Exports will keep Asian currencies low in 1999<\/p>\n
By P. Parameswaran<\/p>\n
SINGAPORE (AFP): Asian currencies have risen strongly from
\nrecord lows posted early this year but cannot make much headway
\nin 1999 because the region's recession-hit economies want to keep
\nexports cheap to fuel recovery, analysts say.<\/p>\n
Other factors seen weighing on regional currencies next year
\nare possible resumption of speculative attacks by hedge funds,
\nworry of political chaos in Indonesia, as well as a looming
\nBrazilian real devaluation.<\/p>\n
\"Asian economies will very much want to keep their currencies
\nat undervalued territory to boost exports,\" said Thio Chin Loo,
\ncurrency strategist at Banque Paribas in Singapore.<\/p>\n
She said the priority of governments in 1999 would be to eject
\ntheir economies out of recession using exports as the key to
\nrecovery.<\/p>\n
\"They will take the approach of lower interest rates,
\nstimulatory fiscal policy and competitive currency,\" Thio said.<\/p>\n
Asian exports have been lackluster despite steep currency
\ndevaluations since the regional financial crisis exploded in mid-
\n1997 with the de facto devaluation of the Thai baht.<\/p>\n
Among economies expected to prevent their currencies from
\nappreciating to retain export competitiveness are South Korea,
\nSingapore, Malaysia, the Philippines, Thailand and Taiwan.<\/p>\n
Societe Generale bank said in a research report released here
\nthat it expected South Korea's central bank to prevent the won
\nfrom appreciating beyond 1,200 against the dollar. The won closed
\nlast week at 1,206.30.<\/p>\n
The bank forecast the Taiwan dollar would weaken to 36.00 to
\nthe U.S. dollar by end-1999 from the current level of 32.24 due
\nto lower interest rates and concerns over the impact of a weaker
\nChinese yuan outlook.<\/p>\n
It also said there would be pressure for the Thai baht to
\nclimb to 32 against the dollar but the authorities would buy U.S.
\ndollars and sell the Thai currency to maintain the current level
\nof about 36.<\/p>\n
A modest depreciation of the peso is also expected, to about
\n40-to-42 against the dollar from 38.95 at present.<\/p>\n
Societe Generale said the Malaysian ringgit, fixed at 3.80 to
\nthe U.S. dollar as part of exchange controls imposed in
\nSeptember, was \"clearly undervalued\" and \"an important boost to
\nexports and deterrent to imports.\"<\/p>\n
The Singapore office of British independent think-tank IDEA
\nforecast the Singapore dollar to fall to 1.7200 against the
\ngreenback in the last quarter of 1999 as the city state suffered
\na loss of export market share and amid deflation worries.<\/p>\n
The Singapore unit closed last week at 1.6590.<\/p>\n
Fong Cheng Hong, Singapore-based regional analyst at Japanese
\nfinancial house Nomura, was however upbeat on nearly all Asian
\ncurrencies.<\/p>\n
She predicted that by the end of 1999, the Singapore dollar
\nwould shoot up to 1.5500 against the U.S. dollar, the baht to
\n34.00, the peso to 35.00, the Taiwan dollar to 30.00 and the won
\nto 1,150.<\/p>\n
The Indonesian rupiah could however fall to 10,000 from last
\nweek's close of 7,860, Fong said.<\/p>\n
She said \"the worst case scenario\" expected in 1999 was a
\ndevaluation of the Brazilian real that could wreak havoc on Wall
\nStreet and send markets in the region tumbling as well as
\npolitical chaos in Indonesia where key polls had been scheduled
\nfor.<\/p>\n
Analysts at IDEA said most of Asia's undervalued currencies
\nwould climb in the first six months of 1999 on the back of strong
\ncurrent account and capital account surpluses but warned of a
\nrocky second half with the \"reawakening of speculative activity\"
\nby hedge funds.<\/p>\n
The funds, blamed for Asian currency crisis, had mostly
\nunwound their long U.S. dollar positions in the third quarter of
\n1998 due to financial problems. This helped Asian currencies rise
\nby default.<\/p>\n
An IDEA survey suggests hedge funds could exploit the low
\ninterest rate environment in Asia from mid-1999 to take up short
\npositions against regional currencies, led by the Hong Kong
\ndollar.<\/p>\n
\"Pressure will mount on the Hong Kong dollar in the second
\nhalf (of 1999),\" warned Jacqueline Ong, IDEA's senior regional
\neconomist. \"Renewed speculation that the Chinese yuan will
\ndevalue will also hit the Hong Kong unit.\"<\/p>\n
Societe Generale said the yuan should remain stable but
\nchanges would be made to its trading band, which could arose
\nconcerns over the currency's longer-term direction and
\nmanagement.<\/p>",
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