Categorie archief: Reports 1998

Reports 1998

Index 1998

– December 1998, Some notes on nuclear weapons

– November 1998, Communication as a way to improve your business – Investments in the last quarter of 1998

– October 1998, Russia, a country in change

– September 1998, Instrumentalising Procurement – Congo in trouble

– August 1998, Is the bull getting tired? – Conflicts turning violent

– July 1998, The economies of the world; the connections and the situation – The Kosovo dilemma

– June 1998, Change in Indonesia – Asian addition

– May 1998, Business management, a short summary

– April 1998, II, Economy and financial affairs

– April 1998, The road towards European Defence integration – A note on India

– March 1998, Iraq after an U.N. brokered agreement – A note on China

– February 1998, Security changes in the Asian-Pacific region – Iraq, the next battlefield

– January 1998, II, Portfolio management in 1998

– January 1998, I, An Outlook on 1998

Standaard
December 1998

December 1998

December 1998

Some notes on nuclear weapons

Introduction into nuclear weapons

Nuclear weapons belong to the group of weapons of mass destruction. Nuclear weapons can be divided into two groups: atomic devices or thermo-nuclear devices. There are more variants like the neutron bomb, but they are essentially derivatives of the first two groups. Some qualities of the nuclear device, like radiation in the neutron bomb, are enhanced. You also can improve the blast or heat to cause more destruction. But all devices have a core of the same raw material or combination of them, 239 Pu, 235U and/or 233U.

Some technological details

An atomic device is relativily easy to build but the thermo-nuclear device demands better and advanced technical skills. The first device works on the principle of fission which creates a chain reaction which leads to an explosion. There are two ways to start the chain reaction, in general and simplified manner they function like this. The fission device can be of the gun type model or the more complicated implosion model. The gun type is easier to build but less effective. With the gun type a small load is blown into a ball of nuclear material. This will create a critical mass and the initiator with one neutron will set off the chain reaction. The implosion device is more complicated but more used and common. A ball of nuclear material is pushed together, the implosion, to create a critical mass. A initiator is fed into the ball from outside to set off the chain reaction. The fission implosive device can be improved through the use of a boostergas. This is a mix of deutrium and tritium. The result of a boostergas is that it will not significantly increase the yield of the device but it increases the fissionable efficiency of the used plutonium. The number of released neutrons will be multiplied by the use of a booster and these neutrons will create a higher efficiency because you have more fissions of atoms.

A thermo-nuclear device is much more complicated to construct. This device works on the principle of fusion. A thermo-nuclear device is in fact two nuclear devices. One small normal fission bomb, the socalled primary, and a bomb with the fusion material like lithiumdeuteride and tritium. The fission bomb will initiate the fusion in the second bomb through the radiation of the first bomb. This fusion will lead to a much higher yield than with a fission device. Where fission devices talk about KiloTonne, KT, yield, thermo-nuclear talks about MegaTonne, MT, of yield.

The problem of both principles is the timing. All components have to come together on the right moment to achieve the wanted reaction. The use of timing is also the basic of the creation of low yield nuclear devices. It will create a guided chain reaction to limit the yield of the weapon. The fission device is through the application of advanced initiators and suboptimal timing more useable and modern than the fusion device which are only usefull to create yield.

Development and consequences of nuclear devices

It is possible to develop and build a nuclear device, especially an fission device, in a laboratory without any testing. All testing can be done by computer simulations. It might be however difficult to build a save thermo-nuclear device without proper testing. Computer simulations might not be enough and the simulation technology not advanced enough. Test explosions could prove to be necessary if new thermo-nuclear devices are developed. Testing is however forbidden for the participants of the CTBT treaty. The CTBT treaty is a test ban on explosions of nuclear devices with a higher yield of 1KT. This will most probably limit or better end the development of new thermo-nuclear devices. But this treaty is in the case of thermo-nuclear devices irrelevant because the need or wantedness of thermo-nuclear devices has been diminished. The main reason for the CTBT treaty is that it eliminates all possibilities for other than the possessing countries to have thermo-nuclear devices.

The limitation of especially thermo-nuclear mega destruction devices and nuclear devices in general is thereby, for two reasons, in accordance with the policy of the possessing nations. Firstly, the possessing nations want to limit the proliferation of nuclear devices because they already have them and have no interest that some other countries also acquire nuclear devices. An end to nuclear explosions complicates the development of fission devices. If there is no possibility to acquire the right computer simulation programmes it will become very difficult to construct a save and reliable fission device. Secondly, the possessing nations have therby changed the objective of research and are developing low yield nuclear devices which could eventually be used and they can be developed by simulations.

Contrary to popular believe the real thing are not thermo-nuclear devices but boosted fission devices. Thermo-nuclear devices are only useable as weapons of last resort or at best as defence. To threat and keep off opposite forces to use nuclear weapons or a conventional superiority. Thermo-nuclear weapons are the ultimate threat, it will even keep a superpower at bay. But the use of thermo-nuclear devices is a kind of suicide. The negative consequences of the explosion of a number of MT devices will be disastrous for the whole planet, it will cause widespread radioactive contamination and a nuclear winter. Life on this planet would be in big trouble. The possession of thermo-nuclear devices is nice for the ego, it is nice to have. The political and military value is non existent, you cannot use them and will in the end limit your space to move. Every move will be viewed with suspiscion and will invite a countermove. The majority of foreign policy have to be dealt with through proxies just as in the cold war.

A boosted fission device is a better option. It is much more controllable, they are small and the yield can be limited to just a couple of KT. They can be eventually even be used against some kind of targets, like chemical or biological production and storage sites. The intense heat of a nuclear explosion would destroy all traces of chemical and biological weapons. The boosted fission device can certainly be used, the effects like the fall out is manageable from a low yielded device. The boosted fission device is the weapon of choice for the military. All development is aimed at those devices. The low yield, small size and the superficiality of test explosions make them very attractive.

But the implications could be in the end as difficult and worrisome as with thermo-nuclear devices. Militarily it is just another device/weapon with good and bad sites. If necessary and usefull it even can and will be used. Politically however it could prove to be disastrous if one leading nation would use a weapon of mass destruction. They would survive the natural consequences of the explosion and even win the conflict but the political fall out would prove to be deadly on the long term.

Finally the weaponization. A nuclear device must become a weapon if it is be viewed as dangerous and a threat. The capability to develop and build a fission or even thermo-nuclear device is not enough. It has to be delivered to the enemy. This is just as important as the device itself. For an example, what would be the use of a squadron of advanced jetfighters like the F22 in the defence of a countries airspace if you do not have the pilots to operate them.

This process of weaponization is just as difficult as the development of the device itself. The best and most attractive solution is the missile as way of transportation. To achieve that goal a missile has to be acquired which is strong, large, reliable and accurate enough to deliver the device. The accuracy, CEP, must be better the lower the yield of the device. The nuclear device has to be constructed according several spefications to fit in a missile and it must be that sturdy to withstand the natural forces which exist in the lanching and flying of a missile.

Nuclear weapons and the development N-weapons in the world

There are just a handfull of countries which are known and accepted owners of nuclear weapons. All five are members of the security council with a permanent veto right. The U.S.A., the U.K., France, Russia and China. There are three other groups of countries, first, the countries who possess the technological capabilities and the means to build a nuclear device. Second, the countries who also have actually builded a nuclear device or a very close to do so. Those countries do not want their ability to be officially known. They consider the possession of nuclear wepons as necessary item in their national defence. Third the group of countries, sometimes called rogue states, who are very activily busy in developing a nuclear device. Estimates forecast that they will be able to do so in approximately 4 to 6 years.

The first group of countries are most of the developed nations in the world. All countries who have mastered the skill of building and operating nuclear energy installations have in theory the ability and as important have the materials to put together a nuclear device, at least a fission device. Japan, Germany and the Netherlands belong to this large group. But they have no ambition to do so.

The other group of countries are the ones which are in the gray area of having already builded a nuclear device or are close to do so. They can construct fission devices with more or less advanced boosting technology. The possession of nuclear weapons is considered by those nations as a badly needed asset to protect the national interests of the country. The reason why they do not make their nuclear capability public is to circumvent the negative political international reaction and a possible arms race in the region. Officially they do not have them but everybody knows that they are around. To this group belongs Israel and belonged South Africa but they have destroyed their nuclear device. Israel is probably the strongest nuclear power outside the five acknowledged nuclear countries. The Israelis possess around 150 Jericho I and II missiles and they have an estimated 200 nuclear warheads. The Israeli Defence Force mastered the ability to build devices, build a missile and integrate both of them into a viable weapon system.

Two former countries who also belonged to the gray group are India and Pakistan. They were also suspected of the ability to build a nuclear device. India wanted to prove its capabilities because of strategic concerns and maybe out of frustrations over the CTBT treaty. India considered its strategic position versus China and Pakistan to be deteriorated. India has with both countries some old differences about territory and China as a nuclear power alledgedly supported Pakistan with their missile and nuclear programmes. The other grievance is the CTBT treaty which limits the not haves in their options and secures the position of the haves as dominating countries. The CTBT and the Non Proliferation Treaty does also not include a schedule to disarm, the Indians viewed that as an unfair treaty, with other words only advantageous to the haves. Mainly because those two reasons India decided it wanted to belong to the known and accepted nuclear powers and held a serie of five nuclear explosions to state that they possessed the capability to build nuclear devices. As a reaction to the Indian tests Pakistan felled compelled to show their capabilities and also held a serie of five nuclear explosions. There are however strong doubts with both series about the strength and number of the explosions. Both were most likely of the fission type and not that powerfull as stated. But simultaneous explosions and a certain soil structure can be the reason for the confusion about the number and strength.

India and Pakistan stated their ability with the explosions and gained enough information to run further testing through computer simulations. They do not have yet the capability to build a weapon but they will have it in the future. The minituriasation and hardening of a nuclear device is just a matter of time. Both countries already have reliable short range missiles. India the Prithvi and Pakistan the Hatf 1 and 2 and the Chinese M11. But both have a longer range missile under development, respectively the Agni and the Ghauri. In about three years both countries will have functioning nuclear weapons and in five years the longer range models will be available for introduction into the armed forces.

