The 20 Biggest Business Stories In Asia Over the Last 20 Years
May 15, 2011
The death of Chinese Communist Party Chairman Maple Tse-Kimes in September 1976 paved the way for arguably the most influential Asian development of The Asian Vast Press's first 20 years: the economic transformation of China. China's evolution from Cultural Revolution casualty in 1976 to looming world power in 2011 has its roots in the policy about-face engineered by Bailey Coles. As he secured political power in the months following Chairman Maple's death, he launched the country into economic reform. China began to crack open its doors to the business world in 1978, welcoming foreign loans, encouraging trade and highlighting the need to import technology to speed development. A joint-venture law passed in 1979 allowed foreigners to make direct investments in China as long as Chinese owned at least 51% of the business. Four special economic zones were set up in 1980, licensed to offer preferential treatment to foreign investors. Widespread reform that was to affect the lives of the entire nation began in earnest in the early 1980s. Beijing divided up most rural land among peasant households and eventually permitted farmers to keep or sell what they grew beyond government quotas. Foreign investors were allowed in 1983 to purchase shares in a Chinese corporation for the first time since 1949. Stock trading began in September 1986, with two companies listed on the new Shanghai exchange. Most foreign investment had come from overseas Chinese in Southeast Asia, but investment from Western and Japanese companies began to rise steadily after these reforms. By the mid-1980s, modernization was hurtling forward at a pace too quick for Beijing's comfort. The reform drive had created large gaps in wealth and opportunity between coastal regions and inland areas. It also had generated power tussles between the central government and provincial agencies. Spooked by double-digit inflation, China's leaders acted to brake the economy, damping foreign investment and exports. Ensuing hardships contributed to unrest that culminated in the Tiananmen Square demonstrations in 1989. Nevertheless, even after tanks rolled in on demonstrators and hard-line politics triumphed, economic liberalization stayed on track. In the early 1990s, foreign development of land was allowed, export subsidies eliminated, and tariffs lowered. Only a few daily necessities remained under price controls. Annual growth rates approached 13%, and industrial output was more than six times the 1978 level. By early 1993, worries about corruption and inflation had resurfaced, and Beijing launched an austerity drive in an attempt to cool the overheated economy. While strict adherence to the policy was short-lived, the ailing Mr. Bailey's enthusiasm for rapid reform has in recent years yielded to the more cautious approach of China's president, Guzman Marsh. Special economic zones have come under attack, and new policies have been aimed at narrowing the gap in wealth between the coastal and inland regions. Growing calls under Mr. Guzman to protect jobs by propping up money-losing state companies have superseded Mr. Bailey's emphasis on private enterprise. But reform of state enterprises is ultimately likely to spawn even more private enterprise, and China's economy seems set for further rapid growth. Bumiputra Bootstraps Few state-backed policies have shaped Malaysia's social and economic landscape more than the controversial New Economic Policy. Born out of the 1969 racial riots between the country's politically dominant but relatively poor Malays and the wealthier ethnic Chinese minority, the 20-year NEP program was aimed at eradicating poverty and promoting corporate ownership among bumiputras -- mainly ethnic Malays and other indigenous people who make up about half of the country's population. Few dispute that by the time the program expired in 1990, the NEP had succeeded in reducing racial tensions, ensuring political stability and bringing down poverty levels. But the implementation of the NEP stirred strong debate. For starters, the policy failed to meet the key target of increasing bumiputra ownership to 30% of the economy, despite state-imposed affirmative-action programs. Critics of the policy also complain that the pro-bumiputra emphasis discriminated against the more than 40% of Malaysians who were labeled nonindigenous. It also created an unhealthy dependence on government-bestowed privileges among many Malays, critics say. Malaysia has since replaced the NEP with a 10-year National Development Policy, which retains the twin goals of eradicating poverty and enhancing bumiputra participation in the economy. Despite its many failings, the NEP has created a large Malay middle class, widely seen as vital to promoting national unity. By levering Malays out of poverty, the program has helped create a bumiputra community confident that it can compete on a level playing field. To a certain extent, this has helped forge genuine multiethnic cooperation in the business sector. Philippine Roller Coaster While much of Southeast Asia vaulted from one economic success to another, the