Easier to shoot the messenger than
come clean with the truth

BY Alkman Granitsas and Henny Sender in Hong Kong with Murray Hiebert in Kuala Lumpur and Rodney Tasker in Bangkok.

GOVERNMENTS and companies throughout Asia … are increasingly concluding that it's easier to shoot the messenger than to come clean with the cold, hard truth. Witness the Bangkok police raiding two foreign brokerages in July, or Malaysia's education minister barring academics from discussing the impact of the Indonesian haze with journalists. In Taiwan, a star Merrill Lynch analyst received anonymous death threats in October after he had correctly forecast a drop in both the stockmarket and the local currency.

Asian authorities have long judged journalists and analysts by the effect, rather than the quality, of their reporting. There are countless examples of commentators receiving bullets in the mail or being blacklisted by companies, of journalists being arrested and harassed, of shareholders being forcibly removed from company meetings or shouted down by executives. And for years commentators have had to tread carefully, using roundabout ways to get their message out. Sometimes it meant publishing controversial reports abroad, sometimes it meant silence. Says Anne Thompson, an analyst at Pesaka Jardine Fleming in Kuala Lumpur: "Anywhere in Asia, you have to be sensitive."

What's new is Asia's financial meltdown and the growing intolerance of foreign investors with the region's opacity. By any measure, Asian standards of disclosure--the openness of governments and companies and the power of observers to criticize them--fall far short of those in the developed markets of North America and Europe.

When Asia's economies were humming and profits were soaring, few protested. It was a Faustian bargain. "Nobody worried about the lack of transparency a year or two ago," says Fager. "Investors were really eager to get a piece of the Asian miracle."

But now that same lack of openness is beginning to sting both companies and investors. For example, the failure of many Thai and Indonesian companies to disclose their foreign-currency debts has hammered their country's stockmarkets. And it leaves investors wondering what else they don't know.

"Has the lack of transparency hurt? Absolutely," says Barton Biggs, global strategist for Morgan Stanley in New York. "The fact that there isn't transparency on, say, the level of dollar-denominated debt has hurt."

But one by one, as each of Asia's currencies comes under attack and each stockmarket plummets, the reaction of officials and local jingoists is to circle the wagons. ….

In Malaysia, the only real criticism to emerge out of the last few months of economic turmoil has been of the press itself--further marring the local media's credibility. As a result, those who can afford it look to foreign sources for information.

"I don't depend on the local press," says a retired businessman who invests in local and foreign equity markets. "I have a Reuters machine in my house while I also get CNBC and ABN," he says, referring to two foreign television news networks available in Malaysia via satellite. (ABN is 50%-owned by U.S.-based Dow Jones & Company, Inc., which owns the REVIEW.)

During the worst days of Malaysia's currency and stockmarket rout, local papers reported facts without context and events without background. Short, sketchy pieces would report how many sen the ringgit had fallen, or how many points the bourse had plunged the previous day. But readers got little idea of what was causing the turmoil.

Another example was the highly vocal row between Malaysian Prime Minister Mahathir Mohamad and American financier George Soros. As a rule, local newspapers gave prominent play to Mahathir, but very little space to Soros.

And local papers offered no analysis, much less criticism, of Mahathir's move to ban short-sales of 100 blue-chip stocks. Nor was there any comment on the prime minister's audacious plan to support stock prices through a public-sector fund totalling 60 billion ringgit (about $20 billion at the time). The announcement of these measures produced a sharp drop in both the currency and the stockmarket, but local newspapers were silent.

Editors admit to receiving regular briefings from senior government officials. "They'll tell us not to highlight this matter or that matter," says a journalist-turned-businessman. "But there's no common line to follow. They give you a briefing and let you decide yourself on how to cover the ringgit's fall. Some editors will decide it's against national interest to cover it, so they bury it on page 17."

But it's not just government controls that account for the weak coverage. Journalists themselves admit there is little tradition of investigative reporting in Malaysia. Others blame latent nationalism. "When we face a crisis, we circle the wagons, even if there aren't any instructions," says another journalist.

Did the press coverage contribute to Malaysia's economic crisis? Some analysts think it did. "If you keep trying to pull the wool over the population's eyes, people will be unprepared for the worst," says a local analyst with a foreign brokerage. "If you tell them there's no problem, people will mortgage their house to buy shares. When the market collapses, they'll be forced to sell their house. This will compound the problem."

Analysts in Kuala Lumpur also admit that they self-censor their reports about Malaysia. "We've had a lot of rows with companies," says the head of research for a foreign brokerage. "If we write something critical, they'll call and ask 'How dare you? If you continue to do that, we won't see you again.'"

Sometimes the threats come from the government itself. In September, several officials suggested that people who "sabotage" the economy should be arrested under Malaysia's tough anti-subversion laws.

How do brokers get around these problems? One solution is to arrange conference calls with clients. "We talk to them directly rather than write down our findings," says an analyst with a foreign brokerage. Another is to publish critical comments in regional reports rather than in those coming from Kuala Lumpur. "That way we can say we didn't write it."

Even in Singapore, which most investors view as a relatively transparent market, there are shortcomings. For example, the accuracy of local business reporting is outstanding, but what is missing is the analysis. "There's not enough discussion on where the dollar is going, and there's restraint in discussing the property market," says an analyst with a foreign brokerage. "There's a lack of initiative by journalists to highlight problems ahead of time."

Another complaint is the relatively poor disclosure rules for locally listed companies. That's particularly true of Singapore's banks, which are required to release only minimal financial information. Usually, that means half a dozen pages or less for their annual results. And so far, none of the banks has revealed its total exposure to Thailand, even after 58 Thai finance companies were suspended.

Still, there are signs that governments realise they must promote greater transparency to lure back desperately needed foreign investment. Malaysia has moved to tighten disclosure rules for its banks, announcing changes in its most recent budget. Singapore's deputy prime minister, Lee Hsien Loong, also highlighted the need for greater transparency in a recent speech. And on October 20, Singapore for the first time reported the level of bad loans carried by local banks. Malaysia, Thailand and the Philippines have all pledged to meet IMF standards for data disclosure and dissemination. Thailand's new prime minister, Chuan Leekpai, was quick to promise a more open government.

But the problems don't lie with governments alone. Many analysts and investors think companies should start taking shareholder rights more seriously--something they show little sign of doing--and banks and brokerages should improve the professionalism of their research staffs. In the US, for example, an analyst must have professional certification. No similar requirement exists anywhere in Asia.

"It's quite obvious," says Albert Chan, a spokesman for the Hong Kong Monetary Authority. "The more transparency there is, the easier it is for investors to make decisions."