Pesek on Asia: Question Marks Over Jakarta

Good morning. Here's my take on some of the stories driving the debate in politics, finance and social issues across Asia today:

Question mark hangs over Jakarta.

For those who thought Joko Widodo was a shoo-in to replace Susilo Bambang Yudhoyono as Indonesian president, it's time to seriously entertain a Prabowo Subianto administration. The strongman (he's a former special forces general plagued by allegations of human-rights abuses) is closing in on Jakarta Governor Widodo. Subianto is doing it with, according to the Financial Times, "fiery, jingoistic speeches" that harken back to the bad old days when nationalism and insular thinking reigned. Subianto's assault caught Widodo, once the clear frontrunner, completely off-guard. Investors should begin studying Subianto, who plans to increase the public-debt load and renegotiate trade deals, as well as the roster of tycoons backing him who might expect quid pro quo perks once he's in office. These retrograde policies could soon be a reality in Southeast Asia's biggest economy.

Chilling Pakistan airliner attack.

Any terrorist attack is reason to recoil and fret about copycats following suit. But the shooting attack on a Pakistan International Airlines plane coming in for a landing in the northwestern city of Peshawar is particularly chilling. As many as 12 gunshots hit Flight PK-756 coming from Saudi Arabia, killing one passenger and injuring two flight attendants. It's the first known attack of its kind on a civilian passenger jet in mid-air. Might this inspire a rash of similar jetliner attacks? The low tech nature of this one -- available to any nut job with a gripe, a high-powered rifle and decent marksmanship -- certainly has me more than a bit antsy.

Singapore banks on financial stability.

As Asian governments and markets quake about Federal Reserve rate hikes, authorities in Singapore are actually doing something about it. They're requiring all banks with a "significant retail presence" in Singapore to maintain some liquid assets in the country to support their short-term cash outflows. The move, unveiled by deputy Monetary Authority chairman Lim Hng Kiang, comes six months after the central bank warned rising global interest rates could slam household and corporate debt loads. Singapore's counterparts around Asia should study this step. Its central bank isn't bowing to banks, but leading them to prepare for the coming financial storm.

Rethinking China's currency control.

Investors and analysts tend to regard Beijing as a well-oil currency-managing machine. And given the yuan's remarkable stability amid worries about a Chinese slowdown and surge in defaults, it's tempting to agree. In this Quartz item, Gwynn Guilford explains that China's control isn't what it seems -- not with external debt exploding as Beijing scrambles to support growth. In the fourth quarter of 2012, Chinese companies borrowed $38 billion in foreign-currency from U.S., European and Japanese banks; within a year, that figure had increased nine-fold. The problem, says Peking University's Michael Pettis, is China now has a "commitment to a growth model that requires an unsustainable rise in debt simply to keep the engine running." And in dangerous ways.

Abe declares premature deflation victory.

In a Bloomberg interview, Prime Minister Shinzo Abe declared victory over the falling-price trend that's sapped growth and confidence and worsened the national balance sheet. Yet Abe betrays a misunderstanding of the nature of Japan's malaise. Deflation isn't the cause of Japan Inc.'s woes -- it's a symptom. Until Japan treats the underlying illness -- low productivity, a dearth of innovation and a shrinking population -- it won't generate consistent and healthy increases in consumer prices. The good news is that Abe's cabinet endorsed plans for corporate-tax cuts, trade liberalization, reduced barriers for agricultural land consolidation and special trade zones. The bad: Abe needs to figure how to implement them as his approval rates slides below 50 percent.

(William Pesek is a Bloomberg View columnist. Follow him on Twitter at @williampesek.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.