TR EMERITUS

By Yukia Hayashi from Wall Street Journal The election victory of Japan's main opposition party will bring many new faces to a long-staid political scene, a change that will give considerable clout to a familiar figure: Ichiro Ozawa, who led the party until May and helped to orchestrate its rise. The Democratic Party of Japan captured the lower house of parliament Sunday in part because of the strategies of Mr. Ozawa, 67 years old, who now works as a top aide to party leader and likely new prime minister Yukio Hatoyama. "In effect, this is going to be an Ozawa administration," says Eiken Itagaki, a political analyst who has written several books on the DPJ and Mr. Ozawa. "Mr. Hatoyama and other leaders will be obliged to listen to what he wants." Mr. Ozawa's aide referred questions to a DPJ spokesman, who said he had no comment. With the backing of many DPJ loyalists, Mr. Ozawa will have a strong chance of implementing policies he has long promoted, including lessening Japan's traditional reliance on the U.S. and implementing costly social programs such as an allowance to all families with children. Some analysts say Mr. Ozawa should be given an important cabinet position to dispel any impression that he is running the show from behind the scenes. He may prefer to stay offstage, however. "Mr. Ozawa will probably want to forgo a formal position in the cabinet and focus on preparations for the upper-house elections [in July]," says Fusao Ushiro, a political-science professor at Nagoya University. "Becoming a prime minister isn't his ambition, even down the road." Mr. Ozawa stepped down as DPJ president in May after his top aide was indicted for violating political fund-raising rules, though he denied wrongdoing. But he has remained key to the party's election planning. He picked a number of Sunday's victorious candidates, trained them and matched them with opponents in ways that played up their strengths and stirred voter interest, political analysts said. Young social activists often were thrown after incumbents. In a Tokyo district, Ai Aoki, a 44-year-old former day-care teacher, successfully took on Akihiro Ota, the 63-year-old head of New Party Komei, the coalition partner of the ruling Liberal Democratic Party. In Gifu, in central Japan, Masanao Shibahashi, a 30-year-old former bank loan officer, ran against with Seiko Noda, 48, one of the two female ministers in outgoing Prime Minister Taro Aso's cabinet. The DPJ was already expected to perform strongly against the LDP, which has dominated Japanese politics for decades and presided over a long economic decline and suffered from a number of political scandals. Still, analysts said about 70 of the 193 seats it gained in the lower house came in part from Mr. Ozawa's guidance. "When it comes to election strategies, no one in Japanese politics comes even close to Mr. Ozawa," said Hirotada Asakawa, an analyst who has written books about Mr. Ozawa. Takatane Kiuchi, who defeated an LDP incumbent in Tokyo Sunday, prepared for the elections under Mr. Ozawa's guidance. "People call him 'god of elections' but a lot of what he says is quite basic," says the 43-year-old former investment banker who once worked for Merrill Lynch. "He tells you to greet voters at train stations every morning and visit community leaders frequently." Mr. Kiuchi said his goal as a politician is to help rebuild Japan's semiconductor industry through public funds and restructuring. "When you are a newcomer with no baggage on your back, you can do a whole lot," he says. The Japanese media have nicknamed the newly elected lawmakers "Ozawa children," a reference to "Koizumi children," a group of young politicians mentored by former Prime Minister Junichiro Koizumi who were swept to office in the last lower-house election in 2005. Most of them were defeated by DPJ candidates in the latest elections. Mr. Ozawa started out as a conservative politician who over decades gained influence within the LDP. He left the party in 1993 amid an internal power struggle, and helped form a coalition government made up of small parties. That government lasted only 11 months before the LDP returned to power. In 2003, Mr. Ozawa joined the DPJ and soon became its leader. He led the party to a victory in upper-house elections in 2007, accelerating the LDP's decline. Source: Wall Street Journal   EDITORS' NOTE: The Temasek Review is a paid subscriber of the Wall Street Journal  Read More →