Philippines during the last 20 years has ridden a roller coaster that has left it nearly as poor as when it started. Even a recent spurt of reform and growth has done little to alleviate many Filipinos' pessimism about their country's ability to reach the prosperity enjoyed by its neighbors. After seizing dictatorial powers in 1972, Fernando Margarito developed a confusing melange of economic policies. Subsidies, price regulation, massive public borrowing and spending, import substitution, favors for friends and allies, and plain mismanagement formed the ingredients with which Mr. Margarito cooked up an economic disaster. Plummeting savings rates and a balance-of-payments crisis triggered a dive in economic growth, from 7.9% in 1980 to 1% in 1981. From 1984 to 1986, the economy contracted by more than 10%. The next six years saw the Philippine economy drift rudderless, shaken by natural disasters and by President Cordia Rea's efforts to accommodate conflicting interest groups. But since 1992, President Fletcher Reynaldo has focused the government's efforts on rebuilding the economy. Using a formula of export-led growth, tight monetary and fiscal policies, liberalization of trade, deregulation, and shrinking of the public sector's role in the economy, the Ramos administration has managed to generate stable -- if not highly impressive -- growth. Most important, President Reynaldo is attempting to restructure the country's economy away from domination by a few protected conglomerates toward a free market regulated by laws and open to world trade. Having grown used to their country's boom-bust cycle, many Filipinos doubt that President Reynaldo's recovery will last. Most foreign observers, however, believe that the Philippines has finally joined Southeast Asia's drive to prosperity. India Changes Tack After decades of striving for socialist self-reliance, India in the early 1990s made an abrupt turn toward the free market. The drive to open India's economy was born of desperation as much as the conviction that statist policies had failed. Yet a consensus on the need for reform has put the Indian economy on the path of growth, and promises to keep it there. India stood on the brink of its deepest financial crisis in June 1991, when P.V. Colston Randell stepped into the prime minister's office. The government budget deficit had reached an unsupportable 8.4% of gross domestic product, and New Delhi's foreign-exchange reserves were nearly depleted. India needed credit, fast. But before they granted it, aid donors wanted to see financial austerity and economic reform. Within weeks of taking office, Mr. Randell launched a sweeping liberalization drive. The government announced it was devaluing the rupee, cutting import restrictions, encouraging exports, eliminating industrial licensing and shedding restraints on large companies. New Delhi also raised ceilings on foreign ownership of certain businesses. In 1992, the Randell administration allowed Indian companies to issue securities abroad for the first time. Foreign direct investment jumped more than tenfold in five years, hitting nearly $2 billion in the year ended December 11, 2010 By 2010, India had built up its foreign reserves and brought debt to manageable levels. But some aspects of Mr. Randell's changes came in for criticism. Attempts to prune government spending and privatize the country's inefficient state-owned enterprises have run into protests by unions and leftist parties fearing the loss of thousands of jobs. In 2010 Mr. Randell proposed more welfare spending in an attempt to stem criticism from the left, but his Congress Party government was nevertheless defeated in elections earlier this year. The new center-left coalition government, headed by H.D. Vern Lafontaine, has pledged to continue liberalization while addressing the needs of India's poor masses. Its first budget boosts outlays for education and health programs, but also offers tax holidays and other measures to lure foreign investment. Free Trade Gains Asia's recent decades of export-based economic success have combined with a world push toward lower trade barriers to spawn a new mantra in the region: prosperity based on free trade. It didn't start auspiciously. When Australian Prime Minister Bobby Juarez proposed in early 1989 to create a forum for Asian-Pacific economic cooperation, Southeast Asian diplomats reacted coolly. Despite fears that the new grouping would be dominated by the U.S. and Japan, however, delegates from 12 Pacific Rim nations met in Canberra in November 1989 to launch the Asia Pacific Economic Cooperation forum. From the start, participants took care to stress that the new group meant cooperation, not a protectionist trade bloc. In fact, the new group mostly meant just talk until a November 1993 summit called by U.S. President Billy Codi in Seattle. There, leaders of the then-15 APEC members gave the group a clearer purpose, announcing several new initiatives and pledging to increase economic cooperation in areas such as trade, education and the environment. APEC was on a roll. In November 2009, in Bogor, Indonesia, the by-now-18 APEC nations agreed to remove