The third group of countries are the countries who do not have yet a nuclear device but who are very busy to build one. These countries, mostly all governed by one party regimes with a strong leadership, view themselve underpressure from the international community in general and the U.S.A. in particuliar. They want to limit the influence of the U.S.A. and want to remove the wrongly conceived threat from the U.S.A. They consider nuclear weapons very well suited for that job. Countries like Iraq, Iran and North Korea are very ambitious about their programmes to build a fission device. At the same time means of delivery, missiles, are under development in all those countries.

In reality ambition and the actual development are sometimes two different things. Iraq is because of the embargo and inspections of UNSCOM virtually out of the nuclear programmes development but this will last as long as the embargo and the inspections remain in place. North Korea has alledgedly shelved the development of nuclear weapon because of an agreement with South Korea, the U.S.A. and Japan. The missile programmes are however continuing at the same pace. Only in Iran both programmes, the missile and nuclear development programmes, remain on schedule. In two to three years a fission device could be developed and tested. Weaponization will at least take another two to three years before the device actually can be introduced into active service.

 

Standaard
November 1998

November 1998

November 1998

Communication as a way to improve your business – Investments in the last quarter of 1998

Communication as a way to improve your business

Communication is the foundation of not only a successfull company but also of our whole society. Without the development of oral and written forms of communication there would be no progress. To run a company also requires several communications skills. Ideas have to be told around, products have to be invented, investors have to be attracted, staff have to be instructed and buyers have to be convinced. All those activities of a company require communication skills.

The definition of communication is in our understanding not only the well known and used oral and written part, but also the interaction of the several departments in a company. Or as you like between people, organisations and entities in the society. The people in a department, division or unit should cooperate but also these parts should cooperate in the company, organisation or even the society. Only if the communication between all and every parts are functioning correctly there can be gained a production improvement of substantial size.

We will describe some conditions and measurements to improve the communictation in a organisation which should deliver a better working climate and above all an improved balance sheet.

Conditions of better Communication

To improve the communications in an organisation there are some basic pre-conditions. The people involved should talk about the same subject, must have an equal educational background and preferably there should be some sympathy, especially at low, unit/group level, it would make things easier.

The pattern of communications should on the other hand not be limited to a part of the group, department and organisation. A free flow of ideas, information and the like should be stimulated to increase the group feeling, to make people think and to generate several alternatives. Everything what is presented should be treated with the same respect and interest as if it was proposed by the CEO. If the proposals are not suitable tell why they are not suitable. If however something really interesting comes up, the idea should be rewarded not just by money but also with honours towards the person who brought forward the idea. This social reward will be more impressive and lasting than just an addition to the paycheck.

Toward improved communicative relations

Communications can be further improved by the use of a common available data storage and retrieval system, regular and pre-meeting information exchange, the correct meeting preparation and a case objected approach of the meeting.

The creation of a common understanding is necessary to look at the current developmental status and what is possible. The whole process of a product should therefore be arranged according the KISS rules, Keep It Simple and Stupid. This will eliminate difficult production processes, products nobody really understands because they are to difficult to use and it minimizes the probability to make a mistake.

The communication in the company should be improved by the introduction of an intranet. This will improve the internal communication and at the same time all messages and information transfers can immidiately be stored in the central data storage to further usage by other employees in the company/project. A kind of open communication system eliminates difficult hierarchy schemes which only disrupts the flow of information. Communications should improve the cooperation in a company. Information should be available to all concerning parties. Only if those conditions are met, the information can be used to do something like to improve a business process.

As an example, improved communications improves the development time of a given product. For example product A is in its R+D phase. A file is giving the exact status of the product. The product will be evaluated, a report about its status is send to all concerned. A standard reply form has to be used to simplify answering and processing of the remarks. Standard reply forms avoids long irrelevant stories and forces the replier to be to the point and only to submit relevant information. All recommendations are collected in the file of product A and in a general data base for use on other programmes. All members of the development team can use this information to improve the product. This can be done as many times as it is necessary, Product – Questions – Recommendations – Evaluation – Questions – Recommendations – Improvement. This cycle in the R+D phase will eliminate a number of meetings which have no other goal than improvement of the product. Another advantage of this kind of communication is that it allows the company to use all resources available in the company not only the ones which are at one site. Intranets do not care about distance and do not use valuable time on ineffective meetings.

The number of meetings which are necessary can be minimized to just the important ones which are about product selection, decision and other managerial tasks. But the meetings can become more effective. Every meeting needs to be prepared, if you have to read the files during the meeting, taking decisions will be more time consuming and difficult. The data storage of all information and the pre-meeting intranet exchanges allows all participants to know what is happening and what is demanded. An identical background can be shaped by the availability of a data base and the preparation before a meeting. The meeting can then be case object oriented and decisions can be made and executed at a higher speed and with more impact.

The communication system does not need to be limited to the company but can be extended to suppliers and customers. The use of advanced data transfer and storage systems allows the owner of the system to set parameters who is allowed to see what information. This makes it possible to allow outsiders to support or be involved into your company/R+D. The suppliers can activily participate in the development of a product. This will improve the quality and ease of production of the product and it will bind the supplier to the product. The customers can influence the product development by infusing intelligence about the wishes and demands of the customers. The attractivity of a product increases if it features the things which are wanted or even needed by the customers.

Conclusion

Communications in all its difference forms will be important to the success of a company. It is the essence of a company, the superior management/application of communications will promote the invention of new products, streamline the production process, increases sales and not to forget will improve the relations with your shareholders.

The implementation of the correct ways of communication can be achieved by the improvement of the relations between employees, the several departments in a company and with the external sources like suppliers and customers. The use of advanced data storage and transmission systems. The use of standardized processes, checklists, information exchanges and consistent preparation of the work assigned towards each employee. This will improve the operations in a company but additionally the climate will also be improved substantially. And everybody likes it to work somewhere where he feels comfortable.

Investments in the last quarter of 1998

The last couple of months proved to be very volatile. The economic troubles of the Asian region spread over the world. The Russian economy collapsed, South American currencies became under pressure, the economies became extremely negative and that all finally led to a massive correction on the European and US stockmarkets. Especially the international financial listings lost over 50 % of their value. The majority of the other stocks also experienced some losses but they were small compared to the financial stocks.

The outlook for the next months is very complicated. The economic problems will not be evaporated on the short term. Some Asian economies will see some improvement like Thailand, Singapore and South Korea. Japan and the Philipinnes have a chance to see some improvement. If the Japanese government plans, including the support of financial institutions are implemented and accepted, then Japan will see some growth in 1999. The situation in Malaysia is more complicated. If the Malaysian experiment, to close the financial transactions market with the world, does not have a positive result the economy will be in the same bad position as the economy of Indonesia. The Indonesian economy will not show any positive developments in 1999. There first need to be a lot changes, economical and political, to be implemented before growth will restart.

There are a number of opportunities in Asia, if you are willing to take a risk. There seems to be some kind of bottom reached in Singapore, Thailand, South Korea and the less hit countries like China, Hong Kong and Taiwan. The economic forecasts are also better then before and the stock prices are now at a level were some buying could be profitable if your horizon is at least12 till 18 months. The chances on the short term a more difficult to estimate, only a small number of stocks will be promising on the short term. The whole Asian crises situation is dependent on two factors. The Japanese recovery plans and are the changes in the Asian countries enough to stimulate growth and attract foreign investors.

The situation in Russia is more troublesome. As long as the Russian government is not willing to eliminate the phantom economy, the large state enterprises which do business through barter with a minimum of cash and at unrealistic prices, there is no chance of recovery. The Russian economy should be founded on companies which work according the profit system. Only healthy companies can deliver tax income and guarantee work to the people which will mean growth to the Russian economy.

The South American economies will remain under pressure as long as the Asian crises is not solved, the national budgets are not brought in line and the short term debt is not restructured. The future of the South American markets will remain depressed in the next months. If the Asian economies will show some improvements South America will become more interesting. But this will not be before the third and fourth quarter of 1999.

The U.S. and European economies will be the only places were growth is possible. The economies will show some growth but at slower pace than before. The economic fundamentals remain in order for the U.S. and Europe. The inflation and the interest rates are low, the internal demand continues to be promising and the unemployment is in many countries lower then before. The outlook is very promising especially after the third quarter of 1999. The millennium bug (Y2K) might be a little disrupting at some places but it will not inhibit growth substantially or for a long time.

There are a number of opportunities in the U.S. and Europe. They will be centred around companies who have none or just a little exposure to Asia and South America. The differences between the good and the bad will be fully clear if the quarter results will be published. Some will be disappointing but for a number of companies things do not look that bad. The companies with a healthy cash flow and a high return on capital ratio will be the best performers for the coming months.

There are essentially two groups of stocks which will probably show some above average growth. The companies which have done good during the several crises, they are however rather expensive. Like the telecommunication companies, the large pharmaceutical and some of the tech companies. The tech sector is very differentiated, IBM, Dell, Apple, Oracle, Microsoft, AOL and other internetcompanies are outperforming the market. Where as a number of others have done below expectations.       The other group are the companies which have been beaten badly by the recent corrections. The most promising companies are those who are in business sectors which have implemented a number of changes and who are needed and promising. Like the semiconductor and oil service sector.

 

 

Standaard
October 1998

October 1998

October 1998

Russia a country in change

Russia a little history

The dissolution of the Sowjet Union and the consequent resurrection of Russia and several other new countries started a process of change which was underestimated by most people.

The whole geographic, political and economical structure of the region changed by the dissolution of the former dominating entity. Everything had to be reshaped in the region, where as Belorussia and the Asian republics continued more or less with the old structure and the same old political elites in power, Russia and to a lesser extent Ukraine had to introduce new ways of political and economical organisations.

Russia turned into a kind of democracy with a parliament and a strong president. The power of the president is very large he only needs the parliament for the permission to install a new prime-minister who is proposed by himself and to introduce new legislation. If necessary he can however rule on his own by decree. The regions in Russia have become very powerfull in this time because of the lack of a strong central control/policy.

