Local businesses greet Obama with caution

Local businesses greet Obama with caution
Some are worried that a Democrat implies a shift to protectionism

By CHEN HUIFEN

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(SINGAPORE) Barrack Obama’s presidential win came as no surprise to the Singapore business community, which is largely positive on the change in US leadership but waits to see how the new man will manage the many challenges that await him.

Some are also concerned that having a Democrat president could imply a shift toward protectionism, as a great amount of attention is expected to be paid in fixing its domestic economy.

‘Whilst we expect President-elect Obama to focus on fixing the immediate domestic challenges that are weighing heavily on the American people and businesses, we would like to remain optimistic that his administration will reaffirm the US’s strong commitment to global trade,’ said Singapore Business Federation CEO Teng Theng Dar.

Local businesses are keeping their eyes on how foreign trade policies could pan out. To a certain degree, the Democrats are opposed to free trade deals and have spoken about revisiting the North America Free Trade Agreement.

‘I think we may see more insularism on the part of the US than under the Republican administration,’ said Singapore International Chamber of Commerce chief executive Philip Overmyer. ‘As far as international trade and free trade agreements, the expansion of American companies’ business outside of US go, I think we will see that it will be harder for them to do these.’

But Predeep Menon, executive director of the Singapore Indian Chamber of Commerce and Industry said that Mr Obama may be playing to the gallery by blaming free trade deals as the root of America’s problems. Now that the campaign is over, he is hopeful that the new US president would not reverse the trend towards freer trade.

‘It’s also in US’ own interest to do so because you may be importing a lot from the outside world, but American MNCs are also going overseas and making a lot of money,’ he added. ‘So I don’t think it’s as clear as shutting plants and stopping imports. The sense is that they need to keep channels open. However I think he will definitely want to try and force the emerging economies like China and India to open up faster to make it seem fairer for American companies.’

Echoing similar views, Bain & Co director Charles Ormiston said: ‘I do not anticipate that Obama will undertake overt protectionist measures, but I do believe he will be tested hard by key constituencies which helped to get him elected. I think his primary challenges will be domestic: health care, creating a bottom to the housing price drop, re-building and re-regulating the banking system, developing an energy and infrastructure policy and trying to reduce the large deficits (government and trade). This is an extremely full plate.’

A few are of the view that a childhood study stint in Indonesia would make Mr Obama friendlier to this part of the world. The Singapore Chinese Chamber of Commerce & Industry said it expects more attention given to Asean as a whole, ‘given Obama’s background’. Added EMC Corp Asia Pacific & Japan president Steve Leonard: ‘While it is early to predict the impact of his presidency on international trade, people will be carefully watching whom he will appoint to key cabinet portfolios.’

That domestic issues are of utmost importance to the US now is a no-brainer. And local businessmen agree that if it can address them, Asia and Singapore will grow in tandem.

‘It is clear now that there is no de-coupling of the US and global economies,’ said KPMG managing partner Danny Teoh. ‘So the faster he gets the US economy stabilised, the better it would be for Singapore and the world at large.’

The US is a key trading partner of Singapore, having signed a free trade agreement with the island in 2003. Between 2004 and 2006, bilateral trade grew 40 per cent to $90 billion.

Source : Business Times - 06 Nov 2008

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Investors must be mindful of risks, says SIAS

Investors must be mindful of risks, says SIAS

By CONRAD TAN

SINGAPORE’S small-investor watchdog yesterday reminded retail investors to beware of the different risks associated with various products when deciding whether to invest.

Investment instruments such as exchange-traded funds and structured warrants are rapidly gaining popularity among investors, but they carry various risks that need to be understood, the Securities Investors Association of Singapore (SIAS) said in a statement.

‘Risks associated with investing in these products include investment risk, market risk and liquidity risk,’ SIAS said.

Besides the risk of the investment performing poorly, there is also the risk of the issuer, market-maker or guarantor defaulting if their financial position deteriorates, it added.

Other products that are not traded on an exchange - such as contracts for difference, which allow investors to bet on movements in the price of an underlying stock or stock index - could pose additional risks to investors, SIAS said.

‘Such over-the-counter products are exposed to investment risk, market risk, liquidity risk, issuer risk and counterparty risk.’

Also, ‘the individual contractual terms may differ from issuer to issuer posing an additional dimension that investors should be alive to’.

