Asean Meets to Strengthen Ties as U.S., China Vie for Influence

By Daniel Ten Kate

July 20 (Bloomberg) -- Southeast Asian foreign ministers met to strengthen ties before a broader gathering this week to discuss security threats in the region with the world’s fastest- growing major economies.

“Effective action must replace extended deliberation,” Thai Prime Minister Abhisit Vejjajiva said in an opening address in Phuket, Thailand, where the meetings are being held. “We must show to the world that Asean is ready to meet any challenge and is well prepared to act decisively.”

Top diplomats from the 10-member Association of Southeast Asian Nations are meeting this week to further their goal of forming a European Union-style economic alliance. U.S. Secretary of State Hillary Clinton will join them in two days for the Asean Regional Forum, where 27 nations representing half the world’s population will discuss security issues such as North Korea’s nuclear program, border disputes and terrorism.

The U.S. and China are competing for influence in a resources-rich region that contains sea lanes vital for carrying oil from the Middle East to China and northeast Asia. The adoption of a charter last year has fortified Asean’s structure even as individual members struggle with recession, political upheaval and terrorism.

Wide economic disparity among the countries has made it difficult to leverage the group’s market of 575 million people in vying for investments with China and India, the world’s fastest growing major economies. Abhisit said the bloc should “continue to nurture a culture of concerted action” in order “to reinforce Asean’s centrality.”

Swine Flu, Currencies

Abhisit called for cooperation in making vaccines for swine flu and lauded the group’s completion in May of a $120 billion foreign-currency reserve pool to help revive investor confidence. The pool, formed with China, Japan and South Korea, widens access to foreign-exchange reserves and allows Asean countries to defend their currencies.

Foreign direct investment into Asean fell 13 percent last year to $60.1 billion, according to the group’s official statistics. China attracted a record $92.4 billion last year, excluding the financial sector, and has since seen overseas investments decline each month this year as companies pare spending to weather the global financial crisis.

Export-dependent countries like Thailand, Singapore and Malaysia are all facing recession as the global slump crimps demand for electronics, cars and computer chips. Indonesia, which has avoided recession because of a stronger domestic economy, suffered a blow last week when suicide bombers killed nine and wounded 53 in attacks at two U.S.-run luxury hotels.

Purchasing Power Disparities

Southeast Asia’s four largest economies -- Indonesia, Thailand, Malaysia and Singapore -- account for almost 80 percent of all foreign investment into Asean. The purchasing power of the group’s four richest countries was 10 times greater than the other members last year, according to statistics on the bloc’s Web site.

“We should begin to think about what type of community we want to see,” Abhisit said. “In a region as diverse as Southeast Asia, I am sure our ideas will be varied but I hope as we get to the year 2015, our ideas will converge.”

Internal political fights in the 10-member bloc have disrupted the region’s efforts to integrate and stymied progress on a human rights body. An April summit of Asian leaders in Pattaya, Thailand, was canceled midway through after anti- government protesters who wanted Abhisit to resign stormed the meeting venue. Thailand has beefed up security this week.

Human Rights Body

Asean foreign ministers today hope to complete the details of a human rights body that has no mandate to investigate country-specific issues, according to Thai Foreign Minister Kasit Piromya. The commission reflects a “maximum consensus” among member states and its powers will be reviewed every five years, he said.

Since its founding in 1967, Asean made decisions mainly by consensus, refusing to comment on affairs of individual members. Two years ago the bloc’s leaders signed a charter, the group’s first legally binding document.

Governments found to be in violation of its rules will be referred to Asean leaders to come up with a consensus on action. The group rejected proposals to add voting, expulsion or sanctions on its members.

Asean includes Indonesia, Thailand, Malaysia, Singapore, Brunei, the Philippines, Cambodia, Laos, Myanmar and Vietnam. Thailand holds the rotating chairmanship until December.

To contact the reporters on this story: Daniel Ten Kate in Cha-am, Thailand at dtenkate@bloomberg.net;

Last Updated: July 19, 2009 23:54 EDT

Thailand's misguided rice policy (Lesson be learnt for Cambodia)

By Jonathan Head
BBC News, Bangkok

The first rains of the year have been falling for a couple of months now in Thailand’s often dry north-east, and farmers are out most days in the freshly-flooded fields, transplanting young jasmine rice seedlings.

Rice farmers are some of the poorest people in Thailand

They work quickly, bent over double, expertly spacing the seedlings in the silt.