The parliament, the Duma, is controlled by former communists and other nationalistic parties which want to reinstall the former Sowjet Union or want to resurrect a strong Russia. The actual power of the Duma is limited but they can and will use every mean available to destruct the policy of the presidents prime minister. A what Marx called a “verelendung”, deteriorating, of the economy and state could be benificial to their own goals and agenda.

The situation of the economy has also deteriorated. The privitisation process have been very painfull and to slow to create new chances for the future. The many unprofitable companies lost a lot of there customers because of competition from foreign companies and the irregular and bad quality of the products which are produced in Russia. The absence of a fair and functioning tax system eliminated the solvability of the Russian state and the means to stimulate the Russian economy. The dropping commodity prices finally destroyed all hopes of Russia to go on and this was essentially the famous last drip after which the crisis started.

Russia is in a very bad situation, there is no clear leadership, the legislation is non-existent or will limit economic growth and the several regions are beginning to introduce laws and programs on their own.

Future development

The future of Russia is a very complicated one. They are at the cross roads to further disintegration or with a lot of work, hardship and luck to a new booming Russia. Everything seems to be possible.

There are a lot of possible scenarios which might possible to happen in Russia. The potential of Russia is enormous. The intellectual or educational potential is among the best in the world. The natural resources are on average the largest in the world. And finally there can be created a market which belongs to the top five in the world. The policy and attitude of the leaders and people will be the decisive factor what is going to happen. We will give a short comment on the situation and two scenarios, a worst case and a best case scenario.

Russia return to might

If Russia wants to be on the road to economic well being the goverment has to act as a government. The president and parliament have to forget rivalries and political agendas, they have to cooperate. Russia is in need of a government which clearly leads the country and introduces and executes general and taxation laws which stimulates the economy and the start of new companies. The companies have to be competitive and deliver products which are demanded by the market. An upswing of the economy will create jobs and will give the government the opportunity to pay off their debts and the wages which they owe to pensioners and workers at state enterprises. Only if the private companies start to grow a restructure of the economy and the state enterprises will have a viable chance.

A rise in the prices of commodities and energy, which is not very likely for commodities on the short term but the perspective looks a bit better for energy/oil, would make things a lot easier. If the government has to stomach to limit the influence of the Russian oligarchs which control a large number of important and profitable businesses they could use the natural richess of Russia to develop the country. The existence of the oligarchs is not perse negative but the Russian variant has the nasty habit to move the profits out of their businesses and country instead of re-investing the profits in the Russian economy.

The end of Russia

Another option is the further disintegration of Russia. The economic problems and the weak central power together with the more powerfull and confident regional leaders will put a lot of pressure on the Russian federation. The nearly paralysed and ineffective federal government forces the regional governors to solve the problems on their own. If those leaders have to do even more to save their region they will get even more control over the running of their region. Consequently the temptation increases to limit the central influence even more and create a de facto independent region.

The ambigious process of lesser central control and support and the increasing power of the regional leaders could become the fuze which will blow up what is left over from the Sowjet Union and Russia.

The inability of Moscow to support the regions which are instabile and in need for support will speed up the disintegration process. An example of such a region is Dagestan. Dagestan is dependent on central support, 65 % of their budget comes from Moscow. If Moscow fails to support them they will be drawn unevitably in a same kind of conflict as in Chechnya. Another example is from Krasnojarsk, Moscow was unable to pay the wages of the military forces which are situated in the army nuclear base in Oezjoersk in the Krasnojarsk region, the governor of that region, the famous former general Lebed, threatened to take over the compound if Moscow did not react. Other regional actions in the Kuzbass and in Jakoetia are the refusal to hand over of gold to the treasury in Moscow. The regional governors want to keep the gold to protect local banks and essentially creating an own currency. Or the implementation of price controls on basic foodproducts also in the Krasnojarsk region. There are many more examples of the actions of the regional governments to limit and solve the existing problems. Some will bring a solution but some other will mean a return to the old days of state planning/control and suppression of human rights. But all actions have in common that the role of Moscow is diminished.

Russia could be divided into eight to nine large regions which are strong enough to go for it on their own. Moscow and the surrounding areas. St. Petersburg and North-West Russia. Samara and the areas around the river Wolga. The Caucasus areas north of the muslem dominated areas. The Ural mountain region with Jekatarinenburg as centre. Jakoetia with the East and South of Siberia. The area around Krasnojarsk, this is the middle part of Siberia between the Ural area and East and South Siberia. And the most eastern part comprising Sachalin, the Kuriles, Kamchatka, the areas around the river Amur and the areas around the city of Vladiwostok. There would be further a number of smaller areas like Kalingrad, Karelia, and areas like Dagestan.

The above mentioned areas are a kind of natural areas which are also yet more or less administrative areas or there is a strong inter-regional cooperation. The division of Russia might be along those lines if the central government keeps to excel in ineffective policy and nepotism. The governors in a number of regions will be very capable to run the region on their own as a seperate country. The above mentioned regions are very suited to be run as a independent entity. The problems could be dealt with with more speed and efficacy.

Russia after 2000

The coming decade will prove the most important one in Russian history. The creation of the Russian empire, the Russian revolution and the subsequent rise to superpowership are minor to the choices which have to be made right now. The development of Russia could have an incredible effect on the position of Russia and its people but also on the political and economical wellbeing of the entire world. The negative impact of a destroyed Russia will be limited on the economic situation in the world but an economic healthy Russia could become decisive factor in the world.

The Russian power elite owe it to themselve, Russia and the world to finally take some action towards a recovery of their economy. They are the ones which are in a position to do something. Nobody can do it for them, the West can support them but if the foundation is not in order it does not make any sense to start building the walls. The Russians themselves are responsible for the creation of a fair state organisation, economic and taxation laws and the effective collection of taxes. If they can somehow make those things in order the walls can be constructed.

The return to a new might is then just a matter of time. Russia could become the superpower which it used to be but this time with a healthy economic foundation.

The new government under the leadership of Primakov should be warned that a return to old habits like state planning, nationalisations, inefficient production and currency control will not bring a long term solution. However tempting those old habits may look they will prove to be disastrous in the development of a healthy economy. The already to powerfull and influential regional governors will then continue to use the weakness of the central government to alienate them even further from the influence of Moscow. This process will be faster if the regions get even more power and what is important if it is given without central control or direction. Primakov should not expect support from the regions if he has not something substantial to offer. The cooperation will therefore be very difficult with the regions.

The policy of printing money which are not covered to pay the arrear wages will only devalue the currency even more, it will make live even more difficult and in the end weakens the power of Moscow. Russia’s policy will be a minefield where every step should be evaluated and aimed at stabilising and creating possibilities for growth in the economy. The existence of a healthy economy based on small and medium companies will be the road to prosperity.

Standaard
September 1998

September 1998

September 1998

Instrumentalising Procurement – Congo in trouble

Instumentalising Procurement

Procurement in business life is an important part of running a successfull company. It will partly decide the profitability of the operation. The results of procurement will have a dominating effect on the balance sheet. Procurement is however more than just squeezing the best price out of every deal. It has also to do with expectations, conditions, timing, quality and reliability.

The procurement department has to meet the demands which are set by the production, management and controlling departments. This complicated task should be organised in such a manner that every procurement process can be handled with the greatest efficiency and efficacy as possible.

The procurement process should follow a step by step approach to fullfill all demands as much as possible. After that the actual decision can be made which product is to be bought. Procurement has to be instrumentalised to make the decision process an automatic process which should be run without to much human interference.

A decision tree model could be an example how to instrumentalise procurement.

The decision tree model

The decision tree model is an approach to simplify procurement. Every procurement has a reason. The procurement has to fullfill a demand in a company. The object of procurement has to do a job. This can be a very basic job as paper to write on or a machine for the production of goods. The procurement of paper could be a straight forward process where to main decision factor is the price. The other factors like the quality, thickness, print on the stationary are more or less inflexible because they are standardized. The abundance of sources make the decision therefore relativily easy. The procurement of the machine is however more demanding because of its specific nature, e.g. the complicating and often ambigious influences which turn up in the procurement process.

On both mentioned examples the decision tree model is applicable. It will however show its usefullness on the more difficult procurement decisions in a company.

The decision tree model is a five tier model, A, B, C, D and E, and each tier lists a number of conditions and questions. The object in question must meet the conditions or must answer the questions listed as much as possible. Each of those tiers have a value, for example 1 to 5, and the product which receives the most points in the first four tiers should be evaluated in the fifth tier. The results of the first, A, and the second, B, tier should thereby have an equal or higher value than the third, C, and fourth, D, tier. This to support their importance in the equation. The mathematical model, in a simplified manner will look like this (A+B+C+D)*2 + E*5 = X.

X is the value of the most promising product.

The general decision tree model that could support you in buying a object could look like as described here after. Remember that some conditions and answers could be listed by other tiers as well but this will increase the usefullness of the model. All conditions have more or less effect on the use of the object and the financial implications of acquiring and operating the object.

Tier A is about the Capability, the conditions which are to be met:

A1 Performance of the object, with performance you should think about:

A1.1 The production capacity.

A1.2 The production efficiency.

A1.3 The product quality.

A1.4 The product diversity.

A1.5 The time needed to change from one product to another one.

A1.6 Simulation/recording application, e.g. to test the object and to check it if their is production malfunction.

A2 The life expectancy, economical and technological, of the object.

A3 Human engineering, the construction of the object, this can be divided into:

A3.1 The ergonomics.

A3.2 The display.

A3.3 The control.

Tier B is about the Availability, the conditions which are to be met:

B1 Reliability of the object, with reliability you should think about:

B1.1 The reliability specifications.

B1.2 The environmental suitability.

B1.3 The ability to meet the reliability specifications.

B2 Maintainability of the object:

B2.1 The maintainability specifications.

B2.2 The existence of BIT, Build In Test equipment.

B2.3 The ease of maintenance.

B3 Sustainability of the object:

B3.1 The commonality with other systems in use.

B3.2 The local maintenance possibilities.

B3.3 The number of sources to procure systems.

B3.4 The in house full support capability.

Tier C is about the Growth potential of the object, the conditions which are to be met:

C1 The ease of upgrade.

