WASHINGTON, March 26 (UPI) -- "This is worse than 9-11," one of the country's foremost money-managers groaned after last week's events in Spain. "What I mean is, the political reaction." Around a table of New York investors and intellectuals there was glum agreement.
They were right. Coming just hours after the country was attacked by terrorists, the Spanish electorate abruptly reversed its support for the sitting, anti-terror, pro-war-in-Iraq government was bracing.
At the least, it gave the appearance that the country was responding to brazen violence with please-not-us appeasement. At the worst, it will encourage terrorists to believe they can influence elections elsewhere.
Like the 9-11 attack itself -- which Osama Bin Laden said was projected to take out nine or ten floors, not the whole World Trade Center -- the attack on Spanish trains seemed to have succeed beyond its wildest dreams. The results, intended or not, now threaten a new round of violence in countries from the U.S. to Australia to Britain -- all coalition leaders in Iraq, all scheduled or likely to hold elections in the coming 10-12 months.
And these are relatively stable, developed countries. What might the impact of a well-timed attack be in Thailand, Colombia, Turkey, Peru, or other countries with large Moslem populations, domestic unrest, or both? Or in America's "new Europe" friends, from Poland to Bulgaria, Romania, and the Baltic States?
Indeed, the Spanish election did not take place in a vaccuum. In recent years, elected heads of state in Peru, Venezuela (briefly), Argentina, Haiti, the Philippines, South Korea, and Pakistan have been removed. Elections in Taiwan, Bolivia, South Korea, Germany, and even the United States have been called into question by razor-thin margins and pre-election or election-day irregularities, or at least arguable charges thereof.
Many of these crises -- Taiwan, Korea -- have erupted in a matter of weeks, and may drag on for some time. Many others -- the Philippines, India -- could loom in the coming months. Is democracy, just when it is most needed, self-destructing?
Even the most enthusiastic proponents of democracy in the world, a group that includes "the bottom line," must admit we are witnessing something of a crisis for democratic government. This can no longer has the feel of a series of random mishaps. It is global and simultaneous in scope.
All this comes, moreover, at a time of global ideopolitical stress. War has not, alas, been formally declared, but may already be underway: terror vs. law, the West vs. Islam, freedom vs. dictatorship, religious moderation and pluralism vs. extremism and repression.
Will historians look back and declare, in hindsight, that World War III began in the fall of 2001? If so, it would not be the first time war has threatened regimes throughout the world.
For investors, these general questions imply a higher risk premium on companies and countries around the world. With no sharp change in fundamentals in the last two weeks, global money voted with its feet and sent stocks lower by 10 percent to 20 percent in most markets.
This was a rational and justified reaction, though it may now be overdone. Voters in Spain, for instance, told pollsters they question not the wisdom of resistance to terror, but the war in Iraq as a means of fighting it. They also apparently resented the government's early statements blaming local Basque separatists for an attack that was later determined to have support from Al Qaeda. (The government's early suspicions may yet prove correct; Al Qaida has a tradition of working with and through local groups.)
In Taiwan, albeit in a disupted and razor-thin election, voters supported a president who has been more willing to stand up to Mainland China than his opponent. In Korea, President Roh was impeached, as in all impeachments, based on legal charges of corruption and misbehavior -- but the political coalition that united against him mainly objects to his continued policy of detente with the rogue dictator to the north.
For the coming months, in any case, democracy's agony will play itself out in a series of individual battles. Not all politics, contrary to Tip O'Neill, is local. It is true, however, that all politics has a local element. Which is why investors cannot profit simply by going long or short all of the distinctive dramas now playing out.
1. Malaysia -- We went long before the election, and remain long today. Friendly to moderate expressions of Islam, but tough on extremist thugs, Prime Minister Abdullah Ahmad Badawi won a resounding victory. He even took back several Moslem provinces which his National Front party lost in 2002. In this, he is replaying the same successful policies in place now in both Turkey and India.
Abdullah, the underestimated successor to longtime leader Mahathir Mohamad, also has a mandate for continuing his crackdown on Malaysia's legendary crony-capitalist corruption. He promises prompt tax cuts in the new budget, and has put Malaysian foreign policy on the side of peace efforts in the Philippines as an honest broker between the government and Moslem rebels and terrorists. After years of under-performance, and especially in the midst of a global telecommunications and microelectronics boom, Malaysia should be a top emerging market in the coming months and years.
