WASHINGTON-U.S. economic sanctions slapped on India last week for nuclear testing are expected to have a relatively minor, short-term impact on wireless investment in that populous emerging market. But the prospect of a nuclear arms race in Asia combined with political unrest in Indonesia and regional financial troubles could have a chilling effect on wireless trade in the growth-oriented region in coming months.
India, China and other emerging Asian economies with poor or nonexistent telecom infrastructure represent a wealth of potential business for U.S. wireless businesses. Companies like Motorola Inc. and Lucent Technologies Inc. have made major inroads into Asia in recent years.
But increased political and economic instability in Asia would negate benefits promised by telecom free trade advances.
The sanctions on India, imposed last week by President Clinton, will affect $20 billion in loans and credits from the U.S. Import-Export Bank and the Overseas Private Investment Corp. In addition, the United States will vote against any World Bank loans to India, and U.S. companies are banned from exporting dual-use technology to that country.
The problem is that other nations (Japan excluded) have not embraced the United States’ punitive approach toward India despite entreaties by Clinton last week at the G-7 economic summit in Birmingham, England.
Moreover, because India does not depend much on foreign credit it will be hurt less than other emerging economies, like China, which rely heavily on foreign loans and lines of credit.
At the gathering of the seven biggest industrial democracies, Japan made further concessions on telecommunications trade.
Complicating matters further in Asia is contemplation by Pakistan, a bitter rival of India, to conduct nuclear tests of its own in reaction to India’s actions.
The GOP-led Congress, for its part, has taken a keen interest in a Justice Department investigation into Pentagon and U.S. intelligence reports that U.S. wireless companies may have transferred sensitive satellite technology to China and helped Beijing improve its long-range nuclear missile capability.
Motorola, which has a major wireless presence in India, said a $3.5 million design facility it plans to build just outside New Delhi will not be affected by the sanctions. Motorola said it employs more than 1,200 in India.
What is less clear are wireless projects that might have been in the pipeline when the sanctions took effect last week.
“There are telecommunications projects that some companies have expressed an interest in,” said Allison May Rosen, an OPIC spokeswoman.
Rosen said OPIC also helps U S West Inc. in India.
Christine Keck, manager of Asia-Pacific programs for the Telecommunications Industry Association, said sanctions are expected to affect military telecommunications equipment more than commercial telecommunications gear. She said it is unclear to what extent the commercial side will be hurt and what telecom sectors might feel the brunt of U.S. sanctions.
“Indonesia, I think, is a more serious problem,” said Keck. “People need to take a serious look at the long-term political and economic impact.”
Riots and looting in Jakarta that reportedly left more than 200 people dead threatened to topple the Suharto 32-year-old regime. The riots were sparked by student political protests and austere economic measures required by the International Monetary Fund’s $43 billion bailout.
“A lot of companies are pulling people out [of Indonesia] to safety,” said Keck.
Unrest in Indonesia was felt in financial markets in the United States. By midday Friday, the Dow Jones industrial average was down for the second straight day because of developments in Asia and the possibility of weak corporate earnings.