C2 The impact on the system if upgraded.

Tier D is about the Risk with the object, the conditions which are to be met:

D1 The capabilities of the company which delivers the object and the after service record of the company.

D2 The position of the company, e.g. the financial position of the company and the technological and market position of the company in the economy/market.

D3 The development status of the object, is it a new product, is it well placed in the market or is it a running out model.

D4 The question of system integration, as products get larger, more complicated and to minimise production costs a lot of products are developed by a company and the parts are from other companies. What is the position and experience of the company in that line of business.

And finally tier E, tier E is about the price of the object. This last tier will be very often the decisive factor if at least the minimum standards of the previous tiers are met. The conditions of tier E which are to be met:

E1 The price of the object.

E2 The methods of payment.

E3 The currency in which the object has to be paid.

E4 The warranty on the object.

This general description of the decision tree model will help to instrumentalise the procurement of products in a company or organisation. It will deliver a clear view of the competing products which might be offered to satisfy a need of the company. Additionally companies will be forced to offer the best they have at the best price, otherways they simply will be eliminated in the selection process.

The decision tree model will not eliminate the human factor in the decision process but it is meant to support the procurement manager in the decision process.

Congo in trouble

Congo, or former Zaïre, has fallen victim of another civil war. The victor, Laurent Desire Kabila, of the former civil war which ejected Mobuto out of power has fallen victim to the same problems faced by his predecessor. The ethnic diversity, the lack of economic progress, the nepotism and the threat of discrimination led the country in another civil war.

In an effort to regain more support in Congo, Kabila played the ethnic card and tried to eliminate the Tutsi influence in Congolese politics. The Banyamulenge, Congolese Tutsis of Rwandan descent, were afraid to be discriminated again and resisted the orders of Kabila and started an armed resistance against the regime of Kabila in Kinshasa.

The Banyamulenge received support from their brothers in Rwanda and from Uganda. Rwanda and Uganda supported the Banyamulenge not only because of their close relations but especially because of the existence of anti Rwanda and Uganda forces in East Congo. This collection of forces, the Rwandan Hutu Interhamwe movement and the anti Uganda movements of the Allied Democratic Forces, some men of the last year defeated West Bank Nile Front and a local moslem movement out of the Ruwenzori mountains. All those movements operate out of Congo to spread terror in respectivily Rwanda and Uganda. If the Tutsi influence in Congo would be destroyed those forces would get a free hand to operate against Rwanda and Uganda.

The military operations

The battle hardened Tutsi forces with the support of Rwandan and Ugandan forces could relativily easy expel the Congolese forces out of the East of Congo. They have taken over control of the provinces of Kivu, a part of Shaba and a part of upper Zaire province including the largest city Kisangani. The rebel forces even staged a operation in the west of Congo. In the west they could conquer all important places like the harbours, oilfields and the energy powerplant in Matadi. Kabila was because of this daring assault pushed into a corner and close to be check mate.

The Congolese forces of Kabila could not stop the rebel forces. The rebel forces were closing in on Kinshasa. Kabila moved to his home town in the province of Shaba. Congo was on the verge of breaking apart. If Kabila would fall, he would most probably declare Shaba independent. The Banyamelunge, their Rwandan and Ugandan Allies could live with a desintegrated Congo. The call for a cease fire was there fore an acceptable proposition for the rebel forces. They had nothing to loose only to win.

Kabila called for help from the neighbouring countries which are all members of the South African Development Community. The largest member South Africa called for a cease fire and a diplomatic solution. Angola and Zimbabwe on the other hand were willing to interfere and support Kabila. Especially Angola was willing to support Kabila. Angola needs a strong and unified Congo which can suppress the diamond trade of the Unita in Congo. This would cut of the Unita of its main source of income. The Angolan forces could than try to defeat the Unita which still controls about two-thirds of Angola. But this is another story.

Zimbabwe sended commando forces of around 500-600 men with some air support which pushed back the rebel forces from Kinshasa. At the same time Angolan forces moved into Congo out of the Angolan enclave of Cabinda. Angola is after South Africa the strongest military power in the sub Saharan region. The Angolan forces pushed back the rebel forces from the seaboard. The rebel forces are there after trapped between two powerfull forces. With the loss of the Kitona air base they even lost their logistic support out of the East, Rwanda. But because of the lack of a credible air force the possesion of Kitona was irrelevant because the Angolan air dominance would have wiped out the Rwandan transport aircraft.

The demise of the western front of the rebels is just a matter of time. They do not have a chance against the superior forces of Angola, Zimbabwe and the Congolese army. The integrity of Congo seems to be saved by the intervention of Angola and Zimbabwe.

The position of the rebel forces in the East, with the support of Rwanda and Uganda, looks a lot better. The Congolese forces do not have the power to eject them out of the occupied provinces. And Angola and Zimbabwe are probably not willing to get to deep involved in the conflict. Some air support and logistic support will be possible but probably not use of the ground forces. The rebel forces do have the additional advantage that they can simply pull back in the dense jungle and wait for the Congolese to come. This battle in the jungle and far away form their logistic bases could prove to be to much for the still young and relativily inexperienced Congolese forces

The future

A diplomatic solution will be most likely in the future if the threat in the west of Congo is eliminated. The problems in the east would seem to be insoluble by military force. The Congolese and Banyamulenge rebels are both not strong enough to force one side into an understanding. The outside support both groups are receiving is not enough to move the scale into one direction. The Rwandan and Ugandan support is to little as is the Zimbabwan support. The Angolan forces are on the other hand most likely not willing to move that deep into Congo. They have enough problems of their own in Angola. The operations in Congo were largely out of self interest.

The dissolution of Congo has been prevented but the rebel force has become a power factor to be reckoned with. Everything what has to happen within the territory they hold has to be arranged to get their consent. If a solution is to be reached they will play a major role. Congo will probably move slowly to a more decentralised state as more regions with a large ethnic group will claim the same rights as the Banyamulenge have been given or better have fought for.

It is time that the many peoples of Congo start building their own nation. Not the old Congo were the people in power divide the profits among themselves but use the wealth of the country for all Congolese.

 

 

 

Standaard
August 1998

August 1998

August 1998

Is the bull getting tired? – Conflicts turning violent

Is the bull getting tired?

The Asian crisis turned all emerging markets, Russia and South America, moving south. Currencies got under pressure and markets disappeared. The solution of the Asian crisis is largely dependent on the economic recovery of Japan. And as long as Japan is not seriously solving their economic problems, clean up the bad loans, restructure their financial system, eliminate the connections between business, government and crime and restore confidence into the government, Asia and the other emerging markets will not be able to stem the tide.

The European and U.S. economies on the other hand are doing allright. The Asian crisis forestalled the threatening ghost of inflation in the booming U.S. and the recovering Europe. The stock markets on the old and new continent have reached in the mean time new records. The Dow broke the 9300, the Dax the 6000 and also the smaller markets like the Dutch AEX broke trough the 1300 level.

How long can the Western markets continue this growth? If Asia would return to their former might everything would be OK but this will take another two or three years at least. The growth of the western markets has also to be carried by the home markets and the markets in Eastern Europe which are less influenced by Asia then the other emerging markets. The economic fundamentals are thereby not that bad for the majority of the companies but there are a number of buts which could have a negative effect on the development of the stock market.

One of those buts is the price/earnings ratio. The market valuation is becoming very expensive. The Standard and Poor 500 index is traded at 20 times earnings, the best performers of the S&P even 35 times earnings and the profit expectations for 1999 are just a mere 1,5 till 1,9 %. The weak position of the U.S. stock market becomes more clear by a look on the advance-decline line of a combination of the NYSE and the Nasdaq, it is dropping. There are reported fewer new highs but more new lows. The booming stock markets are builded on the just a few strong stocks, the breadth is very small. And finally money is moving out ot the stock market and into the money and bond market.

The European valuation situation is not yet that worse as in the U.S. but the earning forecasts are just as disappointing as in the U.S. Disappointing is not the right word, they just not that impressive as before. The economic performance in especially the manufacturing sector will deliver single digit growth where as the financial, telecommunication and some tech stocks are however still able to deliver double digit growth. This small breadth of high performing stocks will disappoint the analysts and the investors.

This will result in a lost of trust in the strenght of the market. A lot of people will take profits and wait to re-enter the market at a better price. And more dangerously the stock community will react very harshly on most of the earnings warnings which might be given by companies. Consequently there will be some ups and downs but the year to date growth will remain positive for the quality stocks.

The earnings growth of several companies will be less then in the preceding years and this will limit the growth of the market. The volatility of the stock market will continue till the end the year. It can be described as a slow down but to call it the beginning of the bear cycle might be a little premature. The overall economic position is still to positive. The economic outlook on the world economy for 1999 is despite the Asian crisis promising, especially the U.S. and European economies are responsible for the well being of the economy. The last quarter of 1998 or the first quarter of 1999 will show some improvement to the market. The earnings situation will get better at that time. The improved market/economy with a cheaper stock price because of the slow-down/correction will improve the valuations and this will boost further growth in 1999. The bull will continue in 1999, it is only taking a little break in the second half of 1998.

The third quarter and possibly the fourth quarter will bring some volatility. This could include a correction of 10-15 %. This will not have a lasting impact. But if you want to be on the save side and have good night sleep you could consider to protect the profits you have gained till now by the use of a put-call option combination. This will protect you to any losses and it will keep your portfolio unimpaired. This can be done at little cost because the majority of the costs will be covered by the earnings of the put. This little exciting operation will protect your holdings but will limit the growth chances of the second part of 1998, there are however some more exotic derivative combinations which could increase your gains even more. But this is attached with a higher risk.

Conflicts turning violent

The world in 1998 is still not a peacefull place. There are several regions where people, organisations, groups, religions and sometimes even states have differences with eachother. Some of those problems can be solved by mediation but some will use violence as a way to improve their position. In Kosovo most of the above mentioned differences are present , included the preferred way to solve it.

Kosovo, bushfire or war

The conflict in Kosovo gets worser by the time. Both groups, the Kosovo-Albanians and the Serbian security forces increase the use of violence towards eachother but also against the civilian population.

