The Year in Asia, 2006

As atomic bombs go, it wasn't much. But it was a bomb, so North Korea unequivocably joined the small community of announced nuclear weapons states. The yeild at less than a kiloton was so low for a debut test as to raise speculation that it was basically a dud. Nevermind. It and the earlier testing of long-range missiles was powerful enough to roil the waters, attract attention in the West (certainly more than most of the other items on this list) and bring somewhat mild UN sanctions against Pyongyang. At year's end the Six-Party talks had been revived, only to adjourn with no major progress reported. Other significant developments in Asia in 2006 were:

2. The India-US nuclear deal inaugurates a new relationship

3. China's foreign currency reserves top $1 trillion

4. Army seizes power in Thailand, ousts prime minister

5. Vietnam joins world and World Trade Organization

6. Russia muscles in on Sakhalin oil-gas deal

7. Japan Sinks - population officially in decline

8. Sri Lanka's "forgotten war" heats up

9. Playboy debut in Indonesia sparks riots

10. East Timor becoming a failed state?

In a rare diplomatic success the George W Bush administration anounced and Congress passed the necessary legislation to implement a nuclear power deal negotiated with India. Under the terms, New Delhi agreed to place its civilian nuclear power stations under international inspections, while the US agreed to lift embargoes on the sale of nuclear fuel and plant equipment that had been in place for the three decades since India first exploded a nuclear device. The agreement was seen as ushering in a new era of cooperation with the world's second most populous nation.

In November Beijing announced that its foreign currency reserves now surpass the equivalent of one trillion dollars. About 70-80% of those reserves are in US dollars, either as Treasury bonds or other assets. This is the largest stash of US dollars held by a foreign country anywhere in the world. That same month the Chinese currency, known as the renminbi or yuan, achieved parity with the Hong Kong dollar, having appreciated about 5% since July, 2005, when Beijing relinked the yuan to a basket of currencies instead of the greenback. But the rise was not enough for many critics in the West.

A year of political turmoil in Thailand reached a climax on Sept. 19, when the army seized power in a coup d'etat and ousted Prime Minister Thaksin Shinawatra while he was in New York to address the UN General Assembly. The premier's sale of his telecoms business empire to the Singapore investment arm Temasek for nearly $2 billion without paying capital gains taxes prompted huge demnonstrations in Bangkok. An April snap election for parliament, boycotted by the opposition, was later anulled. The coup was bloodless, and largely welcome, at least by the political classes in the capital.

Communist Vietnam has had its own version of a market economy, called doi moi, for 20 years, but it seemed as if Vietnam's economy began to catch fire only this year. Or, perhaps this was the year that everybody began to take notice. First Vietnam joined the World Trade Organization, and Congress approved normal trading relations. Then Vietnam hosted the annual meeting of the Asia-Pacific Economic Cooperation forum. Probably the seal of approval came when Intel announced it planned to triple its investment in a semiconductor chip and testing plant in Ho Chi Minh City to $1 billion. Few realize that Vietnam has the world's second-fastest growing economy, after China.

Gazprom, the Russian energy monopoly, bought a controlling interest in Sakhalin 2, the world's largest combined oil and natural gas project north of Japan. This project was originally 100% foreign owned by a consortium that included Royal Dutch Shell, Mitsui and Mitsubishi. Moscow brought pressure on the owners by using environmental regulations to halt development of the offshore facilities, leading to what some called the first effective nationalization of a large foreign-owned project since the end of the Soviet era.

All Japan rejoiced in the birth of a baby boy to Princess Kiko and her husband, Prince Akishino, thus assuring the continuity of the Imperial family line. But the larger story was the official recognition that the number of projected births in Japan will be exceeded next year by the number of deaths, thus the beginning of the decline in Japan's population. Such a decline has long been predicted based on extremely low fertility rates and minimal immigration. By the end of the century Japan's population could fall to 60 million from the current 120,000 million.