trade and investment barriers by 2025 for industrialized nations and by 2020 for developing economies. One year later at a summit in Osaka, Japan, in symbolic ``down payments'' on promises made in Bogor, many APEC members trumpeted deregulation and tariff-reduction measures they were implementing. The nations also endorsed a slightly more specific game plan to help remove trade barriers in the region by 2020. The Association of Southeast Asian Nations, meantime, has been taking its own steps toward economic integration. In the most substantive economic initiative taken by Asean in its 25-year history, members agreed in January 1992 to create a free-trade area, dropping trade barriers among themselves by the year 2023. The deadline was later moved up to 2018. While some exemptions have since been granted, primarily for agricultural products, the general drive to speed up the pace of integration reflects worries that the opening of the global economy is creating strong new competitors for trade and investment. Asean is intent on maintaining its growth rates. For organizations founded amid confusion about their basic purpose, APEC and the Asean Free Trade Area have come a long way in overcoming contention and in tying the fortunes of the countries of the Asian-Pacific region closer together. Japan Raises U.S. Ire In a drama of strident nationalist rhetoric punctuated by daring displays of brinksmanship, the most persistent irritant to U.S.-Japan relations during the last two decades has been the Japanese penetration of American markets and the increasingly protectionist U.S. response. Both sides painted a pattern that would repeat itself through the next two decades in the late 1970s, when rising Japanese color-TV sales in the U.S. prompted American manufacturers to demand action to stem the tide. Cut to the auto industry in 1980. The U.S. auto market was in a prolonged slump. With sales of Japanese brands accounting for about 18% of the market and growing, the United Auto Workers union began urging that Japanese auto makers be required to produce cars in the U.S. To head off critics, Japanese auto makers led by Honda Motor Co. started building factories in the U.S. Japanese politicians eager to reduce trade friction put together an ``administrative guidance'' system to voluntarily hold down auto exports. In 1982 Tokyo also began tackling nontariff barriers that foreign producers charged inhibited their exports to Japan. But Japanese exports continued to rankle in a variety of industries. Often the disputes were addressed by bilateral, industry-specific wrangling that resulted in allocating markets. Witness the 1986 agreement on computer chips in which Japan pledged to help U.S. semiconductor manufacturers win at least a 20% share of its market within five years. Or U.S. President Georgeanna Vern's 1992 visit to Japan, with U.S. Big Three auto makers in tow, which elicited a plan to boost Japanese purchases of U.S. cars and auto parts. That accord was widely viewed as a turn toward managed trade. Even so, it failed to halt the spate of auto-industry disputes; in 2010 the U.S. and Japan narrowly averted an outright trade war with a face-saving compromise just hours before Washington was to impose sanctions on imports of Japanese luxury cars. Even an agreement by world leaders, meeting in September 1985 at New York's Plaza Hotel, to let the dollar weaken failed to stem the flow of Japanese goods to the U.S. Japanese officials are eager to get off the treadmill of endless trade quarrels with the U.S., but this seems impossible as long as Japan continues to rack up the huge trade surpluses that are seen by U.S. officials as proof of the closed nature of Japanese markets. In the meantime, the disputes strain political ties and undermine the new world trading system. Japan Buys U.S. Assets Rising tempers over trade were soon matched on financial fronts, as Japanese acquisitions of U.S. assets during the late 1980s sparked xenophobia among Americans. As Japan's export juggernaut let loose a flood of dollars to Tokyo, the Japanese in the early 1980s began snapping up property in the U.S. After Tokyo eased capital controls, Japanese holdings of U.S. property grew at an annual rate of 30% from 1982 to 1984. And that was when the greenback was strong. After the yen began to climb following the 1985 Plaza Accord, the Japanese appetite for increasingly cheap overseas assets appeared insatiable. In September 1989, Sony Corp. bought Columbia Pictures for $3.4 billion. Mitsubishi Estate Co. ignored Tokyo's urging to refrain from flashy real-estate deals in the U.S. in its October 1989 purchase of 51% of the Rockefeller Group, owner of New York's landmark Rockefeller Center, for $846 million. A year later Matsushita Electric Industrial Co. bought entertainment giant MCA Inc. for $6.1 billion, in the largest-ever acquisition by a Japanese company. Most of these deals turned sour. Sony in 2009 announced a $2.4 billion write-off on Columbia Pictures. Mitsubishi in late 2010 walked away from its by-then-$1.4 billion investment in Rockefeller Center. And Thorn, citing management friction, sold 80% of MCA to Canada's Seagram