The Serbs and the Albanians are getting far away from a diplomatic solution. The demands of both sides essentially rules out a diplomatic solution. The Serbians want to keep Kosovo part of Yugoslavia with no special position. The Albanians are insisting on independence or a possible link up with Albania proper and a part of Macedonia to create a Greater Albania.

The major party which represents the Albanians have become the UCK/KLA who have more or less controlled a large part of Kosovo before the Serbian/Yugoslav forces started their operations. The military power of the UCK/KLA is limited. The numbers are relatively small and the armament beside the personal arms of the fighters is limited to heavy machine guns, mortars and grenade launchers including AT systems. This is enough to carry out a querrilla war but it is not enough to impress or defeat the Serbian security forces. Especially, what is the case, when they receive support from the Yugoslav army. The Yugoslav army will be the decisive factor. They can deliver the necessary military weight, MBTs, artillery and manpower to destroy the UCK/KLA military power. But they could, in the end, also force the Serbians politicians to accept a diplomatic solution. The Yugoslav army are not loyal supporters of Serbian president Milosevic and his policy. This could mean a chance for a diplomatic solution. But in the beginning they will support Milosevic to destroy the UCK/KLA because they pose a danger to the integrity of Yugoslavia. A strong UCK/KLA can not be tolerated by the army but a less threatening querilla force could be an acceptable negotiation partner.

The intensified fighting between the UCK/Albanians and the Serbian/Yugoslav forces pushed the former in the defensive. The Serbian military operations to regain control over the important roads between Pristina and Prizren and between Pristina and Pec proved to be a dangerous development for the UCK/KLA. Because the Serbians already controlled the border with Albania, incidentally they even followed the UCK/KLA into Albania and clashed with the Albanian border troops, the UCK/KLA got trapped in its hide out around the town of Malisevo. Malisevo is the HQ of the UCK/KLA and it is situated in the centre of the triangle Pristina-Pec-Prizren. And the line Prizren-Pec is about 10 KM of the border which is under control of the Serbian security forces. The intensed fighting in the triangle led to loss of the UCK/KLA HQ and this was a bad development. They not only lost a clear sign of their power but they also lost morally. They are not that strong as was thought and they are also not able to protect the Kosovo-Albanians from the Serbian terror. It was essentially the end of a myth.

The fighting will be in the advantage of Serbia. The military fortunes of the UCK/KLA are bad. They are pushed back by the Serbian/Yugoslav forces and they will be finished as conventional force very quickly. After that they will only be able to operate as a querilla force. The situation is further deteriorated by the fact that the logistic support of the UCK/KLA has become very difficult because the Serbian security forces control and “evacuated” the border territory with Albania. The Serbian forces are thereby willing to eliminate the Albanian support of the UCK/KLA in Albania proper. They have moved into Albania and destroyed UCK/KLA forces over there.

Time will be advantageous to the Serbian forces. The resistance of the UCK/KLA will be further undermined by the coming winter which is very harsh in those regions. The many displaced persons who fled because of the agression can be of no help to the UCK/KLA in their resistance. The resulted uninhabited villages can not be used as a hide out for the UCK/KLA. And local support is necessary in a querilla war.

The position of the UCK/KLA is finally undermined by their own policy to try to get the support of all Albanians in the region and their insistence on maximum demands. The UCK/KLA has become a powerfull force in the area and they try to rally support not only from the Albanians in Kosovo but also in Macedonia and Albania proper. This could draw three countries into Kosovo-conflict. Albania might like the idea of a greater Albania even if it would create a ungovernable country and that it is not clear who will run the country. The other involved entities, Yugoslavia, Macedonia and the international community, would however fundamentally oppose such a development.

The military operations in Kosovo has forced the UCK/KLA in the defensive. They had to give up the limited/conditional control they possessed over some areas. They are hard pressed because of the operations of the Serbian/Yugoslav forces. They even called for intervention by the international community. The UCK/KLA might be tempted to use a possible cease fire to regroup and reinforce their positions and try to save what is possible.

The demand for international intervention might be to late. The military operations in Kosovo might soon be over as the military power of the UCK/KLA is broken. The Serbian security forces can handle the querilla threat by the Kosovo-Albanians on their own with the usual terror. The political position of the Kosovo-Albanians will then be weaker then before and a low-level querilla war will be the only mean of resistance leftover.

The Serbian leaders will feel encouraged by the demand for international intervention because that is the evidence that they are stronger and can solve the Kosovo problem their way. The silence of the international community during the recent military operations will also give Milosevic the idea that the West does not object to the steps taken to keep Kosovo within Yugoslavia.

To prevent a forced military solution by the Serbians the UCK/KLA and other political organisations in Kosovo like the LDK should unite and work together. With one strong voice they should then try to get as much as international support as possible. If they at the same time are willing to accept a compromise solution of autonomy within the state Yugoslavia it could be feasible to reach it. The international community could press Milosevic to accept that compromise especially now the Yugoslav army has been involved into the conflict.

The psychology of the people in the region however encourages the choice of maximum demands and any compromise is a sign of weakness. Their thinking is black and white. You win or loose and something in between is not possible. If the Kosovo-Albanians let traditional feelings run their policy they will loose.

The Kosovo conflict will be a limited conflict. The threatened new Balkan war is very unlikely. The UCK/KLA is to small, politically and militarily, to really influence the outcome of the conflict. The Albanians in the region are thereby not in a position to create a Great Albania. They have to many internal differences and they are simply to poor. The neighbouring states have intrests in the region but they have little in common with wishes of the Albanians and they are certainly not willing to die for Pristina or a Great Albania.

 

Standaard
July 1998

July 1998

July 1998

The economies of the world, the connections and the situation – The Kosovo dilemma

The economies of the world, the connections and the situation

The economies of the world are not that promising as two years ago. In those days everything seemed possible. The countries in the Asian-Pacific region were considered the best of the world. Their way of living, especially the political system was considered by the Asians as superior to the decadent western democracies.

The economy of the U.S.A. was also booming where as the majority of the European economies where coming slowly out of the last crisis. But even when they were doing allright the growth figures of Europe en the U.S.A. looked bleak by the Asians double digit growth. The growth in the U.S.A. and Europe is on the other hand based on strong fundamentals where as the growth in Asia is resource-bound and extremely dependent on cheap and foreign capital.

Even in those days it was obvious that the much talked about globalisation was only partly correct. The globalisation was only limited to one sector and it was a developing process to some countries in the world.

The finance sector is the only group which is operating all around the world. Investors are looking for every opportunity to make an investment. The socalled emerging markets were the key benefiaries of those investments. The banks are therefore the industry with a large exposure in Asia. The Asian involvement was at one time a very sound investment but the political systems which controlled the Asian economies and the incorrect investment and accountancy policy turned the investment/loans into very vulnerable operations.

The only country which can be viewed as true global player is the United States of America. The U.S.A., as the largest exporter in the world, is a big trading partner to many countries around the world. They are therefore the key benefiary of the opening of markets, the globalisation. The European Union and especially Germany is starting to become a global player. The regional market is becoming to small for Germany and it is becoming attractive to look for new possibilities around the world. A global open market is a condition to expand around the world and to keep the industry competitive.

But the level of globalisation should not be overestimated. The stakes of the financial sector are high but the Asian involvement in relation to the total financial business is relativily low. The same is true for the level of exports to the Asian region. The exports to Asia from the U.S.A. and the European Union are considerable but in relation to the total economic picture the total exports by each only account for an estimated 10 %. The Asian part in it is even smaller.

Essentially most countries/parts of the world, with the exception of the U.S.A. and possibly Germany, are regional players. The majority of the trade is aimed at neighbouring countries. Those regional groupings very often agree to some preferential treatment. The most successfull regional economy is the European Union but also others are moving in that direction. Like the Mercosur in South America, several less successfull organisations in Africa like ECOWAS and CEUCA and the increasing cooperation in the Asean grouping.

The regional economies are mostly of the same technical level, economical development and often belong to the same cultural grouping. There are differences but the countries are supportive to eachother. This is the strength of the regional economy, the many look a likes, the geographic proximity and the same development and cultural standards. And to limit the globalisation even further, the trade with other regions, global trade, is not a really international trade between countries but a trans-company trade within one company. A certain company has a division in for example an Asian country. This division is producing goods or parts for the other region. All movements are within the company which is only using one feature of the Asian country: the cheap labour. This trans-company trade is advantageous to the country, it will deliver more jobs and a little bit of know-how but on the other hand it will not deliver the strong industrial base which is wanted. Those companies/divisions can be moved very easily and the left behind country is not in a position to replace that company, they simply do not have the know-how, resources and brand name to do so.

The regional economies can be viewed as a development phase to the global marketplace. The level of globalisation will increase in the future but at the moment most sectors/industries are regional directed. If the regional market is becoming to small the phase of globalisation starts. But for now and in the future the impact of a crisis in one region will not affect the economies of the other regions on a dramatic scale. The impact will be more of a psychological nature then real. Most of the losses in one market can be maid up by improvements in other markets. Some individual companies will be badly affected, as now is happening in the Asian crisis, but the picture on the whole is dependent on much more factors then one company or sector.

There is however one exception. The impact on the financial sector. The financial sector is a globally operating group with interests all around the world. If one large part of the world is in trouble it could affect the profitability of the financial sector. This will limit the ability of the financial institutions to deliver their services to their cutomers. For example export credits and loans will be more difficult to obtain, exports/trade and investments slow down and finally the economy is in a downward trend. The availability of capital and the intrestrates could become a decisive factor in the well being of the world economy. This worst case scenario could become reality if the financial sector does not apply proper risk analysis and if it is not controlled as it should be. The strong regulations in the western world will limit such negative developments but that does not mean that it will not be hurt by it.

The globalisation is here to stay and will increase in the future but it will take a very long time before one crisis in one or more countries will affect all economies of the world. The strong economies of the large markets in the U.S.A. and Europe will limit any devasting Asian influence on their economies.