Additionally, such over-the-counter products are not subject to the same standards of risk disclosure required by exchanges for listed securities, SIAS said.

‘Against the current market turbulence and rapidly evolving situation, it is important for investors to adequately understand the nature and all risks associated with issuer-led products before making investment decisions.’

The reminder from SIAS comes on the heels of the recent outcry by investors who lost money on structured products linked to Lehman Brothers after the US investment bank filed for bankruptcy in September.

SIAS said that before buying a product, investors should check whether the risks involved suit their risk appetite and investment horizon, and make use of the risk-profile analysis that financial advisers should perform for them.

Source : Business Times - 06 Nov 2008

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Entrepreneurship in an age of economic uncertainty

Entrepreneurship in an age of economic uncertainty

Right strategic decisions crucial, E&Y chairman tells awards function

By NISHA RAMCHANDANI

AS the economy struggles through tough times, entrepreneurs must recognise the challenges and opportunities that confront their businesses and respond accordingly to protect and improve the bottom line.

A cut above the rest: (from left) Award winners Sim Giok Lak, Sunny Verghese and Ong Pang Aik. They were lauded for their strong financial track records and ability to not only transform their business vision into reality but also to grow their businesses.
‘Given the looming economic uncertainty, entrepreneurial qualities will become even more critical - not just for the survival of business, but in further differentiating one’s products and extending market leadership by making the right strategic decisions,’ Ernst and Young (E&Y) executive chairman Ong Yew Huat said yesterday when announcing the three recipients of E&Y’s Entrepreneur of the Year (EOY) 2008 awards.

Ong Pang Aik, executive chairman of Lian Beng Group, was awarded EOY - Construction. Sunny Verghese, group managing director and CEO of Olam International, was awarded EOY - Commodities Supply Chain. And Sim Giok Lak, managing director of Zicom Holdings, was named EOY - Industrial Products.

E&Y tweaked the format of the awards this year to take into account the diversity of entrepreneurial activity in Singapore.

Finalists were judged on entrepreneurial spirit, innovation, personal integrity and influence, financial performance, strategic direction, and national and global impact.

The winners were selected from more than 30 nominees. One of the three will be named E&Y’s EOY 2008 Singapore at an awards gala on Nov 27 and will represent Singapore at the E&Y World Entrepreneur of the Year awards in Monte Carlo next year.

Wong Ngit Liong, chairman and CEO of Venture Corporation and chairman of the judging panel, said: ‘The panel was impressed by the business acumen, innovation and perseverance shown by each of the nominees. What differentiated the three winners were their strong financial track records, as well as their ability to not only transform their business vision into reality but also to grow their businesses, sometimes in the face of adversity.’

The major sponsors of this year’s awards are Credit Suisse and J Robert Scott Executive Search. The Business Times is the official newspaper for the awards.

Source : Business Times - 06 Nov 2008

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Credit crisis rolls back threat of rising US inflation: central banker

Credit crisis rolls back threat of rising US inflation: central banker

Plunging commodity prices have eased inflation pressures

(ATLANTA) A rising threat of inflation earlier this year ‘froze in its tracks’ in recent months as the credit crisis worsened, Federal Reserve Bank of Dallas president Richard Fisher said.

‘The impetus for rising prices came to a grinding halt as the credit crisis took grip and confidence evaporated,’ Mr Fisher said on Tuesday to a meeting of the Texas Cattle Feeders Association in Grapevine, Texas. ‘As the credit market congealed, inflationary momentum froze in its tracks.’

Mr Fisher and other members of the Federal Open Market Committee (FOMC) cut the benchmark interest rate last week to one per cent, trying to prevent a downturn in bank lending and consumer spending from triggering a global recession. He had dissented five times in prior meetings because of concern about inflation.

Plunging commodity prices, including a 55 per cent decline in the cost of oil since July, have eased inflation pressures. ‘I don’t believe we are likely to have sustainable deflationary impulses,’ Mr Fisher told reporters after his speech.

While cutting the main rate during the past 13 months from 5.25 per cent, Fed chairman Ben Bernanke has created six loan programmes channelling at least US$700 billion in cash and collateral into money markets as at Oct 22.

‘There are limits to what the central bank can do,’ Mr Fisher said. ‘Complementary action must now be undertaken by the fiscal authorities,’ including the new president elect.