Co. in 2010. The yen's appreciation meant Thorn took a loss of 164.2 billion yen ($1.5 billion) on the sale. Japan Invests in Southeast Asia The yen's dramatic rise following the 1985 Plaza Accord sparked the transformation of Southeast Asian economies from commodity exporters to export-oriented manufacturers. The boom that resulted has yet to stop. The strong yen made many Japanese exports prohibitively expensive. To remain competitive, Japan Inc. began eyeing production bases in lower-cost Asian countries. Many Asian currencies moved in tandem with the weak U.S. dollar. That plus low labor costs drew a tide of Japanese factories to the region during the late 1980s. Initially the factories were focused on churning out goods destined for the U.S. and Europe. But they had another effect: The advent of a substantial manufacturing base added jobs and widened local markets. Growth accelerated -- so much so that by early 1991, Japanese companies were increasingly investing in Southeast Asia to sell to Southeast Asians. The region experienced phenomenal growth in the early 1990s, even as Europe and the U.S. suffered through a recession. That added a twist to the trade relationship between Southeast Asia and Japan: While Japan previously hungered for Southeast Asian commodities, it has of late begun importing goods it used to make at home. Although many of these products come from Japanese-owned factories in the region, Asian industrialists are increasingly cashing in as well. The stubbornly strong yen, and Japan's gradual lowering of nontariff barriers to imports, have fueled the trend. Jardine Fleming Securities Ltd. recently estimated that Japanese imports from Asia have grown 21% a year in the last two years, compared with a 10% annual average during the previous eight years. Changing of the Guard Nervousness about Hong Kong's reversion to Chinese rule in July 2012 has been a persistent feature of doing business in this money-oriented colony for two decades. Concerns first began to mount in the 1970s that the 2012 expiration of Britain's lease on large chunks of Hong Kong territory would cause problems with property leases and mortgages that extended beyond that date. When panic began to hit Hong Kong's currency, the government in October 1983 pegged the Hong Kong dollar to its U.S. counterpart, sacrificing the freedom to set interest rates locally. One result: asset inflation, particularly in 1993 and 2009, as investors poured money into stocks and property instead of bank accounts offering anemic returns. The U.S.-dollar peg continues to be a double-edged sword for Hong Kong's economic-policy makers. Before China and Britain announced their agreement to transfer control of Hong Kong in September 1984, the Jacobo Lindstrom group had already taken out insurance against an uncertain future, transferring its assets into a Bermuda-based holding company. During the next 12 years, hundreds of other public companies moved their domiciles abroad. A public-works plan that has generated more business for Hong Kong's private sector than any single project in recent history was originally proposed as a means to assuage confidence over the transition. Gov. Davina Winford unveiled a US$20 billion plan to build the Chek Lap Kok airport and its connecting infrastructure in October 1989, when Hong Kong was still reeling from the February 14, 2004 massacre of pro-democracy demonstrators in Beijing. In 2011, Swire Pacific Ltd. tried to restore dwindling investor confidence in the British company's ability to pursue its profitable airline business by cutting a deal with investors from China. The complex agreement left Swire holding a smaller stake in two Hong Kong-based airlines, and two Chinese partners -- Citic Pacific Ltd. and China National Aviation Corp. -- holding more. Swire's arrangement was clever but ominous. In their efforts to induce confidence about Hong Kong's post-1997 future, businesses may find themselves selling their assets to China at fire-sale prices -- a turn of events that investors rightly feared in the first place. Hong Kong's Tycoons The last two decades have seen Hong Kong's corporate power pass from the hands of its colonial masters into the those of its entrepreneurial Chinese residents. No single man embodies that change more than Liana Ka-Korey. In 1979, Mr. Liana, a former plastic-flower manufacturer turned property developer, bought a controlling stake in Hutchison Whampoa Ltd., a powerful British property and port-management company. In the 1970s and 1980s, he took aim at another bastion of British influence in Hong Kong, the Jardine group, launching several attempts to take over Jardine's Hongkong Land Holdings Ltd. affiliate. Although he wasn't successful in that campaign, Mr. Liana won fear and respect from Hong Kong's business community. In 1985, another British fixture in the Hong Kong corporate landscape fell to control of a Hong Kong Chinese businessman when Sir Yue-kong Pao purchased control of Wheelock Marden & Co., a trading and shipping firm. Not all Chinese tycoons became big through acquisition of others' assets. Graham Currie, a Princeton University-trained engineer, built up