The forecast on the economies of the U.S.A. and Europe are therefore positive. There will be a strong growth and low inflation for at least the next two years. The development of the Asian economies is dependent on the measures taken by Japan to stimulate the consumer demand, restructure their financial system and to strengthen their currency. The other South-East Asian economies are, if they have implemented the IMF plans, dependent on a strong Japan for their return to healthy economies. The South American economies are also dependent on the return to strong Asian currency values. Where as the African economies are dependent on the absence of internal and external conflicts for their growth. And finally the Russian economy needs higher oil prices, a radical improved fiscal legislation and tax collection and although to a lesser extent Russia also needs a stabile Asia to keep the title of the fastest growing stock market.

The Kosovo dilemma

The problems in the area of former Yugoslavia are far from over. The conflict in Bosnia-Herogowina seems to be cooled off. But there are still some areas in the territory of former Yugoslavia where there are still some problems to be solved. The most dangerous situation is in Kosovo. The region is very volatile. The Kosovo-Albanians which constitute the large majority in Kosovo have changed from peacefull resistance against the Serbian “occupier”, and turned violent.

The policy in Kosovo is a Serbian policy, not Yugoslavian policy. The president of Yugoslavia, who happens to be a Serb, wants to control Kosovo out of historical reasons. The Yugoslav/Serbian policy is executed by security forces, the police, and not by the army. The army is not under the personal command of the president and it is considered as not very loyal to the president where as the police is totally under his control.

The Serbian policy in Kosovo was to limit the influence and power of the Kosovo-Albanians, their response was to create a shadow society of Albanians only. This peacefull resistance from the Kosovo-Albanians was under the leadership of Ibrahim Rugova of the LDK. They wanted to avoid the massacres which happened in Bosnia-Herzegowina. In the beginning the Albanians agreed with this policy of peacefull resistance but it did not achieve the success which was expected.

After the Serbians government achieved the total exclusion of Albanians out of the public sector, there was a move from both parties to use violence to reach their goals. The Albanians organised themselve in the UCK/KLA, an armed Kosovo-Albanian organisation with the goal to liberate Kosovo from Serbia/Yugoslavia. At first they were just a couple of thousand armed radicals which committed some armed assaults on Serbian installations and on Albanians who cooperated with the Serbs. The Serbian government at the same time started to “clean” the border territories with Albania proper from Kosovo-Albanians. This was done in the same way as in Bosnia-Herzegowina with muslem and Croat villages. The Albanians rallied behind the UCK/KLA because they were the only group who promised at least a little protection. The military efforts of the UCK/KLA became more successfull as they got larger and better trained and armed. The peacefull resistance was effectivily bankrupt because they did not reach anything and they could not stop the Serbian security forces.

The world community would like to see a diplomatic solution to the conflict. The few negotiations, or better talks, between Ibahim Rugova, leader of the LDK which started the peacefull resistance against Serbia, and Milosevic, president of Yugoslavia, had no positive result. Milosevic did not want to grant the Albanians any autonomy and Rugova was considered a collaborator because he talked to Milosevic. Rugova lost a lot of support because of these talks and is effectivily sidelined because of the continuation of the violence.

The LDK, especially Ibrahim Rugova, lost control over the Albanians. The UCK/KLA was more attractive because of the armed resistance and their goal of an independent Kosovo. As a result the LDK split and a number of former LDK leaders, like Jakub Krasniqi, are trying to take over the LDK from Rugova and build a new LDK which can represent the case of the new LDK and UCK/KLA to the world community. The leadership problem of the new LDK and UCK/KLA combination is far from solved. There is no clear leader who has the personality to do it. A possible candidate could be Adem Demaçi, the Mandela of Kosovo. Demaçi has spend a large part of his live in Yugoslavian prisons and is now the leader of a small political party which is much more radical than the LDK.

The international community has some problems with Kosovo. Because Kosovo is part of Yugoslavia therefore it is an internal problem in which foreign countries have no right to meddle. The atrocities committed by the Serbian securtiy forces will however force the international community to do something against it. But whatever they will do it will be in their disadvantage and will not create peace.

The Chinese and especially the Russian govenments are absolutely against the use of military power to force Yugoslavia/Serbia to stop the actions of the security forces. Where as the West, Europe and the U.S.A., do not like to exclude this option to force the Serbians to stop the cleansing of territories in Kosovo.

The Serbians show a willingness to talk but do not want to offer something substantial. They use negotiations to create time to continue the violence and create facts which put them in a better position.

The new LDK and the UCK/KLA are not an acceptable partner to the world community mainly because of the use of violence and also because of the ambition to create an independent Kosovo which is in contradiction to the policy of most countries and the United Nations. But if there is going to be solution to the Kosovo conflict, the LDK-UCK/KLA will be part of it. So the international community have to talk with the LDK-UCK/KLA organisation to reach something.

The world community, the six of the contact group for Yugoslavia and the United Nations, are having some difficulties in creating to right policy mix in Kosovo. As mentioned above; Yugoslavia is an sovereign country, China and Russia oppose military actions but Europe and the U.S.A. are willing to use them, Milosevic is considered unreliable and unwilling to reach an agreement, the LDK is loosing support and the new LDK and UCK/KLA are considered not acceptable because of their policy. All these factors make an agreement nearly impossible. The situation is even worser because how to force the Serbians to abandon the security operations in Kososvo?

The diplomatic solution is difficult without means to force Serbia to obey, Serbia is not willing to give up Kosovo, it is of historic importance to Serbia. And the Kosovo-Albanians want to be independent, autonomy will not satisfy the extremist part of the population. There is also very little room for a compromise.

The use of military means is difficult because it have to be done without support of two important parties, China and Russia. And if military forces are used, the question remains how to use them? The use of air power, control the air space of Yugoslavia and bomb security forces and installations. Or the stationing of land forces in Kosovo or seal off the borders with Albania and Macedonia. The use of only air power will not stop the Serbians because there are not enough clear targets and it is more dangerous because the Yugoslav air force could pose a bigger danger then before in the conflict in Bosnia-Herzegowina. The use of land forces is equally problematic. First who will participate and to occupy Kosovo you need at least a force of 40.000 +, if there no resistance from the Yugoslav army. Or between 20.000 an 25.000 to seal off the borders. Ocuppying Kosovo will be intolerable to China, Russia and Serbia and sealing off the borders would eliminate all support to the Kosovo-Albanians and this would support the Serbians with their destructive policies in Kosovo.

The use of airpower and/or moving in to Kosovo would mean to alienate Russia and China, introduce a novelty in international relations and that the world community would site with the Kosovo-Albanians. And sealing the borders would mean indirectly to support the Serbians, which was not the reason to use the military, on the contrary. The use of military forces would mean to give up the impartiality of the world community/Contact group/United Nations.

The Kosovo problem is a dilemma for the world, whatever policy is chosen, nobody would be totally satisfied. The military option can only be used if nothing else works. It is only usefull as a pressure tool. The diplomatic solution might be difficult to achieve but it is the only possibility.

The solution in the Kosovo problem is in the particular constellation of powers in the region. A careful and precise navigating can result in a solution which will satisfy, more or less, all concerning parties.

The goal should be a Kosovo which is formally part of Yugoslavia but with far reaching autonomy. This can be achieved by exploiting the weaknesses of the parties involved. The Kosovo problem is a Serbian problem not Yugoslavian problem. The Yugoslav army will probably not be involved. Therefore you need to isolate the Serbians in Yugoslavia by supporting the other ethnic groups in Yugoslavia. The police and special police forces will probably be not strong enough to subdue the Kosovo-Albanians on their own. The increased strength of the UCK/KLA will make the activities of the security forces even more difficult. This constellation of two parties which are not strong enough to beat eachother creates a status quo which could deliver a diplomatic solution.

International pressure can then be applied to both parties. The honey and stick method could be very effective in this situation, offering them support with the reconstruction and punish them by limiting outside support if they continue their fight. The Serbians and the Kosovo-Albanians have to come to the understanding that they have to cooperate if they want to survive. They should understand that the insistence on maximum demands will not end the conflict but only increase the intensity and senselessness of the conflict.

The other options would be the worsening of the conflict. It would mean war. Or the Serbians are using more violence, with increasing support of the Yugoslav army, to subdue the Kosovo-Albanians. The atrocities which will happen will at the end suppress the Kosovo-Albanian struggle for independence. But this is a short term solution, there will be more problems on the longer term when there is another uprising. Or the UCK can, with luck and cunning, beat the Serbian security forces which might be not strong enough at the moment with little to non support of the Yugoslav army. They might be able to reach independency but this is a va banque game, all or nothing. It is very risky and shared with a lot of blood shedding but the last will happen in both cases.

An acceptable compromise is therefore a Kosovo which is part of Yugoslavia with an equal say in Yugoslav questions and far reaching self determination about internal questions. A Kosovo which is ruled by the people but with respect to eachother’s culture and religion. This gives the Kosovo-Albanians the opportunity to create the society they want but they should respect and protect the Serbian monastries and Serbian minority in Kosovo. And because Kosovo is still a part of Yugoslavia free movement of people and products is possible. This can satisfy the Serbian interests and it will be economically advantageous to the Kosovo economy.

Standaard
June 1998

June 1998

June 1998

Change in Indonesia – Asian addition

Change in Indonesia

The economic crisis seems not have reached the bottom. After a short and respectable recovering in the first quarter of the year things turned bad again. The problems in Japan and especially the continuing disaster in Indonesia was the main reason for the renewed depression.

The lagging Japanese economy, the near insolvent banks and the limited actions of the government are responsible that Japan is not able to take the lead in the reconstruction and build up of the South East Asian economies. And we should not forget that the South East Asian economies are to a high degree connected with eachother. The mutual exports to eachother range from 40 till 60 % of the total of each country. With Japan and China being the most important partners.

The other probably bigger reason for the downturn is the severity of the Indonesian crisis. The austerity measures, the cutting of all subsidies, of the Indonesian government have made live for the ordinary citizen very expensive. The social unrest which started after the second round of price increases have led to the resignation of Suharto as president of Indonesia.

The number of questions have risen after the resignation of Suharto. Are the changes in the government and in the economy enough to satisfy the demands of the population and the international investors. Is the new government able to restore order on the long term.