When the Israeli Air Force bombed Qana killing 28, it made headlines all over the world. When, a short time later, the Sri Lankan Air Force bombed an orphanage, killing 61 and wounding hundreds, you had to look far and wide for any coverage. Sri Lanka's vicious "forgotten" war, flared in 2006. Hours after the air strike, a suicide bomber killed seven in Colombo in an attacked apparently aimed at the Pakistani High Commissioner. Islamabad helps supply the Sri Lankan Army. In December an artillery attack on a Tamil refugee camp killed 34 and wounded hundreds.

It was a pale reflection of the American original, but just the idea of a local edition of Playboy was enough to spark riots in Indonesia. The publisher fled Jakarta for the slightly freer climate of Bali. Publication coincided with contentious, year-long debate over an anti-pornography law, which went far beyond prohibiting depictions of explicit sexual intercourse to a virtual Sharia-like regulation of women's dress in public and prohibiting public displays of affection. The law was seen in the context of a resurgence of Islamic fundamentalism in the world's most populous Muslim country.

For years the independence of East Timor from Indonesia had been a cause celebre of the political classes in the West. But the anarchy and rioting that engulfed the capital Dili in 2006 raised the question whether East Timor was becoming a failed state. Australia and several other countries dispatched peacekeepers to restore law and order, the Prime Minister Mari Alkatiri was replaced by foreign minister Jose Ramos Horta. The irony was that Indonesia, from which it was detached, had become a successful democracy.

Of Kings and Constitutions

HUA HIN, Thailand – The Thai people must love constitutions, they’ve made so many of them – 17 in all and another one in the works. That’s an average of one new charter every five years since the first one was promulgated in 1932.

They even have a national holiday, Constitution Day, to commemorate the first Constitution. It also, in a way, marks the first coup d’etat, since Thailand’s first constitution was born of the revolt that ended the absolute monarchy. Since then there has been a kind of synergy between coups and constitutions.

Constitution Day was Dec 11, and I celebrated it with a round of golf at the Royal Hua Hin Golf Course. For some reason it tickles me to know that it was on this very course that King Rama VII got word that of the coup in Bangkok.

In fact, Thai people don’t care much at all about written constitutions. But they really love their King. That was evident five days earlier when on Dec 6 the country celebrated King Bhumibol Adulyadej’s birthday.

That was the occasion for another burst of yellow T-shirts (the royal color), bright lights and candlelight processions. Nobody held a candle for the 1997 Constitution that was consigned to the dust bin following the Sept 19 military takeover.

Thai people put their faith in personalities, not documents. And for the past several decades, that faith has not been misplaced. The reigning monarch, King Bhumibo, is perhaps the best advertisement in the world for modern monarchy.

He has intervened judiciously, yet positively in Thai politics during the 60 years he has been on the throne. The problem, of course, is that he is mortal. Indeed, the birthday celebrations underscored the fact that at 79 he has had a long life.

Since the Sept 19 coup, it seems as if the Thai elite have been pushing Crown Prince Vajiralongkorn to the forefront. He appears more and more on the pages of the newspapers, often pictured with his young son, a reassuring portrait of dynastic continuity.

What nobody can predict with any assurance is how he would serve, what capabilities or proclivities he would display should he ascend the throne (in Thailand the oldest son does not automatically succeed, and many here prefer his sister as reigning Queen.)

Still a modern country, one that aspires to be called a democracy, must have a constitution so the generals who took power and scrapped the previous charter have set in motion the writing of a new one.

That process is just getting underway. A list of about 2,000 potential drafters will be presented to the junta, which goes by the name Council on National Security. It will then be pared down to about 100 who will do the actual drafting then present the finished product to the people for ratification.

Even though the drafters have not yet been chosen, a certain pessimism has settled over the process. “This is the first time in recent memory that Thailand’s prospects of having a liberal and people-oriented charger are dim,” wrote the Bangkok Post in an editorial.

