Dollar may follow Asian monies' collapse<\/p>\n
By Yoshiko Mori<\/p>\n
TOKYO (Reuters): While the United States economy has little in
\ncommon with Indonesia's, some analysts say the dollar could come
\nunder the same types of pressures that hit the beleaguered rupiah
\nas \"borrowed capital\" flows back home in a time of growing
\nuncertainty.<\/p>\n
Some experts say the dollar's sharp fall on Wednesday shows
\nthe long-term vulnerability of the U.S. currency.<\/p>\n
\"There is a chance that the U.S. currency will follow in the
\nfootsteps of emerging market currencies if capital flows to U.S.
\nmarkets keep dwindling,\" said Susumu Takahashi, chief economist
\nat the Japan Research Institute.<\/p>\n
Tetsuji Sano, senior economist at the Asian Economic Research
\nGroup of Nomura Research Institute (NRI), said: \"People have
\nalways believed that the United States will be immune to the
\ncapital exodus that made emerging economies in the region go
\nbelly up.\"<\/p>\n
But many are realizing that the U.S. economy's basic structure
\nis quite similar to those of emerging economies that have been
\noverly dependent on foreign capital, he said.<\/p>\n
U.S. Treasury Secretary Robert Rubin has named key three
\nelements -- current account deficit, net debtor position, and
\ncapital account liberalization -- as factors that make a country
\nvulnerable to contagion from the emerging market crisis.<\/p>\n
\"The U.S. has all three qualities, but international investors
\nuntil recently kept investing capital in U.S. markets based on
\nthe belief that the key currency status of the U.S. dollar would
\nstay intact,\" Sano of NRI said.<\/p>\n
But capital invested in the United States has begun reversing
\ncourse, due in part to the growing credibility in markets of
\nEurope's single currency, the euro, and also because of financial
\nsector problems in industrial economies, economists said.<\/p>\n
This new competition has been noted by some in Europe as well.
\nAlfons Verplaetse, chairman of the Bank for International
\nSettlements, said in July that \"until now, there was no external
\nsanctions to the policies of the United States, even when they
\nforget to do what they have to do. But the competition (with the
\neuro) will be good for them.\"<\/p>\n
He said as part of this, the massive debtor status of the
\nUnited States will be looked at by markets more closely, which in
\nturn could affect the course of the dollar.<\/p>\n
At the end of last year, the United States had net debts of
\n$1.2235 trillion.<\/p>\n
\"The Asian crisis taught us an important lesson -- any big
\nparty financed by other people's money must come to an end when
\nthose people find good reasons to leave the party and go home.
\nThe United States is no exception,\" said a Japanese government
\nofficial speaking on condition he not be identified.<\/p>\n
Emerging currencies in Asia have devalued by 35 percent to 70
\npercent and Sano said a sizable fall could also await the U.S.
\ncurrency.<\/p>\n
But some economists said the magnitude of the dollar's fall
\nmight be muted somewhat by the fact that the United States has
\nhigh-value industries and a government budget surplus.
\nStill the concerns remain.<\/p>\n
\"The dollar has weakened as the market became more aware of
\nthe fragility of the U.S. banking system after the near-collapse
\nof Long-Term Capital Management,\" Takahashi of Japan Research
\nsaid.<\/p>\n
LTCM had to be bailed out to the tune of $3.6 billion after
\nlosing money in speculative investments.<\/p>\n
In July, even before the LTCM debacle, foreign holdings of
\nU.S. Treasury securities fell by $10.3 billion, of which the
\nlargest drop was $5.7 billion in Britain, where many hedge funds
\nbook trades.<\/p>\n
Federal Reserve Chairman Alan Greenspan said on Wednesday that
\nsharp swings in world financial markets had left investors with
\nlittle stomach for risk, raising the threat of a credit crunch
\nthat could jeopardize U.S. economic expansion.<\/p>\n
\"Intensifying risk aversion by global investors is inducing
\nfund repatriation out of the U.S. markets,\" said Yasushi Okada,
\nchief economist at Credit Suisse First Boston Securities (Japan)
\nLtd.<\/p>\n
In Japan, deepening financial sector woes prompted Japanese
\nfinancial institutions to withdraw from foreign or reduce
\noperations, including closing overseas branches and selling
\nTreasuries to bolster their capital base at home.<\/p>\n
Just on one single day, Sept. 30, when Japanese financial
\ninstitutions closed their books for the first half, dollar
\nselling amounted to several billion dollars, currency traders
\nsaid.<\/p>\n
Repatriation of funds by Japanese investors, who hold 25
\npercent of U.S. debt, has just begun, they said.<\/p>",
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