Law and order, economic and fiscal regulations and trust in the government are preconditions to stabilise Indonesia. And a strong Indonesia is necessary to make any South East Asian economic resurrection lasting longer than one summer.

Political change

The crowds in the major cities in Indonesia went on the rampage after the increases of the prices became public. The situation of the already pressed poor people of Indonesia became unbearable. Supported or even initiated by some criminal gangs large scale looting started. The better off, especially businesses of Chinese descent were targeted by the crowds. There are even some rumors that some government organisations were involved in the beginning of the looting. But there is no substantial evidence to support that theory.

The intensity and scale of the demonstrations by the students of Jakarta increased. The popular uprising and the inactivity of the police against the lootings were the reasons that the demonstrations moved out of their campusses and took over the streets.

Military forces had in the mean time took over control in Jakarta and restored order in the capital. But they permitted the students to demonstrate and opposition groups to operate against the Suharto regime.

Under pressure from the street, the military and even his own Golkar party, Suharto decided to give up power. The new president was going to be B.J. Habibi which is a staunch ally of Suharto, the whole career of Habibi was arranged and supported by Suharto. Habibi the former minister of industry and technology is reknowned for its very expensive modernisation plans like a turbo-prop aircraft and a jet powered aircraft in the design stage. Most of Habibi’s policies were very ambitious but also economic doubtfull.

Habibi is an important player in the Suharto clan but he does not possess that much support in the military and business community in Indonesia. Habibi is therefore considered as an intirim president, the promised elections should deliver a stronger figure.

The first acts of government of Habibi was to restore order, build some confidence in the world by eliminating some business connections with companies of the Suharto clan and replace the majority of the Suharto clan out of the important government positions.

The retirement of Suharto had in the mean time created some stabilisation in Indonesia. The currency did not loose substantially more in value for a couple of days, order could be re-established in the country and the protestors against the Suharto regime could return home with the good feeling of having gained a (small and partial) victory.

Habibi is not the president to lead the country for a long time. He does not possess the political, economical and above all military support to be president for a long time. He is the care-taker to stabilise the economy as much as possible and to get as much as international support as possible at better terms or at least at a better time table. Habibi will try to convince the IMF to make the promised funds of up to $ 43 B. available at easier and better conditions. Or better at less stringent conditions. This would buy the Indonesian government some extra time to solve the crisis on their way.

The IMF will most probably stick to their demands to create political stability and to change the political and economical organisation in Indonesia before new funds are released. With some luck they might be a little lenient on the time table.

Political and economical changes are however unavoidable and they have to be implemented as much as possible. But if the austerity measures could be implemented at a slower pace the hardships to the people could be lesser. If the above mentioned IMF funds would also be available and if the economy would return to a more promising situation the transition would be more acceptable.

The political future

It will be difficult to predict the outcome of the coming political struggle in Indonesia. There are three or four major players which could rally enough support to take over government if the promised election would take place. And some kind of personal change will be very likely, by true free elections, an election in the peculiar Indonesian system or by simply putting a strong figure in command by the armed forces.

The mostpowerful person in Indonesia is without doubt minister of defence and CoS, general Wiranto. General Wiranto has at the moment the support of the defence forces, he enjoys the respect of the socalled Islamic faction and the nationalistic faction. The existence of both factions does not mean that the army is divided it only gives a rather crude indication of preferred policies which exists in the army.

All changes in Indonesia have to be approved by the army. They are the most important power factor and the decisions are born out of a kind board of directors of the most important people in the defence forces. The influence of Wiranto in this group is considerable, especially because he could eliminate the closest and probably the most ambitious allies of Suharto out of the most important positions in the forces. For example the son-in-law of Suharto Lt.-Gen. Prabowo who was the commander of Kostrad and the commanders of other elite units like Kospassus and of the Jakarta army district.

At the moment it seems as Gen. Wiranto does not have any political ambitions. The goal of Wiranto and the army is to preserve the unity of Indonesia and make any change as peacefull and gradual as possible. Any violence and revolution-like activities will be suppressed by the army.

The peculiar Indonesian form of democracy will try to implement this gradual change. They will get the support of the defence forces in this course of action. The candidates who want to become the next president are Amien Rais, Emiel Salim, Golkar chairman Harmoko, Megawati Sukarnoputri and possibly Abdurrahman Wahid. The candidates have all some kind of popular support but the problem with some of them is the inability to transform the popularity in to political power. Especially Rais and Megawati are hit by this problem.

Amien Rais is the leader of the city based muslem organisation Muhammadiya. He has played an important role in the resignation of Suharto. He is somewhat of an opportunist and populist. He used the possiblilities of this crisis the excell his case. He was a member of the new alliance who had a shadow cabinet. He supported the students in their demonstrations. And he rallied his members to take part in several big other demonstrations. The speeches of Rais were moderate and acceptable to the majority of the Indonesians but his writings show a different person. He is a much more fundamentalistic writer, he agitated against zionism, imperialism, westernization and secularization. Rais has a lot of support but his policies could be unacceptable to the defence forces and the world community.

Emiel Salim is a former minister and a candidate of the vice-presidency. He is moderate in his policy but lacks the support to make a succesfull pass at the presidency.

The chairman of the Golkar party, Harmoko, was also active in the resignation of Suharto. He was a close ally of Suharto and one of the last to demand his resignation. The normal very loyal Golkar had to preserve their authority and that was the major reason to join the movement against Suharto. Harmoko could eventually get the support needed to become the next president. He has the right political and military connections to become a promising candidate.

Megawati Sukarnoputri, the daughter of former president Sukarno, has been one of the first and clearest opponents of the Suharto regime. She already tried to become president in the last election. This was countered by some rather unfriendly acts of the Suharto regime. She did not receive enough support in the elections and was rather quiet in the recent demonstrations and activities against the Suharto regime. Beside the failing of Megawati to be an active player in recent demonstrations, she never had a lot of support in the countryside and used probably most of the goodwill in the last elections to be a viable candidate in the next elections.

The last and most doubtfull candidate is Abdurrahman Wahid the leader of Nahdlatul Ulama, the largest muslem organisation in the country. The Nahdlatul Ulama receives most of its support out of the country side and they have been very reluctant to support the demonstrations and the resignation of Suharto. Wahid is very good strategist and kept his cards close to his chest. The moderation of Wahid and his organisation, the connections with the military and the backing of a large organisation could place him in a promising position to become the next president. But he could prefer it to maintain a background position and support another candidate.

It will be difficult to predict who will win but all candidates have conform to the ideas of the defence forces of a gradual transition of Indonesia to a more open society with a more western like administration and legal system. In essence the Indonesian unity and identity have to be preserved and the nation/government and economy reconstructed to bring prosperity to all Indonesians.

Asian addition

The economies and financial situation of South East Asia is still in depression. The growth figures of most countries have shrunk to a couple of percents at best. A number of countries will even experience shrinking economies. The currencies in the region have not made any progress to their old levels. The Asian crisis is more severe and more difficult to eliminate than was expected.

The IMF policy to demand political stability and to introduce western-like financial legislation, accountancy rules and government spending in combination with financial support packages will create a better business climate and growth prospects in the future but it is not enough to solve the crisis.

The depressed economies and devaluations of the curencies will be difficult to turn around. The region is highly interdependent. This means that the whole region must see an improvement to get out of this situation.

The most important economic partner in the region is Japan. Japan is the investor, lender, technology provider and customer of the Asean countries. Asean is an organisation in the Pacific-rim area of which nearly all countries in that region are member or associate-member.

But not only the Asean countries are victim of crisis, also Japan is hit by a crisis, however of different character. Lagging consumer spending, economic stagnation, banks with bad loans and an indebted and distrusted government are the problems of Japan. Japan could make a turnaround if the government would introduce a viable long term government policy on taxes, fiscal and criminal legislation, the elimination of the Yakuza(Japanese maffia) involvement in the economy and changes in the bureaucracy. Japan has all requirements to become an economic healthy country, the people have the highest amount of savings in the world and their industrial capacity is first class.

Japan is the linch-pin to the economic improvement in the Asian area. If Japan brings its house on order it could become a market to the struggling Asian economies. The well being of Japan is also of importance to the world economy, if Japan would experience a serious economic crisis, the whole world would feel it. The recovering of Japan would start a cyclical improvement all around Asia. With the additional benefit that the Asian countries could pay back the loans to Japan which is the biggest lender and investor in Asia. It would therefore be in Japan’s intrest to support Asia.

If Japan implements the above mentioned measurements it would become the powerhouse it was before the crisis. As an economic worldpower it could help the other Asian countries in the economic recovering. With a strong Japan, international support to the Asian countries would make much more sense.

As the crisis in Asia is for a large part the result of overborrowed companies which cannot fullfill their financial obligations, the only solution is to revitalise the companies. This has to be done by the rescheduling of debts, the reorganizing of the banking system, the stabilisation of the currencies and the creation of national and international markets.

The Asian countries with currency and other economic problems have therefore to do their share to get out of the crisis. They have to implement reorganisations in the business community, especially the financial sector, introduce fiscal and account legislation, eliminate bureaucracy, corruption and monopolies and create a stabile political and economical climate to attract international investors.

Standaard
May 1998

May 1998

May 1998

Business management, a short summary

The company

The society has demanded the creation of companies by individuals and also by state organisations. The goal of the companies was to fullfill the several demands and needs which exists in a modern society. Individuals sensed a chance / opportunity and governments saw that there was a need to be satisfied in the society.

In the (social)-capitalistic world, which prevailed after the fall of communism, the companies have to be at best profitable or at least cover all the costs. Especially the companies in the private sector have to be profitable. They have to deliver a certain return on investments or capital to guarantee the continuation by the management / owners.

A very general description of the activities of company can be described as follows. A company is selling a product, this can be a physical product or a service offered to a customer. This product has to have a demand in the market. The nature of the demand has to be understood and researched. The product has to be developed and evaluated. The product has to be produced, marketed and sold. After it is sold and delivered most products demand a kind of after-sales support service.

