All eyes turn to Thai bailout

All eyes turn to Thai bailout

SINGAPORE (AFP): Southeast Asian currency markets are anxiously awaiting the International Monetary Fund (IMF) bailout plan for Thailand as the region's monetary crisis enters its second month with no clear end in sight.

Since the Thai baht was effectively devalued July 2, the Philippine peso, the Malaysian ringgit, the Indonesian rupiah and the Singapore dollar have all plunged to levels unseen in years as speculators capitalized on real and perceived weaknesses in the region.

Economists said a positive Thai government reaction to the IMF rescue package, expected to be unveiled early this week and likely to prescribe bitter financial medicine, would provide some relief for regional currencies.

"We expect the IMF to suggest some form of belt-tightening in terms of government spending and also a more conservative approach with regard to the financial sector," said Andy Tan, general manager of investment house MMS International in Singapore.

"If the government is reluctant or unwilling, that could spark fresh weakness," he warned. "If the baht continues to be under attack, then the rest of the Southeast Asian currencies could be affected as well."

"The baht is the catalyst for the region at the moment," said Desmond Supple, head of Asian currency research at BZW (Barclays) Global Foreign Exchange in Singapore. "The baht is providing trading direction."

He said any salutary effects from the IMF package on currency stability could be short-lived because baht weakenesses would resurface, triggering another across-the-board attack on regional currencies.

Supple said IMF austerity measures could lead to a slowdown in growth and rising credit risks, "and that's an environment that is not conducive to renewed capital inflows." Moreover, some 40 billion dollars in short-term Thai debt is maturing in the next 12 months, he said.

"It all suggests that the baht has a lot further to fall before it can begin to stabilize," Supple said.

The baht, which closed here Friday at 31.90 to the dollar, has shed 29 percent of its value offshore since a managed float was announced by the central Bank of Thailand on July 2.

The Philippines was forced to do the same for the peso on July 11. On Friday it traded at around 29.00 to the dollar, nearly 10 percent down from pre-depreciation levels.