Peso no Pied Piper for regional monies<\/p>\n
SINGAPORE (Reuters): With its deepening political crisis and
\nfloundering markets, the Philippines is putting up a tough fight
\nfor Indonesia's ranking as the least sought-after investor
\ndestination in Asia.<\/p>\n
The peso's almost daily slide to new lows has soured already
\npoor sentiment for other Asian currencies in recent weeks, but
\nanalysts see little basis for a widespread knock-on impact.<\/p>\n
However, with no shortage of domestic worries and the grim
\nbackdrop of high oil prices and jittery U.S. stocks, investors
\nhave ample reason to stay away from Asia generally, they say.<\/p>\n
\"These currencies obviously are still correlated. But people
\nare not saying that if the Philippine peso goes to 50, by default
\nthe baht has to go to 46,\" said Steve Brice, treasury economist
\nat Standard Chartered.<\/p>\n
\"That may actually happen, but one doesn't lead to the other.
\nThere are domestic factors in Thailand that would lead to the
\nbaht weakening, and domestic factors in the Philippines.\"<\/p>\n
The peso was hovering around 48.44\/50 to the dollar at 0530
\nGMT, off Monday's all-time low of 49.00, as the threat of another
\nmassive interest rate hike held the market in check.<\/p>\n
The central bank said on Tuesday it had not yet decided on a
\nfurther tightening after raising overnight rates by 400 basis
\npoints and hiking bank reserve requirements twice in the past two
\nweeks.<\/p>\n
Higher rates and repeated central bank intervention have done
\nlittle to support the peso as jitters about President Joseph
\nEstrada's gambling payoff scandal stoke pessimism about an ever-
\nexpanding fiscal deficit and slowing economy.<\/p>\n
Manila markets continue to head south as the saga unfolds, and
\nanalysts say the central bank's efforts to shore up the peso have
\nassumed an increasingly desperate tone.<\/p>\n
\"We think the central bank has misjudged market sentiment...
\nJust by imposing higher interest rates, what little foreign
\ninvestor interest there is around the region may be scared away
\nfrom the Philippines,\" said Stanchart's Brice.<\/p>\n
Analysts say the peso's weakness is being driven by domestic
\ncorporate and retail buying of dollars and higher interest rates
\nare only likely to hurt the fragile economy.<\/p>\n
A number of banks have slashed their end-year peso forecasts
\nin the wake of its sharp drop against the dollar and no sign of a
\nlet-up in the gloom.<\/p>\n
Barclays Capital and JP Morgan are among the more bearish,
\nwith an end-2000 forecast of 52. Citibank expects the peso to
\nreach 50.5 on a one-month horizon and Stanchart is looking at 50
\nover the same period.<\/p>\n
So far, the Thai baht has tended to be most susceptible to
\nweakness in the peso as traders link the two currencies due to
\nsimilarities in their economies.<\/p>\n
The baht was quoted at 43.33\/36 at 0530 GMT, well off Friday's
\n28-month low of 43.68.<\/p>\n
But apart from some shared difficulties on the political
\nfront, large fiscal deficits and similar status on the technology
\nchain, the Thai economy is more than twice the size of the
\nPhilippines in terms of gross domestic product.<\/p>\n
And Thailand has more than its own share of problems, with
\nelections looming and investors still concerned about the slow
\npace of financial sector restructuring.<\/p>\n
Low interest rates and the Thai central bank's hands-off
\nexchange rate policy have also made the baht a prime funding
\ncurrency, analysts say.<\/p>",
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"sponsor": "Okusi Associates",
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