Asia is more vulnerable to oil prices than others<\/p>\n
SINGAPORE (Dow Jones): Despite efforts by Asian nations to
\ninsulate their economies from the pain of rising oil prices,
\ntheir growth is likely to be crimped, which will further depress
\ntheir already battered currencies.<\/p>\n
\"Asia is more vulnerable than most other regions of the world
\nto rising oil prices because it is hugely reliant on imported
\ncrude, and is the manufacturing hub of the world,\" says Pieter
\nvan der Schaft, economist at Barclays Capital.<\/p>\n
The region also consumes oil at a far higher rate per capita
\nthan Europe or the U.S. because many nations are developing, and
\nlack efficient infrastructure.<\/p>\n
The International Monetary Fund in its recent World Economic
\nOutlook said a rise in average crude prices to US$30 a barrel in
\nthe second half of this year from $25 per barrel in the first six
\nmonths would curb Asian growth by 0.4 percentage points, compared
\nwith a 0.2 percentage point decline in industrialized economies.<\/p>\n
The inflation pickup in Asia would also be more dramatic.<\/p>\n
While authorities from the Philippines, India, and Thailand
\nare seeking to limit the impact of higher prices on consumers,
\nthese may create as many problems as they solve, says van der
\nSchaft.<\/p>\n
\"If oil prices spike up it is better to let the economy adjust
\nto this by reduced consumption rather than using subsidies, which
\ndistort the use of capital,\" he says. \"An exogenous shock like
\nthis might also help some of these economies become more
\nefficient in their oil usage.\"<\/p>\n
Economies most vulnerable to rising oil prices are South
\nKorea, the Philippines, Thailand and India, which are all heavily
\nreliant on imported oil for their energy needs. Because oil is
\nsettled in U.S. dollars, importers must sell their domestic
\ncurrencies and buy dollars to pay for supplies.<\/p>\n
Therefore it is no surprise that the peso and rupee have
\nplunged this year to all-time lows against the dollar as oil
\nprices rose, while the baht is at its lowest rate since the
\ndepths of the Asian currency crisis in 1998.<\/p>\n
The won, however, is steady due to massive inflows of foreign
\ndirect investment.<\/p>\n
To ease pressure on the peso, the Philippine Central Bank
\nplans a currency risk protection facility for unhedged borrowers,
\nincluding oil companies, which it hopes will reduce the need for
\nthem to buy dollars on the Manila market.<\/p>\n
India, meanwhile, plans to borrow to help finance subsidies of
\ndomestic petroleum products, but this is problematic whether the
\ngovernment taps onshore or offshore markets.<\/p>\n
Thailand is taking a similar, although scaled down, approach,
\nextending subsidies on diesel prices for farmers, and truckers,
\nand keeping refining margins low at state refineries.<\/p>\n
South Korea, however, is using a more novel way to lower its
\nenergy bill.<\/p>\n
Starting last month, all government employees whose vehicle
\nlicense plate numbers end in the same number as the day of the
\nmonth are banned from using their cars on that day. Seoul said
\nthis is the only measure available, and hopes it will save $170
\nmillion a year. Korean imports of crude oil are second only to
\nJapan in Asia.<\/p>\n
Barclays Capital estimates if oil averages $30 per barrel in
\n2000, up from $17 per barrel last year, Korea's current account
\nsurplus - all other variables being equal - would be cut 3.9
\npercentage points as a proportion of gross domestic product.<\/p>\n
In these terms, Korea is the most exposed economy in the
\nregion to such an oil price rise, followed by the Philippines and
\nThailand at 2 percentage points, Taiwan (1.8), India (1.5) and
\nChina (0.8). Indonesia and Malaysia are net oil exporters.<\/p>\n
But van der Schaft says Asian currencies won't necessarily
\nrebound when oil prices recede, perhaps after the Northern
\nHemisphere winter.<\/p>\n
\"That won't be a certain cure for them, they are also being
\nhurt by political uncertainty in the Philippines and Thailand,
\nand if NASDAQ weakness continues, this reduces the risk appetite
\nof investors globally,\" he says.<\/p>",
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