The Fed’s efforts to unlock short-term credit markets, including buying debt directly from companies, showed signs of working, as interest rates on US commercial paper fell on Tuesday to the lowest in four years.

The Fed’s balance sheet may expand to US$3 trillion by year’s end, reflecting growth of various liquidity measures supporting banking institutions, Mr Fisher said. As at Oct 29, the Fed’s balance sheet was US$1.97 trillion.

Still, the US faces ‘an epic challenge’, Mr Fisher said. ‘We are navigating the mother of all financial storms.’

The US economy shrank at a 0.3 per cent annual rate last quarter, the most since the 2001 recession, the Commerce Department reported last week. Economists expect the slump to worsen in the fourth quarter.

A recovery in the US economy ‘will take time’, Mr Fisher said in response to an audience question. ‘I don’t see any economic growth in 2009. None.’

During the current quarter, the US is ‘likely to have negative growth’, he told reporters.

Labor Department figures are expected to show a drop of 200,000 jobs in October, according to a Bloomberg News survey of economists. — Bloomberg

Source : Business Times - 06 Nov 2008

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Property ventures: Popular has to watch its books

Property ventures: Popular has to watch its books

By EMILYN YAP

THE financial mayhem has affected almost every part of the economy but the pain has certainly been felt most strongly in the equity and property markets. Share values have plunged, real estate prices have dipped and most investors are keeping their feet dry from both fields.

It was therefore surprising to see Popular Holdings launch a rights issue last week. Not only is it trying to raise up to $22.2 million in a bearish stock market, most or even all of the net proceeds would go into property development.

While Popular is a household name when it comes to bookstores and education materials, it is a relatively new real estate player, having joined the scene in 2006 when the market was just beginning to pick up.

Popular’s fundraising attempt at this juncture is likely to fuel speculation about its ability to support its property investments. The company has put up more than $71 million in four land purchases so far.

The tightening credit situation is certainly not working in Popular’s favour. Banks have reportedly become more selective in extending loans, especially when the cooling property sector is involved. For small developers with no track record, loans are likely to come with more or tougher conditions.

Project financing

In fact, Popular’s move reinforces concerns that emerged as early as a year ago - that non-core developers which jumped onto the property bandwagon might have trouble financing their projects should the market head south.

It does not help that Popular has two construction projects eating into its resources - One Robin and 18 Shelford. One Robin is already open for sale and could bring in cash as development progresses. This in turn would help fund the construction.

Unfortunately, 18 Shelford will not afford Popular such a breather. Construction is underway but the development has not been launched for sale and will not be receiving any proceeds. This is where funding could get a little tight and some extra cash may come in handy.

Few details

Popular’s statement last week revealed few details on how proceeds from the rights issue would be used, save that they would ’strengthen the capital base’, keep its property development business ‘properly funded’, and allow it to be ’selective in timing its property marketing and sales activities’.

For now, Popular’s financials look sound. With cash and fixed deposits amounting to $45.3 million as at July 31, the group is more than able to settle the $13.7 million debt due within a year or on demand. Its net gearing ratio also rests at a comfortable 0.14 times.

Besides, Popular’s investments in One Robin and 18 Shelford are far from dire. At the very least, both are situated in Districts 10 and 11, locations which tend to be fairly sought after by both locals and foreigners.

On the whole, Popular is nowhere near a solvency crisis. But the rights issue does still send out a warning signal on the short-term liquidity of its property business.

While the foray may bring huge returns, it is also exposing the latecomer to large risks, forcing it to shore up its cash position. Popular will need to watch its books closely to make sure that such risks do not spill over and affect its core retail and publishing business.

Source : Business Times - 06 Nov 2008

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Credit checks cut risks if deferred payments return

Credit checks cut risks if deferred payments return

DPS has potential to create local version of sub-prime crisis, analysts caution

By KALPANA RASHIWALA

(SINGAPORE) When Ministry of National Development announced last week that it was suspending sales of state land through the confirmed list till June next year, jubilant developers lauded the swiftness of the government action that will hopefully stem the poor sentiment in the property market.

The head of a big property consulting group estimated that in some instances, up to 70 per cent of foreign buyers in luxury residential projects bought on deferred payment schemes in 2006-2007.
Some developers were also hopeful that the government will reintroduce the Deferred Payment Scheme (DPS), which was scrapped in October last year to deter speculation.