From our Correspondent During a recent dialogue session with Minister Mentor Lee Kuan Yew, famous Singapore writer Catherine Lim posed him this question: "Sir, in the event of a serious threat of a freak election, would you do the unthinkable, that is, send in the army?" (read report here) Catherine Lim was referring to the infamous remark made by MM Lee during an interview with Straits Times in 2006 in which he threatened to send in the army should the PAP lose power via a "freak election" one day: "Without the elected president and if there is a freak result, within two or three years, the army have to come in and stop it." Perhaps realizing the public backlash his words had generated, especially among young Singaporeans, MM Lee was less forceful in his response this time. The state media found fit to publish his entire answer in an obvious attempt to salvage his battered image as an authoritarian leader. However, MM Lee did not answer Catherine Lim's question directly. Instead, he sidetracked it very cleverly and tried to placate his detractors by displaying his democratic "inclinations" in a highfalutin manner. MM Lee claimed the PAP has maintained "a system which gives any opposition the opportunity to displace" them peacefully. The President with blocking powers was put in place to prevent the opposition from depleting the reserves if they come to power. He added: "We expect that if we are voted out, to stay out, and hope that within one term, that new government, incompetent and unable to deliver, will be out. And there's enough core competencies and the funds to enable a fresh PAP government to revive the system." At the end of the day, MM Lee still haven't answered Catherine Lim's question: will he send in the army in the event of a "freak election"? Throughout his entire "answer", he did not touch on his veiled threat to use the Singapore Armed Forces to subvert and overthrow a democratically elected government of Singapore voted into office via a "freak election" which brings to the mind the key question of whether SAF owes its allegiance to the people of Singapore, the PAP or MM Lee personally. Singapore is a democratic republic, not a communist state like China or a feudal dynasty like Saudi Arabia. The PAP is only a political party. It has to play strictly by the rules. Whether the election is "freak" or not, it is up to the people who decide and not the PAP or MM Lee. If Singaporeans feel that the PAP is unfit to rule, they have every right to vote them out. Apparently, MM Lee doesn't think so. Contrary to what he had said about the PAP deserving to be voted out of office should it become incompetent, he certainly don't believe in a peaceful transition of power. In the aftermath of the 2006 elections, he said: "Please do not assume you can change governments. Young people don't understand this." Young Singaporeans really don't understand MM Lee's insistence that only the PAP is capable enough to govern Singapore and an opposition government will lose our hard-earned savings in five years. After all, the PAP managed to lose more than 40 billion dollars of our reserves via Temasek and GIC's failed risky overseas investments and till today, we are still clueless of our exact losses because it serve no "strategic purpose" to reveal them according to a PAP minister.  Read More →

By Eugene Yeo, Consultant Editor [In this 3-part series, Eugene Yeo sets out to debunk the three most pervasive misconceptions of HDB flats: - 1. Singaporeans own the flats, 2. The flats are affordable and 3. Rising prices lead to wealth creation] MYTH # 3: Rising prices of HDB flats will lead to wealth creation for Singaporeans. TRUTH: It will have a negative wealth impact due to higher financial liabilities according to a NUS study done by Abeysinghe and Gu Jiaying In a reply to question from a MP who asked if a cap should be imposed on rising HDB resale prices during a Parliamentary session in July, Senior Minister of State for National Development Grace Fu noted that HDB flats remained affordable to Singaporeans. She said: "'HDB flat prices should be a reflection of Singaporean's wealth and it is "not a bad idea" for prices to increase steadily, especially for those holding onto negative assets bought in the previous market peak in the mid 1990s.'" The ruling party has never failed to remind Singaporeans that it has brought about high home ownership and rise in asset value under its rule. During a speech given to Kim Keat residents in 1995, then Prime Minister Goh Chok Tong said: "By how much have we increased the value of your assets? At the start of the upgrading, 3-room flats in the precinct commanded less than $80,000 in the open market. Today, I am told, housing agents are offering as much as $160,000. Your assets have doubled in the last three years. All of you made the right decision, by supporting the upgrading programme and voting strongly for it." [Source: http://stars.nhb.gov.sg/stars/tmp/gct19950115.pdf] Now, a 3 room flat in Kim Keat is fetching as much as $300,000, nearly double its value ten years ago. Has the government created wealth for Kim Keat residents? If only things are as straight-forward on paper as in real life. Suppose a Kim Keat resident bought his original 3 room unit at only $100,000 from HDB. He had borrowed a 80% loan of $80,000 from HDB and has almost completed repaying it. He would have made a handsome gross profit of $220,000 if he sells off his flat now. However, in today's market, he will need to fork out at least $220,000 or more for a similiar 3 room flat which means that not only is he unable to capitalize on his gains, he will be plunged into greater debts. Of