Energy: Key to Asia's Economic Recovery

Remarks by Roger Beach, Chairman & CEO, Unocal
Corporation to the Asia Society, New York

June 22, 1998

Good afternoon. I'm delighted to have this opportunity to talk about the energy business in Southeast Asia and share our views on the economic and financial challenges facing the region.

Unocal has been developing resources and energy projects that have strengthened Asian economies for more than three decades.

We know first-hand how resilient these nations are, and why they offer excellent opportunities for long-term investment.

Over the short-term, however, we still see some major bumps in the road.

If the Yen continues to weaken, Japan is facing its deepest recession in 23 years. The ripple effects would be felt worldwide.

Meanwhile, Indonesia stands at a crossroads.

This country, so important to the future of the region, has made great progress. Now it is ready to evolve toward a more open, democratic society, but it needs help in stabilizing its economy.

The recent nuclear weapons tests in India and Pakistan have shifted the global security environment, creating regional uncertainties.

And everyone is keeping a wary eye on China, to see how it reacts to recent economic and military developments.

In this difficult environment, U.S. business has a vital role to play in helping the countries of Asia stabilize their economies and begin to grow again.

This is especially true of U.S. energy companies.

Energy companies contribute to the development of needed infrastructure and the growth of local economies.

Many of our projects promote regional cooperation and prosperity. Our production of crude oil and liquefied natural gas generate hard-currency exports for our host countries.

Our natural gas production replaces higher cost imported fuels. Natural gas, by the way, has the potential to strengthen the economies of many developing nations in Asia, including Bangladesh, Vietnam, Thailand, and Myanmar.

It is the cleanest-burning fossil fuel, generating virtually no sulfur emissions, very low particulate emissions, and fewer than half as many carbon dioxide emissions as coal.

The exploration and production activities of U.S. energy companies also create jobs, transfer useful technologies, and provide needed education and training.

In a broader context, our work with developing economies lays a foundation for the rule of law and the growth of civil society.

In short, U.S. business -- particularly, the energy business -- can be a powerful force for positive change, but we need a constructive and coherent environment in which to operate.

A stable, prosperous Asia is vital to the United States and the entire world.

For this reason alone, it is absolutely essential for the United States, as the world's only superpower, to take a more visionary, leadership role in the region.

Let me spend a few minutes to develop some of these themes.

Unocal has been operating in Southeast Asia for over 35 years. During this time, we've weathered all kinds of ups and downs.

We pride ourselves on being a valued, long-term business partner.

We build long-term relationships with the people of a country, not a particular government in power.

These relationships are based on trust and mutual interest. People know us as a reliable, low-cost producer of vital energy resources.

In Thailand, we were the first to find gas. Now, we produce 1 billion cubic feet of natural gas per day. This gas is used to generate almost 40 percent of the Kingdom's electricity.

In Indonesia, we've been a major oil and gas producer since 1972. Offshore East Kalimantan, Unocal has one of the largest deepwater positions in the world, with a number of very exciting oil and gas discoveries.

In the Philippines, our geothermal operations on the island of Luzon have helped save nearly $100 million per year in foreign exchange through reduced fuel imports. We were in business during the Marcos regime, and we're still going strong.

We also have important -- and growing -- investments in Vietnam, Myanmar, and Bangladesh.

Recently, Unocal revised and updated its Vision statement, which includes this commitment: "To improve the lives of people wherever we work."

At Unocal, meeting this commitment is a big part of what it takes to be a good partner. We apply it to our work in the United States as well as overseas.

In Southeast Asia, for example, we actively hire, train and promote local workers.

Unocal employs more than 3,000 people in the region; nearly 95 percent of them are host country nationals. Many have been with us for a long time.

In 1998, nearly 350 of our national employees in Southeast Asia will celebrate 15 or more years of service with Unocal.

A good number of them have advanced to managerial positions.

We also provide access to quality health care, build and refurbish clinics, help train local doctors and nurses, and establish programs to inoculate children.

We actively support education, building schools and funding training and scholarship programs in virtually all communities in which we do business.

In response to Asia's current economic difficulties, Unocal launched several education initiatives earlier this year, in conjunction with the U.S. - ASEAN Business Council and the U.S. - Thai Business Council, among others.

These programs are providing scholarships to over 500 needy Asian students enrolled in U.S. colleges and universities -- students who otherwise might have been forced to return home.

As you see, we place strong emphasis on programs that help young people, the future leaders of our host countries.

And, like other U.S. companies, we've brought Western values and practices into our local workplaces. These include health, environment and safety considerations and consistent standards in our dealings with business partners, contractors and suppliers.

But to maximize the potential of U.S. business in Asia, we need flexibility and the opportunity to invest.

With the end of the Cold War, the United States has become increasingly provincial. This lack of global perspective is reflected in the proliferation of unilateral sanctions that are limiting U.S. business all over the world.

Currently, the United States has imposed -- or threatened -- unilateral economic sanctions on 70 countries, affecting some two-thirds of the world's population.

Many of these sanctions apply to Asia.

Now some members of Congress are supporting 30 additional sanctions bills that would target even more countries.

This is not visionary. It is not leadership.