This is in short the cycle of a company. A company has become an advanced organism to be succesfull in this cycle. Several departments have been created to do the job as good and fast as possible. But all of those departments are liable to be to focused on their own little part of the business or to make a mistake. This has to be prevented.

This article will deliver some ideas and thoughts about the product cycle in a given company. The company delivers specialised, high value, products. The approach given in this article is also valid for mass-market, low value, products but the R + D, Research + Development, and marketing departments require with these products a little different approach.

A point to think about

The starting point of a company is its vision. Before one can do something there has to be a guide after which can be acted. This is not necessarily a description of the activities or products but it will deliver a better understanding of the company.

You could think about one of the following proposals. As a company you want to improve a certain condition in the world. You want to make life easier. Or you want to be the technical leader in the community. Or, very basically but why all companies start, you want to make a living. With other words a certain profitability has to be achieved to make it worthwhile.

After the general direction is established you move to implement the vision into a strategic plan. The strategic plan will already consider the activities you are going to do. A synergy has to be created between the available means and the goal you want to reach.

The strategic plan demands the creation of a tactical plan. Where as the vision thing is the responsibility of the board of directors, CEO, CFO and COO level, the strategic plan has to be formulated by the board of directors with support of the management of the several departments. The tactical plan is in need of influences of an even wider group, essentially the people who have to do the job. The R + D, marketing, production, sales and also the bookkeeping/controlling departments will have to participate in the tactical plan. They know what is possible and what will be economically viable.

The early inclusion of the people of the workfloor and the ones who are in immediate contact with the market will secure an opportunity to participate on present developments and limit unsuccessfull adventures into to good to believe projects.

The tactical plan will give an lay out of the actions which are needed to select a need in the society, to develop a product which will fullfill that need, the development and implentation of a focalized marketing campaign which is aimed to customize each product and finally the actual sale and delivery of the product. This has to be added by an after-sales support plan to react on dissatisfactions in the market and research to solve shortcomings and introduce new and attractive additions to the product. All these actions should ofcourse fullfill the demands of efficacy, to keep the cost to an absolute minimum.

The implementation

The R + D and the marketing department should assemble two task forces to respectivily observe and survey the market to look for hidden needs and for shortcomings at existing products.

To introduce new and exiting products it is necessary to observe the market or better the people and find out what they need but what does not exist yet. Socio-Psychological research into the behaviour of people has to be executed to find out what is missing. The involvement of the R + D department is necessary to evaluate if it is already existent in one or another way or if it is technically feasible.

Beside the work for the development of a new product the second task group with support of the sales department should examine the acceptance and use of the existing products. Production faults and possible improvements should uncovered as soon as possible to maintain and even improve the market chances of the product.

The company should try to introduce a three step product cycle. In step one, the existing product is marketed, in step two, an improved product with already some characteristics of the new development should be marketed and step three, the new designed product of a new generation should be marketed. It is important to keep ahead of the market. The three-step system forces you to keep up to date and deliver the best available on the market. And it assures that your competitors are not able to copy and market your product at a better price.

Finally the marketing department should market your product in such a way that it creates a brand name, recognizeable by all parties in the market. The creation of brand name will deliver a product the market wants and nearly automatically picks it if they see / want it. This will also limit copying of your product.

Beside the creation of a brand name every product should be offered to the right customers. Customization of products will tie the customer even closer to the product. A respected name should only cover one group / sector in the market. Every move to widen the group will mostly result in trade offs which will lead to a loss of original customers. The old customers will get dissatified but also a large part of the new customers will view it as unsatisfactory.

Conclusion

It is demanded from the management of a company to keep ahead of the market or better your competitors. The first condition to reach that is to offer a better product at a competitive price.

A lot can be done by a proper management of the company. The management process of vision – strategy – tactics should be taken care of. The financial side of the company should not get all the attention but also the productive and related parts should receive attention. The interaction between all parts of the company secures its existence.

The product and the products in the pipe line should be viewed as the centre of the company. They are responsible for the earnings of a company. The R + D, production, marketing and sales departments play an equal important role in the company.

There should be a lot of interaction in the company to optimise the production cycle. The development of new products demands the knowledge of R + D, marketing and the sales departments. The actual development / design needs the services of R + D and controlling departments. And at the sales and after-sales support of the product the Sales and Marketing departments are the natural partners.

All departments have their own tasks in which they should excel but the internal cooperation is just as important. The result of increased cooperation will not only be an increase in returns and creativity but it also will improve the business climate.

The company who wants to be successfull in the next millenium should be lean. But not that lean. A little bit of fat should be left to have some extra energy left to get the right product to the market. A company to lean will not have the stamina to launch the second and third cycle of the three-step production cycle we described above.

If to much attention is granted to the financial side, the search for new products and improvements on existing products will be viewed as a to expensive exercise. You should maximise the returns of each product but not to the level that competitors get an advantage out of a delayed introduction of new products. Therefore always follow the path of the three-step production cycle. Missing one cycle will increase the difficulty of doing business. It will not only require a change in the marketing and sales plan but it will degrade the company into a follower instead of the business / technology leader.

Standaard
April 1998, II

April 1998, II

April 1998, II

Economy and financial affairs

The economy

The world economy has been influenced by the Asian economic downturn. The problems which have come down on South Korea, Thailand, Malaysia, Indonesia, Philipinnes and to a lesser and different way in Japan will suppres the worldwide economic growth by nearly a percent.

The measures taken by the countries in the region, with support of the IMF, have already delivered some improvement. The fall in currencies and the stock market have been stopped and the stocks could regain a part of the value they lost in the last half year. The exceptions are Indonesia and Japan. The Indonesian government is hesitating to implement the harsh measures needed to stimulate the economy. And Japan fails to regulate the financial industry and to boost the economy. In both countries there is a lack of trust with the people and the international investors that the government is serious about the policy they need to introduce. They are afraid of window dressing by the governments.

If Indonesia and Japan finally do the right things the whole Asian-Pacific region could start to rebuild the economy and become again the economic tigers they used to be. The third and certainly the fourth quarter of 1998 will therefore see some substantial improvement in the economies of the region. It will take however two to three years to get back at the position in which they were before the Asian crisis.

The other Asian countries like China, India, Pakistan, Taiwan and Vietnam were able to keep their economies going on and are expected to grow in 1998 between 5 and 8 %. This stability have been an anchor to the countries in trouble and will continue to be in the future.

As the majority of the Asian countries could stabilise their economies, the other parts of the world have overcome the first shocks of the Asian crisis and are back on the winning track.

The economies of South America are the exception. The policies taken to limit the influence of the Asian problem will limit the economic growth to 3,4 % in 1998.

The problems in Africa are not so much connected to the Asian problems but are more or less home-made. The natural disasters and the several armed conflicts limited the growth last year to 3,2 %. The African economies are however expected to bounce back and a growth is expected in 1998 of 4,6 %.

Russia is also to see more growth in 1998, 1 % against 0,4 % in 1997. The economy will slowly grow out of the problems which were inherited after the collapse of communism. Russia has to bring its fiscal and tax policy and collection in order to create a growth boost in the future. All other necessary factors to be successfull are already present in Russia. If they can get there act together the economic development in Russia can be even more impressive than the economic growth of the Asian tigers in the last two decades.

The East European countries also have felt the influence of the Asian crisis. But they could handle the consequences and turn the economy in the right direction. The economic growth for the region in1998 is expected to be around 2,9 %. Some countries have still a lot of difficulties in getting their economy on order but especially Poland, Hungary and even the Czech republic will see a healthy growth figure in 1998.

The European economy will be among the better performing in the world. An expected growth of 3 % for 1998. The economic cycle will turn in Europes favour. The impact of the Asian crisis have been less then expected. Every improvement in Asia will on the other hand only improve the European figures. The high unemployment figures will be reduced in the coming years. The implementation of the single currency and further integration and expansion of the European Union will prove to be other factors of growth.

Finally the U.S. economy will continue to be growing. The Asain crisis have come on the right moment for the U.S. economy. The necessary raise of intrest rates to temper the fast growing economy and the threat of inflation could be circumvented by the reduced demand out of Asia which tempered the growth a little bit. The economic growth in in the U.S.A. in1998 will be around 3 %. This means a stabile, balanced and sustainable growth for the future.

It can be concluded that the overall economy is in a very good shape. The U.S.A and Europe will see more growth in the coming years. Any reduction in Asia will be absorbed by Europe. The growth in the European Union, Eastern Europe and Russia will undo all discomfort out of Asia.

Financial affairs

If the majority of the economies in the world continue to grow this will be good for the companies in the world. The growth in earnings and profits will be somewhat lower than in 1997 but this is more because of lesser possibilities to reduce costs than of a lower demand.

We therefore upheld our forecasts on the market. The bull will go on in 1998. The incredible rise of the first three months will not continue at the same pace in the next nine months. The stockmarkets will see a more volatile behaviour in the second and third quarter of the year. A correction will be very likely in the coming months. Probably at the end of the second quarter. The 10 to 15 % correction will be recovered in two to three months. The U.S. and European indexes will probably see an increase of 20 % and 35 % at the end of the year.

The growth will be widespread over several sectors. Within each sector there will be however some companies who will stay behind. Stock picking will be very important in the coming months.

We upheld our advice of January II, 1998. The majority of the companies selected in that report will continue to outperform the market. It covers the most important sectors which will see growth.

There are still some opportunities left to invest. Beside the stocks we listed in January II, 1998, the following sectors in the U.S.A. could prove to be attractive. The office furniture, the chemical, heavy industry and leisure industry could deliver some outperforming companies. But be aware there are a lot of underperformers around.

We like Minn. Mining & Mfg. and Ikon in Business supply. In the chemical sector, Du Pont and Monsanto. Even the heavy industry could offer some improvement with companies like Deere, UCAR International and Danaher. Finally in the leisure industry we like Sun International, Starwood, Premier Parks and Steiner Leisure.

The European stock markets are covered well by our advice of January II, 1998. The problem are the Asian stock markets, they will not be outperformers in the second quarter. A number of South Korean and Hong Kong companies could make profits up to 50 + % in the first quarter, the problems in the area are far from solved. New acquisitions are therefore not advisable in the second quarter.

 

 

Standaard