course, this is a superficial way of looking at things. Common sense tells us that in an inflationary market like this, everything is getting more expensive which puts a limit to the amount of wealth one can generate from selling off his assets. A study done by two NUS economists, Tilak Abeysinghe and Gu Jiaying, shows that "past episodes of house price escalations have led to a substantial erosion of housing affordability" especially in the private sector. (source: NUS SCAPE) Higher property prices does not necessarily translates into higher wealth for Singaporeans. Abeysinghe and Choy in their book - "The Singapore Economy: An econometric perspective (2007)" have examined the wealth effect of property prices on consumption in Singapore and found that the wealth effect is very much absent. In the absence of cheaper suburbs which offer quality living, the only way for Singaporeans to unlock property values is, apart from emigrating, to downgrade to smaller units. This does not seem to be occurring on a large scale which explains why the 'housing wealth effect' on consumption is insignificantly small. Higher property prices, instead of creating a wealth effect, exert a significant and negative "price effect" on consumption expenditures leading to a fall in the average propensity to consume. As house prices go up, the increase in the value of housing assets is accompanied by a concurrent rise in the financial liabilities of households, in the form of higher downpayments for purchase of residential properties and burgeoning housing loans. Due to the limited avenues for liquidating property assets, households have to build up sufficient financial assets to smooth the profiles of their lifetime consumption of non-housing goods and services leading to a diminishing in domestic purchasing power. It is a common perception that Singaporeans living in HDB flats are leaving "enhanced assets" to their children. This does not appear to hold true as HDB flats are 99 year old leasehold properties - their value will decline with time. Regression estimates for HDB 4-room flats transacted between May and July 2008 show that a 10-year gap between two flats lead to about 12% price difference with the older one selling cheaper. If the 99-year lease effect also comes into play, the prices may drop substantially, perhaps to the discounted present value of the remaining stream of rental incomes, and such properties may not generate much bequest value to children. Not only will "asset inflation" not generate wealth for Singaporeans, it will lead to a vicious cycle, plunging more and more people into lifelong debts. Mr Paul Yip, Nanyang Technological University (NTU) associate professor of economics issued a recent warning that Singapore risks 'severe asset inflation' during the economic recovery and urged the government to act now to control the prices of HDB flats. (source: Straits Times) Prof Yip noted that the US government has lowered interest rates and expanded its money supply in a bid to avoid a repeat of the Great Depression. But post-recession, the government may fail to shrink the money base back to pre-downturn levels, he said. In that case, excess US dollars would flood the market. 'For Singapore, there may be an inflow of money from the US, increasing the money base and therefore the money supply... When the recovery comes, there will be wage inflation and consumer price index inflation, and this will fuel asset inflation......'Rents will rise and then people will be able to charge even higher rents, causing a vicious circle,' Prof Yip said. HDB flats are meant to be cheap and affordable to ordinary Singaporeans. Whether it generates wealth for us in terms of fixed assets is of secondary importance. It is time for the government to return to the basics and ensures that Singaporeans are not over-committing themselves to their housing loans.   References: 1. The Singapore Economy: An econometric perspective (2007) by Abeysinghe and Choy. 2. Limited income and housing affordability in Singapore (2008) by Abeysinghe and Jiaying Gu. 3. The Economic prospectus of Singapore (2007) by Winston Koh and Roberto Mariano   Other articles in the series: >> HDB flats will be "severely unaffordable using the Median Multiple as a benchmark for housing affordability" >> Part 1: Singaporeans own their HDB flats >> Part 2: HDB flats are affordable to most Singaporeans   Related articles: >> HDB uses unknown “benchmark” to assess affordability of flats >> High cost of HDB flats a key reason for low birth rates by Jeremy Koh and Eugene Yeo >> Mass market buyers now inflating property prices by Jeremy Koh >> Record home sales: a boom or bomb in the making? by Jeremy Koh and Eugene Yeo   EDITORS' NOTE: If you like our work and would like to support us, please transfer your donations via paypal to our account ([email protected]). Any amount will be greatly appreciated! Alternatively, you can also help boost our advertising revenue by clicking on the ads displayed. Thank you! 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