Under DPS, home buyers had to pay only 10 per cent, or more typically 20 per cent, of the price of the residential property they bought from developers.

The next payment would be made when the project was completed, perhaps two to three years down the road. Very often, buyers could make the 10-20 per cent initial downpayment using cash and CPF savings, without having to commit to a bank loan, which could be delayed till the project was closer to completion, when the bulk of the purchase price had to be paid to the developer.

Under a normal progress payment scheme, buyers have to secure a housing loan much sooner, as they are billed by the developer in stages, according to the progress of the project’s construction.

When DPS was scrapped in October 2007, many industry watchers said it had come too late as sentiment in the Singapore property market had already started to soften with the onset of the US sub-prime crisis.

And now, most property agents agree that restoring the scheme will help bring some buyers back into the market, especially foreign buyers - although not in as great a number as during the height of property fever in early 2007.

The head of a big property consulting group estimated that in some instances, up to 70 per cent of foreign buyers in luxury residential projects bought on deferred payment schemes in 2006-2007.

Buyers have to pay up to 5 per cent more under the DPS compared with the normal progress payment scheme. Yet the ease of making a small initial downpayment made buying attractive for speculators eyeing huge gains from disposing of their properties before the projects were completed.

However, other market watchers and analysts say a restoration of DPS could potentially create Singapore’s own version of a sub-prime crisis.

When home buyers purchase a property on DPS, without committing to any bank loan, there is no credit assessment done to see if they have the means to complete the purchase. So this scheme could draw less credit-worthy buyers who may have difficulty securing housing loans later when it is time to pay up.

If substantial numbers of buyers default and return their units to the developer, the banks that had extended loans to the developers may not be too happy.

‘The land loan and construction loan may be required to be priced differently because the risk has increased,’ as Savills Singapore’s director of marketing and business development Ku Swee Yong puts it.

Agreeing, the head of the major property consulting group said: ‘There will be implications for banks’ exposure to property loans extended to developers, and that was probably a major reason the authorities considered in scrapping DPS in the first instance.’

To be sure, DPS is helpful to genuine home buyers. For instance, an HDB upgrader who buys a private home under construction would prefer to sell his existing HDB flat only when the private condo he’s moving into has been completed; so DPS helps him to tide over until then, says Mr Ku.

But market watchers point out that DPS - because it does not entail credit checks - also has a tendency to draw speculators. ‘There’s a penchant for optimism, especially among the young. Whereas if you take a housing loan, you will be psychologically more aware of your financial obligations and tend to be more careful,’ says a property veteran.

To cut this risk of fuelling speculation, the DPS could be reincarnated but with modifications, suggests Savills’ Mr Ku. For one, home buyers making a purchase under the DPS could be required to sign up for a housing loan first, even if they need to make a drawdown only a few years later. ‘That way, the credit assessment is done upfront. And secondly, such home buyers will have to pay a penalty to the bank in the form of an admin charge of $3,000 to $6,000 if they decide to sell their property before the project is completed and not use the home loan or if they make an early repayment,’ Mr Ku says.

Another way to reduce the negative effects of DPS is to raise the initial payment from 10-20 per cent previously to 30 per cent, Mr Ku suggests. ‘That way, the developer would have collected more equity and that will provide a bigger cushion to protect the developer as well as its banks in the event of a default by buyers not able to hold on to their units,’ he adds.

Then there’s another view. The government should continue to keep DPS at bay and instead leave banks to offer innovative housing loans to home buyers that replicate the benefits of DPS - if it makes commercial sense to them. The interest absorption and zero instalment schemes offered by some banks highlighted in a BT article in September allow buyers to make a 20 per cent downpayment and then nothing until the project is completed.

Under such schemes, buyers have to sign up for a bank loan for the property, thus entailing a credit-worthiness check to ensure they are not dabbling in properties beyond their means. Afterall, nobody wants a sub-prime crisis here.

Source : Business Times - 06 Nov 2008

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Local hedge funds battered, but two thrive amid the wreckage

Local hedge funds battered, but two thrive amid the wreckage

Interest from US institutions not hit by crisis offers hope

By SIOW LI SEN

(SINGAPORE) While two hedge funds among the handful of Singapore’s homegrown fund managers playing in the big league stand out for their astounding successes, the others have been badly hit by the mauling of the stock markets and redemptions from anxious investors.