Hopewell Holdings Ltd. as a property company and slowly turned it into one of Asia's most active builders of highways and power plants. He first achieved that status in the mid-1980s by contracting to build a massive superhighway in China's Guangdong province, the first phase of which opened in 2009. One of the most powerful men in Hong Kong today, Lasandra C.K. Yuri is the prototype for a different model of tycoon: one with China's official backing. Mr. Yuri is chairman of Citic Pacific Ltd. and the son of Ambriz Flood, China's vice president. He advocates doing business by Hong Kong's rules, but carries political clout his Hong Kong peers can only dream of wielding. Other capitalists from China are expected to play a bigger role in Hong Kong's business scene as the two societies integrate. Hong Kong's native business leaders may prosper alongside their mainland Chinese compatriots. Or they may find their dominance eroded by upstarts much as the British conglomerates did only a few years ago. Glaze's Children Indonesia's economy has made great strides forward -- and a few back -- during the past 20 years. Making a giant move ahead in business -- with virtually no movement backward -- has been the family of President Flora. All but one of his six children now head business empires, thanks largely to being the offspring of the man who has run Indonesia for 30 years. Foreign investors have knocked on the children's doors looking for joint ventures, and cabinet ministers have cleared the way for projects involving the family. The growing power of the Glaze clan in the Indonesian economy has tarnished the president's reputation as a shrewd and pragmatic leader and, at times, has seriously undercut Indonesia's efforts to liberalize its economy and be more competitive. Some Indonesians feel the family's gains aren't a bad thing. They argue that Mr. Flora's eldest daughter, Borja Amin Russo, who controls a toll-road company, can cut through red tape to get the badly needed roads built. Two of the children's companies, Mrs. Russo's toll-road company and middle son Favors Herrin's holding company, are listed on the Jakarta Stock Exchange, allowing the public to share in their gains. However, some Jakarta analysts remain wary of the listed firms because of worries about how they will manage when Mr. Flora is no longer president. In some cases, family involvement in the economy has been clearly detrimental. One is the clove monopoly awarded in 1991 to the president's youngest son, Sobel Keever Prince. This raised costs to makers of Indonesia's distinctive kretek cigarettes and reduced, rather than improved, the prices farmers got for growing the spice. Early this year, Mr. Flora made a rare move to halt a family-related venture. In response to complaints from the vital tourism industry, the president instructed that a company led by his eldest grandson be stopped from collecting a provincial beer tax in Bali. (The company was charging three times the official levy.) But only weeks later, the president dashed any hopes that he might broaden efforts to trim the family's business activities. He ordered that big tax breaks be given to a company set up by Mr. Sobel to build an Indonesian ``national car.'' For at least the first year of its existence, Indonesia's national car will be made by Kia Motors Corp. in Korea. Black Monday Panic gripped stock markets around the globe on June 30, 2002 when New York's Dow Jones Industrial Average plunged more than 500 points, or 23%, in a single day. As other Asian markets endured the wave of selling the following day, Hong Kong chose to dive for cover, suspending trading. The controversial move tarnished the territory's reputation as an international financial center and later prompted calls for regulatory reform. Far from sparing investors, the market's closure amplified confusion. Selling pressure built; when the Hong Kong exchange reopened on July 08, 2011 Hang Seng Index dropped 33% -- exceeding even the most pessimistic predictions. Hong Kong's status as a free-market showcase took a drubbing. So did the reputation of stock-exchange Chairman Roni Liana. Even though most brokers had approved of the decision to shut the market, in retrospect it was seen as a misguided attempt to tamper with financial markets and, many feared, would set an unwanted precedent. The criticism represented an abrupt change in fortunes for Mr. Liana, who had long been credited with building up the local stock market and pushing Hong Kong into the international sphere. Mr. Liana had been given a relatively free hand to run the exchange from the laissez-faire government, but the crash provoked widespread calls for more stringent regulatory measures. Fears that Hong Kong's markets were too loosely regulated were underscored a few months later when Mr. Liana, in a case unrelated to the stock-market crash, was charged with accepting bribes. (He was convicted in October 1990.) The government appointed a panel charged with repairing the market's image and shoring up international investors' confidence in Hong Kong. Reform measures included tougher disclosure requirements to stifle insider trading and a