2. Taiwan -- The recent carnage has the look of a buy opportunity, based largely on the skillful handling of the crisis by President Chen. His proposal for a rapid revision of the election law will be debated by the legislature on Friday. He's moved it forward in a way that shows responsiveness to the electorate's concerns, but at the same time has boxed in the opposition. We're still in.
3. Korea -- As the legal business of impeachment goes, matters are not promising. Parliament has already succeeded in removing President Roh. A trial before the country's supreme court, assuming one goes ahead, may last up to six months. This is not hopeful. Furthermore, vote count on the 9-member court suggests a strong partisan bias in favor of the parties that dominate parliament, and oppose Mr. Roh.
This being said, the transition has been smooth. Acting President Goh Kun has wisely governed quietly and moderately from a private office, rather than occupying the presidential offices. More important, Korea will hold national legislative elections on April 15. With voters opposing Roh's impeachment by better than a 2-to-1, there's a good bet the electorate will deliver a message to the parliament and the court. The leading opposition party, the Grand National Party, is already splintering under the pressure and has changed leadership in mid-stream.
On the other-other hand, a Roh majority in parliament would imply faster action on his proposals for significant tax hikes -- and more aggressive appeasement of Kim Jong-Il. And, the court is not required or guaranteed to follow the electoral trends in reaching its judgement.
There's a decent chance of a prompt and happy resolution. There's also, however, a decent chance the agony will last for months, and yet another decent chance it will end but leave Korea with anti-growth economic policies. Finally, there's the possibility -- some would say likelihood --that Kim Jong-Il, who craves the headlines, will do something provocative in the coming months. A complex call that may switch from day to day, but for now, short.
4. The Philippines -- There's a long way to go before the country's May 15 election. That's one reason we've been reducing our exposure there. The Philippines have a history of violence, election fraud, and post-election disputes. It would be unusual, in other words, for a smooth race to take place over nearly two months.
As well, the two front-runners, incumbent President Gloria Arroyo and movie star Fernando Poe, stand only a few points apart in the polls. Close races in countries like the Philippines are generally bitter and disputed. To date, moreover, the Philippine campaign has been as non-issue-oriented as any we've seen in the world in recent years. Mr. Poe has come under attack from members of his own party for not even publishing an election platform, and refuses to debate Mrs. Arroyo. In a strange reversal of their usual roles, it's the incumbent Arroyo who has been pestering her challenger for an issues confrontation.
Aggressive investors may want to take a short position, but we would cover quickly. The Philippines remains one of the world's most under-rated democracies and economies, for which Mrs. Arroyo can take much credit. Arroyo took power after her predecessor was run out of office, and has since toughed her way through coup attempts and terorist violence with tenacity and skill. Poe's act is likely to wear thin, and even if it doesn't, our guess is Manilla's Maggie Thatcher will outpoll expectations and stay in power. By May, we're likely to be long, with leverage.
5. India -- There are several reasons for caution. India has a history of election violence. It's a high-value target for Moslem extremists in Kashmir, backed by Pakistan -- the more so, perhaps, after recent events in Spain. Worse, Indian elections take place over a period of 4-6 weeks -- providing many opportunities for mischief.
Still, India, like Malaysia, India has a popular incumbent in the person of Prime Minister Atal Behari Vaj-payee. It has abstained from some of the worst Chinese practicies in commercial cheating and intellectual property theft, which will insulate it from much of the crackdown the U.S. is likely to advance against Beijing. Vaj-payee operates under a free press and democratic tradition that will block some of the worst mistakes likely to emerge in India's undemocratic neighbors. We're long, with a little powder dry.
The bottom line? Democracy is messy. Then again, people in many countries eying the turmoil in countries like Taiwan and Korea may well envy this opportunity to throw the rascals out.
Better messy-election, messy-scandal, messy-impeachment, than neat-dictatorship. In the meantime, volatile politics makes for volatile markets -- which is to say, investment opportunities.
Gregory Fossedal manages international investements for the Democratic Century Fund in Washington, DC. His funds may (and usually do) hold long and short positions in many of the investment securities and opportunities mentioned in his reports. "The Bottom Line" is compiled from sources we believe to be reliable, but no representation is made that they are necessarily accurate or complete. Investors should perform their own due diligence and consult their own investment professional before buying or selling any securities. Mr. Fossedal's opinions are entirely his own, and are not necessarily those of UPI or DCF. Futhermore, they are subject to change without notice. Email: [email protected].