But it is back-breaking work. And although jasmine is one of the most highly-prized rice varieties – it is grown almost exclusively in north-eastern Thailand – the farmers in this region are some of the poorest people in the country, most of them mired in debt.

Lack of investment

Their problem, says veteran rice researcher Kwanchai Gomez from Bangkok’s Kasaertsart University, is a chronic lack of investment in rice farming.

Very little of the north-east – one of Thailand’s most populous regions – is irrigated.

“Water is the most important thing that guarantees low risk," she says.

“And risk is the main problem for farmers. One year no rain, the next year floods. So you have to get a loan. Then your crop fails, and you get into debt.”

Other nations are threatening Thailand's place as the top rice exporter

When world rice prices soared last year, everyone assumed that farmers in Thailand – for many years the world’s top rice exporter – must have done well.

Some did. But only those in the central plains region, which get irrigation from the Chaophraya River.

They grow up to three crops a year, mostly higher yield varieties than jasmine.

That is where most of Thailand’s exports come from.

The indebtedness and poverty of farmers was ignored for decades by governments in Bangkok.

Then in the 2001 election, a wealthy telecoms tycoon, Thaksin Shinawatra, drew up a platform of policies aimed directly at farmers, like debt forgiveness and a village loan fund.

It proved a stunningly successful vote-winning strategy, delivering Mr Thaksin three successive election victories, before he was ousted by a coup in September 2006.

But many of those policies have done less for farmers than Mr Thaksin claimed.

Rice mortgage

One, in particular, is proving a huge headache for the current government, led by his main rival, the Democrat Party.

I realized that our problems with debt and crop prices would never be cured just by waiting for the government to help Tongsuan Sodapak

It is called the rice mortgage scheme. The idea is to help farmers ride out price volatility by allowing them to sell their rice to the government at a guaranteed price.

Farmers usually have no way to store or process their rice, so they are all forced to sell at once at harvest time, allowing the millers – who do have these facilities – to bargain down the price and take most of the profit.

But the scheme has become riddled with corruption, and benefits only a minority of farmers.

“Most of them, unfortunately, are rich farmers with irrigation,” says economist Nipon Poapongsakorn from the Thailand Development Research Institute.

“Poor farmers in the north-east don’t have a surplus of rice to sell, so they don’t benefit from this policy at all. It is a pro-rich, pro-business policy”.

The scheme is also very expensive for the government, especially now, because last year – when rice prices were unusually volatile – a weak government, led by Mr Thaksin’s allies, set the guaranteed price too high.

Those with rice to sell would only sell to the government. Rice traders, like Asia Golden Rice - one of Thailand’s most successful - found it difficult to procure supplies at competitive prices for their overseas customers.

“We might even lose our number one ranking as a rice exporter to our competitors,” says Saranyu Jeamsinkul, deputy managing director for Asia Golden Rice.

“We are at least $100 a tonne higher than Vietnam - so it is rather difficult to export at the moment”.

Sorting the mess

The government has ordered Deputy Prime Minister Kobsak Sapavasu to sort out the mess.

The escalating price of rice has not made many Thai farmers any richer

He estimates it has already cost 11 billion baht ($325m) just to process and store crops bought under the mortgage scheme.

And because rice prices have fallen this year, when the government sells the stocks he estimates it will lose another 20 billion baht ($590m).

“The numbers are just unbelievable," says Mr Kobsak.

But his attempts to close down the mortgage scheme, and replace it with a simpler subsidy, have been blocked by his own coalition partners.

There is a strong suspicion, shared by Mr Kobsak, that a lot of politicians are making money out of the scheme – perhaps from bribes from warehouse-keepers storing it, or traders trying to buy at bargain prices.

With any hope of a new agricultural policy stalled over political bickering, one group of farmers near the north-eastern town of Ubon Ratchathani have decided to try to lift their living standards by themselves.

They have joined forces to run their own rice mill, and they are saving on escalating fertiliser costs by recycling cow dung and growing organic jasmine rice.

"I wondered why so many farmers were abandoning their farms," said Tongsuan Sodapak, the local teacher whose idea it is. "Then I realised that our problems with debt and crop prices would never be cured just by waiting for the government to help."

This group of farmers has been fortunate, because they have been able to make contact with a buyer for their organic rice in Italy. Most other farmers in the north-east have no way of marketing their jasmine rice, despite its famed fragrance and flavour.