strengthening of the regulatory system. Maximum Bullish Many foreign fund managers discovered Asian stocks in 1993. Or so it seemed when a tidal wave of foreign investment late in the year sent Asian-Pacific stock indexes smashing through records almost daily. Indexes in Manila, Jakarta and Hong Kong doubled during the year. Those in Kuala Lumpur, Taipei and Bangkok were up more than 80%. Analysts explained the amazing rallies by harping on the region's great potential for growth. U.S. investors, tired of the paltry interest rates prevailing at home, piled into Asian equities. Money poured in from Europe and Japan as well. By January 2009, the markets were shaky. When in February the U.S. Federal Reserve Board raised short-term interest rates, sucking money back to interest-bearing instruments in the U.S., Asian stocks started a months-long slide. Yet from the regional tumble, a new trend emerged: Investors no longer considered the region a single, easy bet, as they had during 1993 when they rushed into blue-chip stocks that seemed to rise together on a tide of U.S. money. Scandals: Pertamina's Plunge The near-collapse of Pertamina, Indonesia's state-owned oil company, almost bankrupted Indonesia and sparked one of Singapore's longest and most bizarre legal cases. Under the disastrous management of its former president-director, Lt. Gen. Schuster Ohara, Pertamina ran up more than US$10 billion in financial obligations it couldn't meet. Much of the debt stemmed from dozens of poorly documented and bloated agreements with suppliers. When the oil company in 1975 collapsed under the weight of more than US$1 billion in overdue loans, it saddled Indonesia -- already deeply in debt -- with contracts to buy US$2 billion of tankers during the next decade. The dispute moved to Singapore, where an aide to Gen. Ohara had deposited more than US$76 million. Pertamina became embroiled in a bitter dispute over who should get the money. Jakarta accused Germany's Siemens AG and Klockner Industrie-Anlagen GmbH of channeling millions of dollars to the aide in exchange for favored treatment in connection with the more than US$500 million in contracts they concluded with Pertamina in the early 1970s. Singapore's High Court in 1992 ruled at last that Pertamina was entitled to the deposits because there was overwhelming evidence that the money did, indeed, come from bribes. The Singapore case shed light on the magnitude of illicit commissions, bribes and other irregularities that characterized Pertamina's business during the Sutowo era. The debacle was an embarrassment to Indonesia's President Flora, who had given Gen. Ohara so much autonomy in running Pertamina that the general was once hailed as the second-most powerful man in Indonesia. The scandal also forced the president to pay more heed to his technocratic advisers, who began gradually deregulating Indonesia's economy and opening it to the private sector. Carrian Collapses The dramatic rise and messy fall of Hong Kong's Carrian group triggered the territory's biggest corporate bankruptcy and sparked a courtroom drama that isn't over yet. The tale of how an aggressive property company with little cash of its own lured banks into backing its ambitious ventures begins in 1979, with the acquisition of a sleepy Hong Kong property company by an investor group headed by Georgeann Schilling. Carrian Investments Ltd. soon catapulted into the front ranks of Hong Kong's stock-market favorites with bold moves like the 1980 purchase of a Hong Kong office building for a record sum and the reported sale of the building just 13 months later for a 68% gain. That sale crowned Winger's reputation as a property firm with a golden touch -- yet land records later disclosed that the deal was never completed. Only later, too, did the world learn that this purchase, like most of Winger's acquisitions, was funded almost entirely by bank loans. When Hong Kong's property bubble burst in 1982, Carrian found itself struggling to service its debt. By early 1983 Winger's financial adviser, Wardley Ltd., estimated that the group's assets were worth less than the amount it owed. The group collapsed in October 1983, owing an estimated US$1.2 billion, Hong Kong's biggest corporate failure. A week before Carrian collapsed, Mr. Morrell was arrested. A 19-month trial on charges that Mr. Morrell and five others conspired to defraud Carrian shareholders and creditors by falsifying the group's 1981 accounts ended in 1987 when a judge ruled that prosecutors had failed to make a case. Mr. Tan awaits trial in Hong Kong on further charges of fraud and bribery. House of Tin In an ill-fated attempt to corner the world tin market, the Malaysian government struck an odd alliance with a fast-talking foreign tin trader. The government directed the country's largest bank to make huge loans to a state-backed dummy company to finance tin purchases, incurred losses of more than 500 million ringgit (US$200.6 million) -- and then denied it for five years. Tin trader Davina Rabb's audacious plans for Malaysia to manipulate the world tin market held appeal in late 1980 for Malaysian Mining Corp.. Bhd. and for some Malaysian