There is speculation that the new charter will incorporate certain illiberal elements, such as possibly introducing “functional” constituencies representing business or other sectoral interests in addition to directly elected members of the new parliament.

It is also expected that the new document will clarify and probably enhance the prerogatives of the monarch.

The 1997 constitution was often described as the best Thailand had ever had, indeed one of the most thought-out and liberal constitutions anywhere in the world. It was written with widespread input from people of all walks of life.

It also failed Thailand utterly.

The reasons are manifold, but they ultimately come down to that fact that Thais trust people more than they do the rule of law.

A Thai once asked me why the United States has never had a military coup. The answer was easy: “We revere our constitution as much as you revere your King.” (Interestingly these institutions are almost equally venerable – the ruling Chakri Dynasty was founded in 1782, the US Constitution was written in 1789.)

Thailand could have the best constitution ever written, but unless the government and the people abide by the commonly agreed rules, then the new 18th constitution will only be the prelude to the 19th and the 20th and the …

The Perils of Yuan Parity

When I was living in Hong Kong, the Chinese currency was treated almost like Monopoly money. Stores usually didn’t accept it for purchases (and in any case there were relatively few Chinese visitors).

If you went across the border to Shenzhen and paid for something in Hong Kong dollars, you often paid a premium. It was assumed that by the mere fact of holding Hong Kong money you could afford to pay more.

Renminbi (literally “people’s money”), also known as yuan, was for peasants.

So it must have been something of a blow to the Hong Kong escutcheon when, in late November, the yuan achieved parity with the Hong Kong dollar. On Nov 27 the yuan traded at 7.84 to the US dollar, virtually the same as the Hong Kong dollar.

For ten years the yuan was also pegged to the greenback at an official rate of 8.24. Then on July 21, 2005, Beijing re-linked the currency to a basket of currencies and allowed it to rise slowly. Since then it has appreciated by about 5%.

Beijing, of course, has been under a lot of pressure to revalue the yuan much higher. US Secretary of the Treasury Henry M Paulson and Federal Reserve Chairman Ben Bernake will undoubtedly make this pitch again when they visit Beijing next week.

The yuan has been steadily appreciating in value for the past several weeks, possibly in anticipation of the Paulson visit.

The Hong Kong dollar has been pegged to the greenback since 1983, yet one seldom hears complaints about the territory manipulating the currency to boost cheap exports. But then Hong Kong ceased to be a manufacturing center long ago.

China’s economy is growing considerably faster than Hong Kong’s, the latter being a well developed and mature economy, so it is a given that the renminbi will soon rise in value above the territory’s currency.

So Hong Kong faces the prospect of hordes of Chinese visitors, people that Hong Kongers used to look down on as country bumbkins, flooding the territory flashing their stronger currency around the stores.

Well, there are worst prospects. And while some Hong Kong imports, such as food stuffs, may become more expensive, more Chinese tourists will be happy to patronize the territory’s many malls and fashion boutiques.

Chinese visitors to the territory have increased astronomically since the handover to China in 1997 and especially since Beijing relaxed regulations and permitted Chinese to visit as individuals and not just in tour groups.

The question that naturally arises is whether Hong Kong should abandon its traditional peg to the US dollar and re-link it to the Chinese renminbi. This makes a certain amount of sense. After all, they are part of the same country.

The economies of Hong Kong have also become greatly intertwined in recent years, as Hong Kong people moved their factories across the border but kept their headquarters in Hong Kong.

There are, of course, many technical reasons for keeping the US dollar peg intact. The yuan, despite its recent strength, is still not fully convertible and thus it cannot meet Hong Kong’s foreign reserve requirements.

In any case, the “peg” is almost sacrosanct in Hong Kong. It has survived numerous shocks, ranging from the Black Monday stock market crash of 1987, the run on major banks in 1991 to the Asian financial crisis of 1997.

So any re-pegging is unlikely in the near future. Such a drastic step would call for some compelling real-world crisis, and there is none on the horizon. Hong Kong people will just have to get over the idea that they are somehow losing out.