But there is a glimmer of hope, say fund industry insiders - interest from US institutions not burnt by the financial crisis is stirring again as values emerge from Asia’s battered markets.

The current situation is a far cry from last year when the independent fund managers here - bursting to capacity - had to turn away fresh money from institutions in the West clamouring to invest in high-growth Asia.

Artradis and Aisling hedge funds are the only local fund houses in the big league to have gone against the tide because of their unique strategy - trading arbitrage and Asian derivatives.

But others in the billionaire dollar stable like APS Asset Management are said to have been hit hard.

Founded by fund veteran Wong Kok Hoi in 1995, APS used to be the big daddy of the local managers.

In 2006, APS was managing over US$3 billion. Its assets under management have shrunk sharply, one source told BT.

Mr Wong is travelling and could not be reached for comment.

Target Asset Management as at end-October saw its total assets under management fall some 48 per cent to US$1.6 billion from US$3 billion at the end of last year.

Arisaig Partners at end-September has assets under management of US$1.2 billion, down from US$2 billion in February, according to its website.

Teng Ngiek Lian, Target fund manager, said the financial markets meltdown has been brutal on the industry though he is getting some comfort from his institutional clients who are not only staying put but also giving him fresh money to manage.

‘We believe this is a good time to increase equity investment in Asia as the long-term risk/reward ratio is favourable. After being soft closed for the past 11/2 years, the fund is now open for investment,’ said Mr Teng.

‘My family has added US$10 million investment in the fund last month,’ he said. Total family money in the fund is about US$30 million, down from US$50 million.

From the sub-prime crisis in August 2007 until end-October 2008, Target has seen a net inflow of US$59 million (inflows of US$647 million and outflows of US$588 million).

Industry insiders say it is not surprising to hear of funds which used to manage more than US$1 billion but now have US$250 million.

‘That’s absolutely possible,’ said Yingwen Chin, head of research at GFIA, a hedge fund consultant.

‘The indices are down an average 50 per cent - so that’s just down organically - and there will also be investors taking their money back,’ said Ms Chin.

As for hedge funds based here, while many are also suffering like their long only fund peers, two stand out for their astounding success - Artradis and Aisling.

Artradis is managing over US$4 billion, doubled from a year ago, while Aisling is managing US$2 billion, up from US$1.4 billion at December, said Ms Chin.

Ms Chin said Artradis is only one of four hedge fund managers in the region that she can think of with a strategy which works on arbitrage and so is not dependent on market directions, and Asian derivatives.

‘They have very unique skill sets which require understanding of Asian derivatives which is not well developed,’ said Ms Chin.

Source : Business Times - 06 Nov 2008

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UK fights back - but has it left it too late?

UK fights back - but has it left it too late?

Trade with S’pore could suffer as sharp recession looms despite rate cuts

By NEIL BEHRMANN
IN LONDON

THE UK Treasury and Bank of England are desperately trying to counter a deepening downturn in the British economy.

Outlook dims: Critics contend that the central bank has been far too slow in slashing rates and that they should fall to 2% in 2009 to counter a sharp decline in spending
As the UK threatens to slide into its worst recession since the early eighties, Singapore will not remain untouched. The UK imports more from Singapore than from any other South-East Asian country. In 2007 its imports amounted to more than £4.1 billion (S$9.7 billion), according to UK trade data. The UK is also Singapore’s second largest trading partner from Europe, after Germany - apart from being one of its biggest investors.

The cumulative stock of UK investment in Singapore amounted to £17 billion in 2005. The compliment is repaid as around two-thirds of all Singaporean investment into the EU comes to the UK. Then, there is the small matter of more than 700 UK companies being represented in Singapore.

The downturn has already started to hurt. According to Singapore’s latest statistics, total trade with the UK fell by 18 per cent to S$12.32 billion in the first nine months of 2008 from S$14.95 billion in the same period in 2007. That follows growth of 6 per cent to S$19.49 billion in the whole of 2007 from S$18.36 billion in 2006.

The UK economy shrank for the first time in 16 years between July and September, confirming that the UK has begun its recession.