Thailand's long preoccupation with being the number one exporter should now shift, says Nipon Poapongsakorn - to a strategy of marketing Thai rice for its quality and variety.

One retailer in Bangkok has made a start in promoting Thailand's 81 rice varieties. Gourmet Market, a luxury supermarket chain, has bins of different kinds of rice, explaining exactly which region they come from, and their characteristic. It is a bit like the terroir of wine.

"We have people coming here from places like Hong Kong," says company vice president Lakana Naviroj. "They take rice home, because they don't have the variety and quality we have here."

One supermarket alone, though, will not give Thailand's rice the impact it could have on global markets. That requires a concerted drive coordinated by different government agencies, something that seems unlikely in today's volatile political climate.

At the school where Tongsun Sodapak teaches, when he's not helping grow to rice, I asked a group of teenage girls - nearly all of them the children of farmers - how many of them would be happy to stay on the farm when they left school.

Only four, out of 34, raised their hands.

Ratings On Cambodia Affirmed At 'B+/B'; Outlook Remains Stable

Friday, 17 July 2009 08:01 -- Finace and Stocks

Bangkok--17 Jul--Standard & Poor's

The ratings balance strong growth prospects and improving policy setting, against vulnerability posed by narrow and underdeveloped economic and export profile, and structural fiscal weaknesses.

--We affirmed the 'B+/B' foreign and local currency sovereign ratings on Cambodia, and the outlook is stable.

--Robust donor engagement underpins domestic and external liquidity and conditions policy formulation.

Standard & Poor's Ratings Services today affirmed its 'B+' long-term and 'B' short-term sovereign credit ratings on the Kingdom of Cambodia. The outlook on the ratings remains stable.

The ratings on Cambodia are supported by the country's record of strong growth in a framework of improving macroeconomic policies. Political stability and a liberal economic and trade regime generated an average annual real GDP growth of 9% between 2000 and 2008.

"Medium-term growth prospects remain favorable as tourism and the garment export sectors emerge from the trough of the global recession, with an additional fillip in three to four years as the nascent hydrocarbon industry reaches production stage," said Standard & Poor's credit analyst Agost Benard.

Hence, after this year's projected 0.5% GDP contraction, we expect Cambodia to resume a growth path approaching 7%-8% in the medium and long term. This will continue to reinforce the country's positive debt dynamics, founded on its conservative fiscal framework and low-cost debt structure, Mr. Benard said.

The ratings are also underpinned by the continued engagement of international donors, which anchors policy formulation and provides substantial fiscal and balance-of-payments support. This positive relationship reflects Cambodia's favorable record of meeting conditionalities and sensible macroeconomic policy setting; we expect these conditions to continue.

The ratings on Cambodia are constrained by vulnerability of growth and external liquidity owing to the country's underdeveloped and narrow economic profile. Agriculture, which contributes 30% of GDP but employs more than 70% of the labor force, suffers from output volatility and lacks an associated light industry.

"Industry is centered around the low value-added garment and textile sector, while tourism is concentrated in just two major locations. Both sectors have high import content, such that less than half of the associated foreign exchange earnings remain in the country," Mr. Benard said.

The ratings are also constrained by the country's high, albeit declining, public sector debt and its exceedingly low revenue mobilization capacity. General government revenue of about 12.5% of GDP (including grants) is one of the lowest among rated sovereigns in Asia-Pacific, as is the country's tax revenue component at 10% of GDP. Although Cambodia has a favorable tax structure, some sectors, such as agriculture, remain outside the tax net. The narrow revenue base, combined with pressing capital expenditure needs, requires ongoing budget support by foreign donors.

RELATED RESEARCH

This article is based in part on the following criteria article: "Sovereign Credit Ratings: A Primer," published May 29, 2008, on RatingsDirect.

See also "Asia-Pacific Sovereign Report Card: Amid Encouraging Signs, A Bumpy Road Lies Ahead," published June 9, 2009, on RatingsDirect.

Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.

Media Contact:

David Wargin, New York (1) 212.438.1579, david_wargin@standardandpoors.com

Analyst Contacts:

Agost Benard, Singapore (65) 6239-6347

YeeFarn Phua, Singapore (65) 6239-6341

Key Contacts:

Americas Media Relations: (1) 212-438-6667

media_ relations@standardandpoors.com

Americas Customer Service: (1) 212-438-7280

research_request@standardandpoors.com

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