The U.S. Government is trying to use business as a club. A wide range of special interest groups now drive American foreign policy. Their push for broad use of unilateral sanctions is seriously restricting business' ability to invest and grow.

It is also hampering America's ability to exert constructive influence in many troubled countries. Talk about shooting yourself in the foot!

Even today, international trade represents about 30 percent of U.S. gross domestic product -- or GDP.

The health and security of the U.S. job market depends more and more on exports.

Currently, about 12 million Americans work in export-related jobs. Their pay is more than 10 percent higher than Americans working in non-export jobs.

The number of Americans working in export-related jobs is projected to grow by 30 percent to 16 million people over the next two years -- if unilateral sanctions don't stifle this part of our economy.

While unilateral sanctions cause problems at home, the sad truth is that they are rarely effective in changing the behavior of their target countries. In practice, they usually cause more harm than good and often harden the position of the offending regime.

The U.S. has imposed unilateral sanctions on Cuba for nearly 40 years. Castro is still in power, but the Cuban people are much poorer than they would have been, with fewer opportunities for good jobs and a better life.

The threat of sanctions did not deter India or Pakistan from testing nuclear weapons.

Even multilateral sanctions often fail.

UN-backed sanctions on Iraq contributed to a huge public health nightmare, with the result that one million Iraqi children are now chronically malnourished.

Unilateral sanctions put American companies at a serious competitive disadvantage.

Wherever America imposes unilateral sanctions, our foreign business competitors quickly seek to press their advantage.

This is a real problem for the U.S. energy industry, where there is often a limited time to capture high-potential resource opportunities in newly open areas of the world.

On a national level, sanctions hinder our Government's ability to carry out diplomacy. Secretary of State Madeleine Albright has said that the sanctions against India and Pakistan are "all sticks, no carrots."

Sanctions are also very expensive.

According to the Institute for International Economics, in 1995 alone unilateral sanctions cost the U.S. economy an estimated $15 to $19 billion and up to 260,000 jobs.

If the use of unilateral sanctions continues to escalate, these numbers will grow worse and worse. What should be done?

Obviously, the U.S. Government needs to rethink its use of sanctions.

Passage of the Lugar-Hamilton Bill, now under consideration in Congress, would be a major step in the right direction, bringing needed discipline and control to the sanctions process.

In the bigger picture, America needs to provide global leadership that is strong, consistent and visionary.

It is in our strategic interest to promote peace and prosperity throughout the world. But developing more open and prosperous societies takes time.

U.S. business has an essential role to play in this process.

Take the case of Indonesia.

For the past three decades, the people of Indonesia, with the active support of foreign investors and international lending institutions like the World Bank, have substantially improved their economy and their quality of life.

Between 1970 and 1996, the proportion of the population living below the official poverty line declined from 60 percent to about 11 percent.

During the same period, the life expectancy of the average Indonesian rose from 46 to 63 years.

Indonesia has also achieved universal primary education and reduced the adult illiteracy rate by nearly two-thirds.

This is real progress.

In my view, recent political events in Indonesia are part of a process of change and growth that we should expect in developing countries.

Now the people of Indonesia want to move further along the path of building a fully open and prosperous society.

This will not happen overnight. Nor is it always a smooth transition.

Now is the time for the U.S. Government to take a more supportive and active role. Over the short term, the priority is to help stabilize the economy so that the country can move forward.

The U.S. needs to get behind the process that leads to more open and competitive economic and political structures, while seeking to minimize potential violence.

I am encouraged to see that a team from the International Monetary Fund has gone to Jakarta to hold talks over terms of the next $1 billion load disbursement.

Also, on May 29 the World Bank approved a $225 million loan to help raise rural incomes, strengthen local government and build public infrastructure. This project targets villages that have been particularly hard hit by the current draught.

Finally, the U.S. Government's decision last week to buy yen with dollars to bolster Japan's falling currency brought a new level of confidence to the entire region, at least temporarily.

At last, we are seeing some real leadership!

This is a critical time for Indonesia.

Without appropriate assistance and foreign investment, Indonesia's battered economy could suffer even greater damage.

Visionary leadership will help keep it on the right track.

In closing, I'd like to issue four challenges to the U.S. business community:

First, we all need to better understand the implications of the unilateral economic sanctions issue. The continued use of unilateral sanctions will create increasingly serious competitive problems for U.S. businesses, while jeopardizing America's leadership role in the global economy.

Business should support a broad-based, hard-headed review of sanctions use.

Second, it is important to promote our beliefs publicly. USA Engage, the National Association of Manufacturers, and other coalitions are a powerful collective voice for business community.

Next, we must do more to educate the public. People need to understand the harm caused by sanctions, including their impact on U.S. competitiveness and the American worker.

Finally, I believe that business also must actively promote economic engagement as an alternative to sanctions.

Open markets and outside investment are far more likely to transform societies, improve living standards and promote human values in a peaceful and constructive way.

Many of the changes now under way in Southeast Asia are market-driven. They can help lift the entire region to a new level of peace, openness and prosperity.

U.S. energy companies, in particular, are ready to increase their investments in Southeast Asia, but we must have the opportunity to do so.

Thank you for inviting me to join you today.


To find about more about Roger Beach visit Unocal online.