Starting today, BT will run a series of stories on how some other countries - especially Singapore’s major trade and business partners - are coping with the financial crisis

Output fell by 0.5 per cent, according to the Office for National Statistics, a bigger-than-expected drop following zero growth in the second quarter. The unemployment rate has surged to 5.7 per cent, the fastest rise in 17 years. The news knocked UK shares and weakened the pound.

Eclectic reflationary economic policies comprising both monetary and Keynesian fiscal measures have thus become vitally important. The Bank of England has already begun to slash interest rates and a further 0.5 per cent decline to 4 per cent is expected this week.

The bank has purchased toxic debt from weak banks to ease the money market to encourage banks to lend. The government has also bailed out several leading banks by partially nationalising them.

Bank of England governor Mervyn King has warned about impending recession. The combination of lower interest rates and fears about the economy have caused sterling to tumble by 25 per cent against the US and Singapore dollars and slide against other Asian, European and other currencies.

This devaluation from exceedingly overvalued levels, will help UK exporters and will hopefully boost depressed parts of the economy.

The slump in imported energy, food, raw materials and shipping rates are expected to counter higher import costs and inflation that normally result from devaluation. Indeed inflation is expected to decline from August peak annual level of around 5 per cent to around 2 per cent or lower in 2009.

Chancellor of the Exchequer Alistair Darling describes himself as a Keynesian. He says that the government intends pursuing the policies of John Maynard Keynes who in the deflationary Great Depression in the 1930s advised governments to increase public spending. The aim is to create jobs, which in turn generates consumer spending thus improving the profitability of businesses.

The big question is whether the policies will work. Critics of the government and Bank of England say that they were in denial for far too long. The Bank of England feared inflation, which was mainly caused by commodity speculation, a bubble that was bound to burst.

Critics contend that the bank has been far too slow in slashing rates and that they should fall to 2 per cent in 2009 to counter the deflationary consequences of a housing price crash and a sharp decline in consumer and business spending.

David Blanchflower, an external member of the Bank of England monetary policy committee, went against the majority and voted for an interest rate cut on every occasion since October 2007. He expects the numbers of jobless to reach two million by Christmas.

‘The UK is especially exposed to the financial turmoil because of our dependency on the financial sector, and because the run-up in house prices and debt levels was even greater here than in the United States,’ he says. ‘Interest rates need to come down significantly - and quickly.’

Recent events in financial markets will likely reduce lending further to both households and firms in the near term, he says. If rates are not cut aggressively the UK faces the prospect of a relatively deep and long-lasting recession, he fears.

Critics of the government, especially the Conservative opposition complain that when he was Chancellor, Premier Gordon Brown went on a borrowing and spending spree. Mr Brown and his successor as chancellor, Mr Darling have already overborrowed, they contend.

In the March budget Mr Darling said that public borrowing would amount to £43 billion in the 2008-09 fiscal year. But Ernst & Young ITEM Club think tank forecasts the deficit will surge to £60 billion this year and £92 billion in 2009-10.

The debt-to-national income ratio is likely to surge through 50 per cent in the near future.

Critics contend that a far better fiscal route is to follow US policies and cut taxes. This will put immediate money in people’s pockets. Heavy borrowing will lead to big tax rises in years to come they say.

Source : Business Times - 06 Nov 2008

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Racial barrier falls as change comes to America

Racial barrier falls as change comes to America

Obama sweeps to victory as markets, war, demographics produce an electoral earthquake

By LEON HADAR
WASHINGTON CORRESPONDENT

RACIAL prejudices were swept aside as Barack Obama won the White House yesterday - an event whose historic magnitude recalls the landing of the first man on the moon. The Democrat defeated Republican John McCain and will be sworn in on Jan 20 next year as the 44th US president - and the first African-American one.

Family moment: Mr Obama embracing his daughter Malia after his victory speech at a rally in Chicago. He won 349 electoral votes against Mr McCain’s 173, and will have a bigger Democrat majority in Congress
His march became a rout as he captured not only battleground states like Ohio and Florida but also scooped up traditional Republican-leaning ‘red’ states like Virginia and Colorado. With 349 electoral votes against Senator McCain’s 173, it wasn’t even close.

‘Even as we celebrate tonight, we know that the challenges that tomorrow will bring are the greatest in our lifetime,’ said the president-elect. But the change he has repeatedly promised has already signalled itself.

