involved are small and would be impractical to stop. But it’s hard to deny that a portion of the transactions wind up back in the United States.
Trade sanctions bar American tourists from visiting Cuba and allow exports only of US food and farm products, medical supplies and some telecommunications equipment. But wholesalers and distributors in Europe, Asia, Latin America and Canada routinely sell some of America’s most recognizable brands to Cuban importers.
Cuba has for years sought out American goods as a way of thumbing its nose at the embargo. Officials at three foreign-owned import companies operating in Havana said the government itself still imports the vast majority of American goods.
Christopher Padilla, US assistant secretary of commerce for export administration, said from Washington that Cuba even sends delegations on “buying missions,“ hunting for specific American products in third countries for resale back home.
Cuban press authorities did not make relevant officials available to discuss the practice.
In a country where tourism is the leading revenue source, stocking American brands helps reassure visitors, according to Daniel Erikson, a Cuban economy expert at the Inter-American Dialogue in Washington.
All American products are sold in Cuban convertible pesos, considered foreign currency and worth $1.08 apiece--about 25 times the island’s regular peso. Although government salaries have increased in recent years, the average monthly pay is still around $15, meaning few Cubans can afford US goods.
But last month, Economy Minister Jose Luis Rodriguez said 57 percent of the population has access to hard currency--dollars or convertible pesos--either through jobs in tourism or money from relatives abroad. A 2004 report by the US Commission for Assistance to a Free Cuba estimated that remittances from the United States alone total $1 billion a year.
The influx of American brands began in earnest in 1993, when Cuba scrapped laws that had made it illegal for its citizens to possess dollars. Cubans know the products, despite an almost complete lack of advertising on the island.
Steven Nakash, director of licensing for Jordache Enterprises in New York, said the company heard about unauthorized use of its brand in Cuba several years ago but took no action because “an American company dealing with a foreign territory and battling it out on foreign soil is very, very hard.“

Indonesia is slowly moving toward a wide range of structural reforms critical to soothing the anxieties of local and foreign investors.
Less than a decade after the fall of the dictator Suharto, Indonesia is moving to hand more power to regional governments, improve its fiscal house and slash the red tape and bureaucracy that often surrounds doing business here, reported Reuters.
Yet despite the widespread perception of the need for reform, the administration of President Susilo Bambang Yudhoyono finds itself frequently at odds with parliament as it forges a democracy and raises living standards after decades of autocratic rule that ended with the fall of Suharto in 1998.
Business executives looking to tap into the country’s vast natural resources and low-wage workforce can still smack their heads against onerous labor laws, corruption, an uncertain legal environment and murky land acquisition rights.
Many analysts say the government’s healthy move to decentralize its fiscal operations by giving state and local officials more budgetary discretion may have unfortunately escalated the corruption trend.
“The government is playing catch-up on corruption. Suharto would cap corruption, and it was centralized,“ says Louis Wells, the Herbert F. Johnson professor of international management at Harvard Business School in Boston. “Now that control has disappeared, companies can be hit all along the line.“
Bridget Welsh, assistant professor of Southeast Asian studies at the Paul H. Nitze School of Advanced International Studies, part of Johns Hopkins University, adds: “Corruption has increased with decentralization and creates a serious impediment for foreign investors. There’s a high level of uncertainty.“
Decentralization also means that business executives must be ready to deal with regional and local officials who can issue last-minute arbitrary decisions that are frequently at odds with a federal ministry’s proclamation.
Analysts laud the present government for keeping the economy on an even keel and maintaining its upward momentum since the country was devastated by the Asian financial crisis of the late 1990s. That crisis, which shook financial markets around the world as foreign investors withdrew millions of dollars of portfolio investments from emerging markets, slashed the Indonesian economy by 9 percent in 1998 and left it with zero growth the following year.
Yudhoyono has already tasted significant success as president. He received international praise for signing a peace deal in 2005 with separatist rebels in the Aceh province. And the country’s economy, which had been growing steadily for a decade, is expected to grow by nearly 6 percent this year after an increase of 5.5 percent in 2006.
Inflation has been a little more troubling but is predicted to drop to about 7 percent this year, after reaching more than 12 percent in 2006. Meanwhile, unemployment remains steady, at just under 10 percent.
In its latest report on Indonesia, released in February, Moody’s notes that the government’s prudent fiscal policy has led to modest budget deficits, which tallied 1 percent of GDP last year. Combined with the country’s strong economic growth, these deficits have led to a drop in the ratio of government debt to GDP, to about 42 percent at the end of 2006. In 2000 the ratio of government debt to GDP was 100 percent, Byrne notes.

