Sunday, December 30, 2007

The Four Little Dragons: How Asia’s Smaller Heavyweights are weighing in

Institute for Trade Standards and Sustainable Development

By: Osman Aziz

The emergence of Asia’s small heavyweights onto the global financial stage is forcing the reconsideration of the archetype of economic development in Asia. Of particular focus are the “four little dragons” of the burgeoning Asian paradigm, Taiwan, Singapore, South Korea, and Hong Kong SAR. The recent developments in Sovereign Wealth Funds (SWF) emerging especially from the ASEAN region harbors astonishing implications for Asia as a whole, chiefly, exactly how such smaller Asian nations can throw their weight around with other traditional powerhouses as China and Japan. The answer lies in a twofold approach that has been gaining some serious momentum in the last decade or so. For one, the four seek to increase by leaps and bounds the volume of export, and secondly, to purchase a major stake in the financial markets of foreign countries so as to essentially convert these smaller nations into massive financial conduits. Due to large trade surpluses, these nations often enjoy the luxury of repackaging their gains into stocks, bonds, and other maneuverable financial assets. The sort of power and clout these organizations possess play out in the financial rink in many ways. The Government Investment Corporation of Singapore’s recent investment of 10 billion dollars in UBS [1] and the subsequent publicity that SWF’s are garnering around the world are just slight examples of the growing power of such institutions. However, criticism’s abound regarding the nature of such funds, and if their role is even beneficial to the overarching notion of sustainability and development. In Anders Åslund’s article The Truth About Sovereign Wealth Funds” he assails these funds as a means for authoritarian regimes to seize on private capital.

If anyone should worry about them, it’s the people whose governments are amassing them. That’s because governments tend to be terrible at managing money that is best left in the hands of private citizens. And locking away billions of dollars in wealth can have pernicious economic side effects. Maybe that’s why sovereign wealth funds are popular with dictators and semi-authoritarian regimes, which don’t have to answer for the consequences when they make poor economic gambles.” [2]

Although Åslund takes a jab at the ADI (Abu Dhabi Investment) for its recent acquisition of 4.9% of Citibank as private interest being undermined by authoritarianism, his attack on Singapore seemed to find itself in jeopardy. Labeling, quite arbitrarily, that Singapore’s leaders are unelected in the sense that elections are not fair and balanced, he goes on to regard Singapore’s actions as anathema to the spirit of private investment. Whether or not such blanket accusations hold any real weight, small nations such as Singapore and South Korea are taking up the scepter of SWF’s as a means to exert influence. The negative stigma that has been attached to these organizations, whether grounded or not, don’t account for the reality that such funds are assuming. Additionally, criticisms of SWF’s risk labeling efforts by its endorsing nations as simply the consequence of ambitious authoritarianism. As a reality, SWF’s pose a new shift in a paradigm that is expected to carry significant clout in the next decade or so.

US-Malaysia FTA: The implications for regional bodies and FTA’s and a word on Sovereign Wealth in Malaysia

Recent negotiations underway for a US-Malaysia FTA could bring this regional powerhouse onto the global stage to the degree that it hasn’t been seen. As the 10th largest trading partner to the US, Malaysia’s significance as an economic opportunity to the US is greater than ever before. Trade negotiations, which began in June of 2006 have reached new heights with continued efforts on the part of the USTR and ASEAN. The existence of a US-ASEAN TIFA has buttressed efforts to strengthen ties with Malaysia. Naysayers cite the lack of a definitive standard for labor rights although the US-ASEAN TIFA clearly states that their exists the “observance of the declarations of the World Trade Organization Ministerial Conference on internationally recognized labor standards…”[3] Utilizing the US-Singapore FTA as a framework, the notion of a free trade agreements existing with Malaysia is not a far-detached reality. Although negotiations have not concluded yet, the USTR’s capitalization on an existing association was pivotal in pushing the agenda for a free trade agreement with Malaysia. The lesson to be learned with regards to the Four Little Dragons in self-explanatory: Working through a larger association in order to achieve aggregate FTA’s seems more inclined toward success. So what about other regions in the world? Although FTA’s are slowly succeeding in MENA nations, the relative difficulty in negotiating these agreements is hampered by there not existing a collective identity in the region. This trend is observed in other regions as well. The OAS, whose constituent members are comprised of nearly every Western Hemisphere nation, has been largely unsuccessful in advancing the notions of free trade. Instead, this role has been filled by efforts from the US, an endeavor that has been met with much criticism because of the US’s alleged “imperial” interests. Whether or not this is true, the success that is Southeast Asia is a compelling argument for the establishment of successive FTA’s under the umbrella of regional organizations.

The Kazanah Nasional Fund, the official SWF of Malaysia, created in 1993 under the Companies Act, handles nearly 18.3 billion dollars[4] of public assets in Malaysia. Very much like the GIC of Singapore, the KNF is responsible for repackaging trade surpluses into liquid assets such as securities and bonds. The amount of publicity the KNF has garnered over the last few years is not nearly as considerable as ADI or the GIC, but with trade negotiations underway for Malaysia, its emergence as a regional powerhouse is not too far behind. New considerations are being deliberated on regarding the traditional role of dominant forces in the Southeast Asia, but the US is playing the right game in making no distinction with regards to Malaysia. Although technically a Muslim nation with a duality legal system, one consisting of Sharia, the other of common law (a side-effect of Britain’s involvement in the nation)[5], many have disregarded the role that Islam has played in the formation of the collective conscious of the Malaysian people. The fact that Malaysia has emerged as an economic and political power, regardless of its status as a Muslim nation, is evidence of the fact that there exists a workable compromise and dialogue that can balance the supposedly “competing” interests of the modern world and that of traditional Islam. Regardless of the criticisms either in favor or opposing, the truth of the matter is that Malaysia’s economic boom is a reality that is undeniable.



[1] Channel News Asia. Growth of sovereign wealth funds inevitable, time for regulations to kick in. (December 12, 2007)

[2] Foreign Policy. The Truth About Sovereign Wealth Funds. (December 2007)

[3] United States Trade Representative. Trade and Investment Framework Arrangement Between the United States and The Association of South East Asian Nations. (June 2006)

[4] Reuters. FACTBOX-Sovereign wealth funds brim with money. (Oct 20, 2007)

[5] Radio Singapore International. How interfaith matters are decided within Malaysia’s dual court system. (January 25th, 2006)

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