3 nations face Y2K capital flight

3 nations face Y2K capital flight

SINGAPORE (DPA): Fear of the "millennium bug" will cause damaging capital flights from China, Indonesia and Thailand, where investors will worry the computer problem could wipe out their funds, analysts said in a report Wednesday.

But in places better prepared for the Y2K problem, such as the region's financial centers Hong Kong and Singapore, investors will bring money home to avoid unknown risks abroad, to the benefit of the local economies.

Barclays Capital analysts in their Asian Monthly report admitted that "assessing Y2K risks is difficult" because available information is often opaque.

The bank identified China, Indonesia and Thailand as "high" in disruption risk. South Korea and Malaysia fell in the "medium" category and Hong Kong joined Singapore as "low".

It is feared the Y2K bug will disrupt computer system everywhere on New Year's Eve because the machines could misread the digits 00 of the year 2000 as meaning 1900.

"Even where companies are prepared, it is difficult to check Y2K compliance in their suppliers and customers," analysts said, citing Hong Kong as heavily dependent on trade and investment with China.

"Taiwan's trade is mainly with North America, Europe and better prepared Asian countries, and so the island is less vulnerable to disruption outside its borders," it said.

In badly-prepared countries, Barclays Capital said, liquidity will flood offshore and currencies will weaken over the New Year.

"Investors in less prepared countries will place money offshore, pressuring their home currencies and domestic asset prices," said the report.

The first quarter of 2000 will see "Y2K hiccups ironed out," it predicted, with foreigners relocating assets to emerging markets.

Other "special factors" influencing Asian economies would be a likely devaluation of China's currency in the first quarter of next year, more political and financial distress in Indonesia and ongoing financial sector weakness in Thailand.