S.E. Asia faces currency volatility<\/p>\n
SINGAPORE (Reuter): Southeast Asian central banks, facing
\nslower export growth, a welter of domestic issues and the specter
\nof offshore speculation, may be forced to tighten their grip on
\ntheir currencies, economists said.<\/p>\n
\"A combination of poor fundamentals, the stronger yen and
\nslowdown in the flow of funds from Japan is creating renewed
\npressure in the local currency markets,\" a report from Deutsche
\nMorgan Grenfell said this week.<\/p>\n
It said the Thai baht and the Indonesian rupiah were among the
\ncurrencies under most pressure as export growth slowed.<\/p>\n
Economists said the baht seemed the most vulnerable and could
\nbe the target of investor and speculator sales if the Bank of
\nThailand (BOT) was seen lacking the resources to support it.<\/p>\n
The baht was subject to a largescale withdrawal of funds two
\nweeks ago. Foreign exchange dealers said the BOT had to spend
\nmore than US$1 billion to defend it.<\/p>\n
A report from MMS International on Tuesday said capital
\noutflow of 50 billion baht was expected if second-quarter
\nearnings of listed firms in Thailand were poor.<\/p>\n
Thai economist Somjai Phagaphasvivat of Thammasat University
\nsaid the BOT may face further tests of its determination to
\ndefend the baht if Thailand's current account deficit showed no
\nsigns of narrowing in the next few months.<\/p>\n
Relatively lackluster exports during the first half of this
\nyear have forced the BOT to raise its projection of the 1996
\ncurrent account deficit to 7.8 percent of gross domestic product
\n(GDP) from 6.5 percent.<\/p>\n
The baht has been battered by talk of devaluation and widening
\nof its trading band, but economists say the central bank isn't
\nlikely to move on any of these measures.<\/p>\n
\"The conservative institutions in Thailand will rally behind
\nthe baht. They will only be willing to give it up from a position
\nof strength,\" said one.<\/p>\n
In Indonesia, the potential of political disruptions rising
\nfrom the government's dealings with ousted opposition leader
\nMegawati Soekarnoputri, is keeping the rupiah's outlook fragile.<\/p>\n
Economists say the rupiah, now favored for its high interest
\nrate yield, is vulnerable to sharp capital outflows such as the
\none last month triggered by fears over President Soeharto's
\nhealth.<\/p>\n
The central bank also has to grapple with high domestic
\nconsumption growth, a slowdown in export growth and a strong
\ninflow of arbitrage funds from offshore investors.<\/p>\n
Bank Indonesia governor Soedradjad Djiwandono said last week
\nshort-term capital inflows were causing monetary problems but
\nrejected short-term measures to deal with them.<\/p>\n
\"If the flows are considered to be transitory, then there is
\nno reason to overreact,\" he said, adding policy options for the
\ncentral bank included flexibility in exchange or interest rates.<\/p>\n
Indonesia's currency regime, based on a basket of currencies
\nwith a depreciation rate of between four and five percent a year,
\nhas sufficed so far, economists said.<\/p>\n
\"A temporary cooling could remove some pressure from the
\ncentral bank because money supplies had risen regularly above its
\ntarget due to the inflows,\" a Jakarta economist said.<\/p>\n
The Singapore dollar, often a safe haven, may come under
\npressure as GDP growth slows. The economy grew at 7.0 percent in
\nthe second quarter of this year against 10.9 percent in the
\nfirst.<\/p>\n
The Singapore dollar has been suffering outflows against the
\nringgit in recent weeks, forex dealers said. The Monetary
\nAuthority of Singapore, the de facto central bank, is monitoring
\nthe situation very closely, economists said.<\/p>\n
In Malaysia, the ringgit is drawing inflows from the baht and
\nthe rupiah, but dealers said the central bank was likely to use
\nmonetary policy to deal with heavy flows.<\/p>\n
Dealers said allowing interest rates to fall may be part of a
\ncentral bank plan to slow the inflow of foreign funds taking
\nadvantage of Malaysia's interest rates.<\/p>\n
In 1994, amidst heavy flows of hot money in and out of the
\ncountry, Bank Negara lost several billion dollars and was forced
\nto impose capital controls such as preventing foreigners from
\nowning government paper and negative interest rates.<\/p>",
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