Threats to Stability
With no general or presidential elections set until 2009, analysts say corporations can expect the Yudhoyono administration to stay the course. But Moody’s notes that the country’s improving political stability could be jeopardized over the longer term if there is a return to slow growth and low levels of investment. In fact, analysts repeatedly stress the need for the Yudhoyono administration to push through a range of reforms that would address such issues as customs and excise taxes, labor laws, land acquisition rights and the legal system.
In a February report Fitch Ratings notes the government’s efforts to improve its infrastructure, one of the main complaints of businesses, with various financing mechanisms. These include a land acquisition revolving fund and a project development facility.
Credit Suisse analysts in Singapore said in a December report that the Indonesian government announced that it would focus on 10 infrastructure projects. These include three toll road projects (two in Java and one in Medan), six power projects (four in Java and two in Sulawesi) and one water project. The report notes that the government’s ability to acquire land for toll road projects remains uncertain.
Investment reforms would help ease the cost of doing business for domestic companies as well as lure additional foreign direct investment, which has declined since the financial crisis. Byrne of Moody’s says new inflows of foreign dollars inched up by 0.6 percent in 2006 and are expected to grow 0.8 percent this year. But those figures are up from zero in 2005 and below zero in previous years.
Many analysts say labor reform will be necessary in order to tempt in more foreign investment. “The current legislation is onerous to investors. It makes it difficult to fire workers,“ says Ai Ling Ngiam, Singapore-based director of Asian sovereign ratings for Fitch Ratings.
Ngiam says government efforts to make the law more flexible for employers has repeatedly met with opposition from labor. Indonesian labor unions, for example, held protests earlier this year when President Yudhoyono met with other leaders of the Association of Southeast Asian Nations at Cebu Island in the Philippines.
Welsh, on the other hand, thinks too much emphasis is placed on the role labor laws play in impeding foreign investment. She believes an arbitrary judicial system carries more of the blame for dissuading overseas interest.
Analysts do agree on one thing: that the country needs to diversify from its traditional dependence on extractive industries, such as oil, gas and minerals like gold, tin and copper. Projects in these sectors are vulnerable to backlashes from local groups concerned with national sovereignty as well as domestic and global environmental groups worried about the environmental fallout.

There are many mysteries in the world of economics. The subject is in good measure terra incognita even now, 231 years after publication of “The Wealth of Nations,“ Adam Smith’s free-market bible, The New York Times reported.
For example, why is unemployment so low when the economy is supposedly slowing rapidly? If gross domestic product grew at only roughly 1.5 percent in the first quarter of 2007, why is unemployment at barely 4.5 percent?
If the housing construction business is correcting rapidly, as it so clearly is, why has the fall in US construction employment been so slight--even in residential construction employment?
Or on a subject of equivalent scope, corporate America has record profits both as an absolute number and as a percentage of G.D.P. And, in many parts of this nation, we have severe labor shortages. Why, in that case, have average wages stagnated for so long? We know wages in finance and at the top of the heap are rising rapidly, but why is wage growth stagnant throughout the rest of this superheated economy? It cannot just be foreign competition, because service sector wages are not rising or are barely rising at all.
Why is labor, and especially organized labor, such a whipped dog? Why isn’t the tidal wave of demand created by foreign lending and borrowing from future generations pulling up demand for labor so strongly as to raise wages? I don’t get it.
Then there’s the little matter of the falling dollar. Every time the Chinese or the Japanese or the petro states scoop up another $20 billion of US Treasury bonds, they not only swallow a modest yield on their investment but also absorb a loss on the falling dollar when they translate the interest payments back into their own currency. So why do they keep piling up dollar-based assets?
When demand for dollars as a reserve asset currency falls, the dollar falls. If oil, for example, becomes denominated in euros, the price in dollars rises-- perhaps significantly. This in turn means even higher trade deficits and an even more rapidly falling dollar and then, dear reader, you eventually have a genuine dollar crisis.
What happens to US whole economy if the world simply no longer wants to hold dollars in stupendous amounts? Is the Treasury Department’s Henry Paulson worrying about this or only about how to further insulate corporate chief executives from responsibility to their stockholders?
A new low was suggested in that realm recently by news reports saying that the Securities and Exchange Commission was considering allowing revisions to corporate law that would bar stockholders from suing their own managements in court for wrongdoing.
Instead, corporations would be able to require their owners to go through arbitration instead of court litigation if they had grievances. To say that this trivializes and betrays the ownership rights of stockholders is putting it mildly. It’s really a betrayal of capitalism itself.
If there is a dollar crisis and oil goes to $150 a barrel, where does the S.& P. go? Where do all of American retirement plans go?