Economic turbulence in SE Asia may be shortlived<\/p>\n
HONG KONG (AFP): The proud economies of Southeast Asia,
\nbuffeted by turbulence since they surrendered their currencies to
\nmarket forces, may have only a short period of pain yet to
\nendure, experts say.<\/p>\n
Governments that have come to view currency stability as the
\nfoundation for long-term growth have had a nightmarish week.<\/p>\n
Singapore's central bank intervened Friday after the local
\ndollar tumbled 1.5 percent to a 38-month trough against the
\ngreenback, and Malaysia did likewise, after the ringgit slumped
\nsix percent to a 24-year-low of 2.8250 to the US currency.<\/p>\n
The rupiah sank 6.6 percent to another nadir only a day after
\nit was floated by the Indonesian government, while the Philippine
\npeso, after a brief period of strength, weakened by 1.1 percent.<\/p>\n
Thailand's baht slipped to 31.795 to the dollar from 31.300,
\ndown more than 22 percent from its value prior to the July 2
\nfloat that triggered a domino effect among currencies around the
\nregion.<\/p>\n
But analysts say the volatility, and parallel turbulence in
\nseveral equity markets, may be short-lived, provided governments
\nand corporations alike adjust quickly to the new era of floating
\nrather than managed currencies.<\/p>\n
\"This may temporarily have an effect on sentiment, but it
\nreally shouldn't be an issue,\" said Deep C. Kapur, chief regional
\nstrategist with Salomon Brothers in Singapore.<\/p>\n
\"It's a return to economic rationalism that is winning the
\nday. I don't see this as gloom and doom, frankly.\"<\/p>\n
Desmond Supple, head of Asian currency research at BZW in
\nSingapore, said the move to floating currencies was \"a welcome
\ndose of reality.\"<\/p>\n
Unless they have a huge war chest on which to draw, central
\nbanks that persist in fending off a relentless speculative attack
\nare eventually forced to increase interest rates, thus damaging
\nthe domestic economy, he said.<\/p>\n
In the new epoch, the biggest challenge for companies,
\neconomists said, is to avoid the crunch that comes when
\nborrowings or other commitments are in yen or U.S. dollars but
\nthe means of paying for them are in a fluctuating local currency,
\nsuch as the rupiah.<\/p>\n
\"More attention will have to be paid to currency hedging than
\nin the past, \" said Kapur, referring to the practice of buying US
\ndollars in order to protect against a sudden slump in the
\ncurrency of income.<\/p>\n
The days of easy capital inflows may be over, as foreign
\ninvestors -- their fingers burned by the de-facto devaluations of
\nlocal currencies -- pay greater attention to economic
\nfundamentals.<\/p>\n
But this in turn should prompt governments to address tough
\nreforms, experts said.<\/p>\n
Asia Equity Ltd., a unit of the French bank Paribas, praised
\nIndonesia for its loosening of currency controls, which saw a
\nprogressive widening of exchange-rate bands before the rupiah was
\nallowed to float free.<\/p>\n
This meant foreign investors suffered less of a shock than in
\nThailand.<\/p>\n
\"A flexible exchange rate, interest-rate autonomy, strong
\ngrowth and few worries within the balance of payments imply a
\npositive market outlook for Indonesia,\" Asia Equity said in a
\nreport last week.<\/p>\n
But, it warned, investors still worry over the \"unnecessary
\nrisk premium\" of Indonesia, which was uncertainty about
\nderegulation, trade, favoritism and corruption.<\/p>\n
The theory that fundamentals are the best defense will find
\nits greatest test in Hong Kong, the jewel in southeast Asia's
\ncurrency crown and the region's freest and strongest economy.<\/p>\n
Hong Kong is quite different from most of its southeast Asian
\nneighbors, said Ian Perkin, economist at the Hong Kong General
\nChamber of Commerce.<\/p>\n
This is because its service-dominated economy is less
\nvulnerable at a time of currency crisis than those which are
\nbased on manufacturing, where governments are tempted to carry
\nout competitive devaluations in order to keep exports up, he
\nsaid.<\/p>\n
The Hong Kong dollar came under some pressure Friday. But
\nspeculators are likely to find the tiny but wealthy territory,
\nwith 82 billion US dollars in reserve and backed by China, with
\n121 billion, will be a tough nut to crack.<\/p>\n
\"It's a very different prospect from the Philippines, with 11
\nbillion in reserves, or Malaysia, with 25 billion,\" said Andrew
\nFung, head of capital markets at Commonwealth Bank of Australia
\nhere.<\/p>",
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