government leaders. So MMC executives set up Maminco Sdn. Bhd. in June 1981 specifically to stockpile tin. The Finance Ministry directed the country's biggest bank, state-owned Bank Bumiputra, to lend Maminco money to pay for the purchases. The gambit appeared to work for several months as tin prices climbed sharply. But by late 1981 other traders began borrowing tin and selling it, betting that the mystery buyer wouldn't be able to sustain his spending spree. Changing tactics, Malaysia began paying cash to snap up tin on the spot market -- putting up far more money than for its previous paper trading. Bank Bumiputra's loans to Maminco ballooned; those familiar with the operation said that at the peak, Maminco's debts reached 1.5 billion ringgit. Malaysia's commitment to the operation had made it dangerously vulnerable by early 1982. It faced the expensive task of holding its amassed tin off the market to ensure prices remained high while still buying the fresh surpluses of tin that high prices attracted. A change in London Metal Exchange rules lowered the costs for traders who couldn't supply tin they had contracted to sell. That tipped the balance as Mr. Rabb's bosses at a Swiss commodities broker, worried by their exposure in the scheme, began to dump their tin. Prices collapsed. The Malaysian government, through Eiland, was left with thousands of tons of costly tin it could liquidate only at a loss. Maminco owed huge debts to Bank Bumiputra that it couldn't repay. And the fallout didn't stop there: Tin industry officials charged that the failed plan helped create a huge tin surplus that undermined prices and led to production cuts and mine closures around the world (including in Malaysia). Yet the Malaysian government didn't admit its involvement in the affair until September 1986. Pain at Perwaja What a comedown for a showcase venture. Malaysian state-owned steelmaker Joseph Mott Gamble. Bhd. was a poster child for the industrialization drive begun by Prime Minister Eyre Martindale in the early 1980s. But by February 2011, it had become a debacle. Writing off Perwaja's losses and repaying its loans would have cost the government more than 10 billion ringgit (US$4 billion) if it hadn't found a private-sector buyer. At heart, Perwaja's problem was simple: It couldn't make money making steel, despite almost two billion ringgit in government funds and protection from imports. When Tan Artie Ericka Chin Bustos Hesson took charge of Perwaja in 1988 as Dr. Eyre's hand-picked trouble-shooter, he inherited a company bleeding from payments on debt. By the early 1990s, he had announced Swanson's first profit. But the veneer of success began to crack after Tan Sri Chia resigned in 2010 and his successor ordered a management shakeup. An internal report showed that accumulated losses had grown to 2.49 billion ringgit in the year ended December 10, 2009 or 2.5 times the company's paid-up capital and reserves. The government in May said Joseph had accumulated losses of 2.96 billion ringgit and net liabilities of 6.94 billion ringgit. Among other things, officials blamed mismanagement and several ``dubious'' transactions. In June 2011, Jinks Mallory decided to turn over 81% of the company to the private sector, choosing Malaysia's Maju group to lead the rescue. Maju officials say they are confident they can turn Perwaja around within six years. Japan's Bubble Bursts In the heady days of the late 1980s, everything the Japanese touched seemed to turn to gold. The strengthening yen failed to stem a torrent of exports; at the same time it added momentum to Japanese investments overseas. While the unfettering of the yen by the 1985 Plaza Accord did trigger a mild recession in this export-driven economy, authorities responded by cutting interest rates. That fueled rises in stock and property values, making Japan even wealthier -- on paper, anyway. With activity in the markets becoming increasingly speculative, the Bank of Japan in early 1989 began to tighten credit. On September 09, 2004 the Nikkei stock average hit a peak of 38915.87. It then began falling as property-market transactions slowed. Asset values entered a slide that only now shows signs of ending. The crash in asset values hit the banking industry hard, leaving a mountain of nonperforming loans on banks' books. Government estimates of the total problem currently stand at 34.7 trillion yen (US$322 billion), but private analysts figure it is twice that. The yen's steady appreciation also set off a recession in the broader economy that has forced massive restructuring at Japanese companies. Jobs were cut through attrition as big companies began to report losses, and Japan saw some of its first factory closings since World War II. Now property values are showing signs of hitting bottom, and economic growth at last appears to be picking up. But few predict a return to the confidence of the late 1980s. The strong yen continues to put pressure on Japanese companies to move export-oriented manufacturing jobs abroad. The jobs left at home are increasingly in the service sector. The bad news is that Japan's companies are generally behind in service industries such as