The election of the 47-year-old Mr Obama marks the end of the reign of Baby Boomers like Bill and Hillary Clinton and George W Bush and the coming to power of a new and young generation of Americans who are more diverse in their ethnic and cultural origin and more tolerant in terms of their cultural attitude.

At the same time, the election on Tuesday also turned out to be what political experts refer to as a ‘wave election’. It helped sweep more Democrats into both the Senate and the House of Representatives and will provide Mr Obama with a solid base of support on Capitol Hill to advance his agenda at home and abroad.

‘If there is anyone out there who still doubts that America is a place where all things are possible, who still wonders if the dream of our founders is alive in our time, who still questions the power of our democracy, tonight is your answer.’

- Barack Obama

It was symbolic perhaps that Mr Obama’s landslide victory took place on the same week that American manufacturing activity dropped to its lowest level in more than 25 years with the US auto industry facing the threat of possible extinction. Indeed, it is against the backdrop of rising economic problems - home foreclosures, a credit crunch, growing unemployment, falling consumer spending, and an economic recession that could develop into another Great Depression - that the young and inexperienced first- term Senator from Chicago succeeded in winning the support of a majority of American voters who were intent in challenging the political status-quo in Washington.

In fact, there is little doubt that it was the collapse of Lehman Brothers and other major financial institutions and the dramatic move by Washington to come to the assistance of Wall Street that demonstrated to many white middle class Americans that the economic policies pursued by the Bush Administration and the Republican Party have reached a dead-end.

Members of the new ‘investor class’ that came to being during the roaring 1990s have suddenly discovered that they lost about a third of the value of their homes and the pension plans they had invested in the stock market.

And many of them decided to vote for the Democratic candidate this week, hoping that his leadership qualities and his proposed policies will help save the American economy and prevent a re-run of the Great Depression.

That depressing economic reality explains why both yuppies who reside in the more prosperous suburbs of New York City, Washington, DC, Pennsylvania and Seattle as well as blue-collar workers who live in decaying factory towns in Michigan, Pennsylvania, Ohio, and Minnesota - many of whom have traditionally voted for Republican candidates - decided to switch to the Democratic candidate this year.

In a way, the economic problems that the US is now facing are seen by many Americans as part of the failed Republican agenda that has been pursued by President George W Bush in the last eight years and that have been backed by Senator McCain, the Republican presidential candidate, including the decision to invade Iraq, the handling of Hurricane Katrina disaster, and the mismanagement of many other domestic and foreign policies.

With close to 90 per cent of Americans telling pollsters that they believe that America is now heading on the wrong track, it was inevitable that voters would be attracted to an ‘agent of change’ like Mr Obama and the more progressive policies that the Democratic party represents.

But this week’s dramatic victory by an African-American politician with an exotic background can only be understood in the context of the major demographic changes that have taken place in America in recent years that include not only the strengthening electoral power of African-Americans and the growing population of Hispanics around the country.

Mr Obama and the Democrats are also benefiting from the rising involvement in the political process of thousands of new young voters.

Hence the fact that for the first time since the 1964 presidential election, a Democratic presidential candidate - who also happens to be an African-American - has won the southern state of Virginia, whose capital Richmond had served the capital of the Confederacy during the civil war, was a reflection of these revolutionary demographic changes.

The state has attracted many young high-tech workers and other professionals as well as Hispanic immigrants who together with the members of a large African-American community in Virginia provided Mr Obama with the margin of victory he needed.

The president-elect’s main challenge now would be to form a winning Democratic electoral majority that would bring together blue-collar workers, well-to-do and educated yuppies, Hispanics and African-Americans.

At the same time, the election’s outcome highlighted the failure of the Republican Party to adapt to the new political and demographic realities of the era.

The Republicans have been gradually transformed into a minority political party that represents the mostly shrinking population of conservative white voters in the South and a few small Western states.

The Republicans have succeeded in exploiting the cultural resentment that these ‘real Americans’ - as vice-presidential candidate Sarah Palin described them during the campaign - feel towards the ‘cosmopolitan’ and liberal ‘elites’ in the large cities. But unless the Republicans expand their electoral base beyond white evangelical Christians to include more blacks, Hispanics, and young urban voters, they would find it more difficult to return to power in the White House and Congress any time soon.

Source : Business Times - 06 Nov 2008

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