News brief - May 2003 edition

Corporate governance in Asia; Russian progress on reform; Private investment in Africa; Economic indicator points down; Unemployment slightly up

Corporate governance in Asia 

The Asian Roundtable on Corporate Governance, organised by the OECD in partnership with the World Bank, met in Kuala Lumpur, Malaysia, in March to establish regional reform priorities and to develop a White Paper on Corporate Governance in Asia. Scheduled for release in Tokyo on 11 June 2003, the White Paper will set forth a common policy agenda for corporate-governance reform in the Asian region.

The 26-28 March meeting in Kuala Lumpur (the fifth in a series of OECD-organised roundtables, which began in 1999) gathered 28 regulators from 13 Asian countries, plus 35 regional and international policy makers, experts and business leaders.

Four areas were identified for priority reform: minority-shareholder protection, bank governance, improved enforcement and enhanced corporate-governance culture.

For instance, the prevalence of closely-controlled businesses in Asia places minority shareholders at risk of exploitation. Such exploitation occurs when controlling shareholders and managers strip assets from the company through abusive self-dealing, pay themselves excessive compensation, engage in insider trading or act in their own interests to the detriment of the company.

Meanwhile, good bank governance, apart from encouraging good corporate practices, increases returns to the bank’s own shareholders too, as well as promoting stability in the financial system.

One problem is that improving corporate-governance laws and regulations has proven to be easier than enforcing the laws and regulations. In fact, a widening gap is opening up between rules and implementation in many countries.

Using the OECD Principles of Corporate Governance (see link 1 at the bottom of the page) as a framework, the forthcoming White Paper on Corporate Governance in Asia will identify remaining challenges and make concrete recommendations to guide policymakers and technical assistance providers.

“The White Paper’s recommendations will carry weight because they represent the views of leaders from the region,” according to Datuk Ali Abdul Kadir, Chairman of the Securities Commission, Malaysia, co-host of the Kuala Lumpur Roundtable.

Russian progress on reform 

Russia has “already travelled a great part of the road towards economic reform,” thanks in part to co-operation with the OECD, said Alexei Kudrin, Russia’s deputy prime minister and minister of finance, at a meeting of the OECD-Russia Liaison Committee held in Paris on 28 March.

Of the 70 countries with which the OECD maintains informal ties, OECD Secretary-General Donald Johnston highlighted Russia, calling the country’s economic management “outstanding”, and cited its strong growth in the first quarter, despite the declining global market. Amid the economic uncertainty due to the war in Iraq, Mr Kudrin said that Russia had developed the necessary infrastructure to avoid exposure to any fluctuations in oil prices, including mechanisms to increase its financial reserves.

He was also hopeful that his country’s oil contracts in Iraq would be honoured by any future Iraqi administration. Mr Kudrin also affirmed that a government commission on further co-operation with the OECD would soon be established.

Private investment in Africa 

“Africa is awakening to the realisation that its progress lies in partnership … we have got to be partners against all the evils emanating from the legacy of our history.” These were the concluding words of Mozambique’s president, Joaquim Chissano, who on 4 April became the second African head of state to recently visit the OECD. Mozambican President Chissano followed Senegal’s Abdoulayé Wade who in February 2002 came to participate in the launch of the Development Centre/African Development Bank’s first African Economic Outlook (see Book reviews).

Speaking to an international audience of diplomats and experts, President Chissano noted the OECD Development Centre’s contribution “to the strengthening of cooperation between Africa and the industrialised countries” in the interest of African development. He said that such co-operation was essential to strengthening the New Partnership for Africa’s Development (NEPAD, see link 2 at the bottom of the page), especially in the areas of peace, democracy and good governance. The NEPAD is an initiative launched by African heads of state to break the cycle of underdevelopment on the continent.

The Mozambican president emphasised the role of private investment in infrastructure and pointed out the need for the state to create an environment which would encourage and reassure such investment. Using his own country as an example, he brought the link between investment and stability into sharp relief, showing that post-civil war reconstruction could only be undertaken once the private sector had faith in the ability of the authorities to protect investment.

Economic indicator points down 

The Composite Leading Indicator (CLI, see link 3 at the bottom of the page) for OECD countries published in April showed a drop of half a percentage point in February 2003, to 120.4 from 120.9 in January, a six-month rate of change that continued the downward trend first started in May 2002. Still, the CLI varied from country to country, though nearly all OECD countries, except for Italy and Japan, experienced declines.

The OECD CLI is designed to provide early signals of turning points (peaks and troughs) between expansions and slowdowns of economic activity, covering a wide range of key short-term economic indicators like housing permits granted, financial data, and information on stocks and orders, etc. A fall in the indicator suggests the possibility of a weak economic trend ahead.

In the US, the CLI fell by 1.5 points in February, with its six-month rate of change down for the second month in a row after two months of increase. Similarly, the UK’s CLI fell 1 point in February, whereas its six-month rate of change has fallen steadily since June 2002. In Canada, the drop in the CLI was by 0.5 point in February. Its six-month rate of change has been on the decline since May 2002.

France saw a sharp decrease in its CLI in February, as well as in its six-month rate of change. The CLI for Germany also fell after five months of increases, though its six-month rate of change has been in a slump for nine months. In Japan, February’s CLI remained unchanged, in keeping with its stable six-month rate. Italy bucked the trend; its CLI rose in February, as did its six-month rate of change.

Unemployment slightly up 

The standardised unemployment rate (compiled under International Labour Organization Guidelines, see link 4 at the bottom of the page) for OECD countries remained nearly unchanged at 7.0% in February 2003, albeit 0.2% higher than a year earlier. The rate has been holding steady at 7.0% since last October, and remains the peak figure of unemployment since 2000; it had previously dipped to 6.3% in January 2000.

In the European Union, the rate was 8.7% in February 2003, 0.1% higher than the previous month, and 0.6% higher than a year earlier.

The standardised unemployment rate in the US was 5.8% in February 2003, 0.1% higher than the previous month and 0.2 percentage point higher than a year earlier.

In contrast, Japan’s standardised unemployment rate fell slightly; it was 5.2% in February 2003, which was 0.3% lower than the previous month and just 0.1% lower than a year earlier. Over the twelve months to February 2003, the unemployment rate rose in France from 8.6% to 9.1% and in Germany from 8.0% to 8.7%. Conversely, the rate of unemployment in Canada fell from 7.8% to 7.4%. In January 2003, the jobless unemployment rate in Italy was 9.0%, the same rate as a year earlier (see Databank). And in the UK, over the twelve months to December 2002, the unemployment rate dropped from 5.1% to 4.9%.

©OECD Observer No 237, May 2003

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

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