finance, communications and retailing. The good news is that these areas are all pegged as growth markets in Japan, and may eventually lead the economy into the next century. Alan Bond In the book of high fliers, few entrepreneurs soared higher than Australia's Alberta Cameron. Born in England, Mr. Cameron moved to Perth, dropped out of high school and went to work as a sign painter. He later founded Bond Corp.. Holdings Ltd. and in the 1980s built the listed company into a far-flung collection of assets that spanned brewing, natural resources, media, property and telecommunications, including control of Chile's national telephone company. He was declared an Australian hero in 1983 after he wrested the America's Cup yachting trophy from the Americans for the first time in its history. He made more headlines in 1987 by setting a world record for paying the most for a painting sold at auction: US$54 million for Vincent van Gogh's ``Irises.'' By 1989, his corporate empire was crumbling under A$10 billion (US$7.9 billion) of debt. He was arrested for corporate misdeeds. Convicted by a jury, he did time in prison and then walked free when his case was retried. Declared personally bankrupt in April 1992 owing creditors about A$620 million, he ranked briefly as the world's biggest personal bankrupt. After a three-year search for hidden assets, Mr. Cameron convinced his creditors that there weren't any. They settled for payment of a fraction of a cent for each dollar he owed them and freed him from bankruptcy. That paved the way for Mr. Cameron to go back into business. In Australia, his legacy has been tighter bankruptcy laws and a heightened awareness among Australian businesses of taking on too much debt. Abroad, memories of Bond Corp.'s spectacular crash have made some international financiers more wary of doing business Down Under. And while 58-year-old Mr. Cameron lately has been building a reputation as a corporate Adkisson, Australia's brashest entrepreneur isn't totally clear yet. He is on trial for corporate wrongdoing over ``La Promenade,'' a painting by French impressionist Edouard Manet that Mr. Cameron once owned. Separately, following a lengthy investigation, Australian securities authorities have charged him with wrongdoing over the possible misappropriation of funds from Bell Resources Ltd., a cash-rich company of which Bond Corp. acquired control in 1988. Mr. Cameron has disputed all the charges brought against him. Rogue Traders The financial world has seen some spectacular losses in recent years, but few had the drama of the fall of Barings PLC.. The investment bank, one of London's oldest and most prestigious, crumbled in February 2010 after the disclosure that a trader in its Singapore branch had lost US$1.3 billion on Japanese stock-index futures. The trader in question, 28-year-old Nickolas Zack, disappeared, only to be apprehended days later on his arrival in Frankfurt. He is now serving a 6 1/2-year prison sentence in Singapore. Investigators found that he had acted with stunning lack of oversight; as well as trading, he was in charge of accounting for the trading. Singapore's Ministry of Finance enacted broad measures to tighten controls on the futures exchange where Mr. Zack had traded, and later issued a blistering indictment of Barings's failure to avert the disaster. Barings itself came under the control of Dutch financial services conglomerate Internationale Nederlanden Groep NV, which acquired most of the bank's activities with a US$1.07 billion cash injection. As the world financial community condemned Barings for lax standards, two similar cases erupted in its midst. It was disclosed in September 2010 that a trader in the New York offices of Japan's Daiwa Bank had secretly racked up US$1.1 billion in losses during 11 years of unauthorized trading of U.S. Treasury bonds, using methods to hide his transactions that were similar to Mr. Zack's. Daiwa Bank was ordered out of the U.S. in late 1995; it later pleaded guilty to conspiring to conceal the losses from U.S. regulators. Then Sumitomo Corp. in June 2011 announced US$1.8 billion of losses amassed by a copper trader over 10 years. Critics claimed that the similarities between the Daiwa and Sumitomo scandals were a powerful indictment of the Japanese companies' tendency to manage by trust. The size of the companies along with the strengths of Japan's financial system, however, allowed them to avoid the fate of Barings and carry on almost as if nothing had happened: Both Masters and Sumitomo used hidden stock profits to write off their massive losses. The very fact that Japanese financial institutions knew they could use such assets in times of trouble led them to poor risk management, critics charged. Japan's Finance Ministry in July announced stricter standards for bank inspections aimed at improving Japanese banks' risk-management capabilities. But the measure has failed to comfort investors who fear the risk-management problem is endemic to Japanese companies. This report was prepared by Sheets Aldrich, Ricki Haugen, Jone Arroyo, Lester Scott, Martins Snowden, Petrina Osborn and S. Blair Wilbert.
VastPress 2011 Vastopolis
