ASEAN economies could get reprieve if dollar stays down
ASEAN economies could get reprieve if dollar stays down
SINGAPORE (Dow Jones): Southeast Asian economies could get a
reprieve from global pressure, following the sharp drop of the
U.S. dollar on currency markets, economists said.
But the question remains whether the dollar is out for the
count or will return quickly to fighting trim.
If the dollar's weakness takes root, it could allow crisis-
stricken countries to boost their economies by cutting domestic
interest rates, but some analysts warn there are also pitfalls to
a weak U.S. dollar. "That, in general, is good news," said
Friedrich Wu, chief economist for Development Bank of Singapore
Ltd. "This is assuming, of course, that this will develop into a
trend in the next couple of months and it's not just a short-term
aberration."
"The weakening of the U.S. dollar has left Asian currencies
with a firmer bias, but they look to be following with a
considerable lag," Standard Chartered Bank in Singapore wrote in
a report Thursday.
Wu at DBS said if the yen remained strong against the U.S.
dollar, it could help spur demand in Japan, boosting exports to
the country from the region.
He said the impact on overall exports from the region would be
relatively small, because a credit crunch and problems in trade
finance have kept Southeast Asian companies from taking full
advantage of their countries' weaker currencies.
David Bain, Asian economist for Schroder Investment Management
in Singapore, said currency stability was more important to
regional recovery than sharp swings in either direction.
"What this region needs is currency stability, and not these
movements all over the place," he said. "It (the yen's strength)
is not backed up by fundamentals. I can't imagine that the
Japanese are going to come out with anything revolutionary."
He said he expected the U.S. dollar to recover, which would
continue the recent volatility on foreign-exchange markets.
"There's currency weakness out there," he said, "but the big
proviso is what's happening with the U.S. dollar."
Standard Chartered bank was also skeptical about the weakened
U.S. dollar's benefits.
"Indeed, the weakened U.S. dollar does little to aid the
outlook for Asia, coming as it does in part from a deteriorating
outlook for the U.S. economy," its report said.
Bain noted one benefit from the weakening dollar was that it
took pressure off the Chinese yuan and the Hong Kong dollar's peg
to the U.S. dollar. Analysts have feared that a devaluation of
the yuan would trigger a fresh bout of trouble for the region.
The central bank has already started to reduce interest rates
and will continue to do so," said Didik Rachbini, economist at
the Institute for Development of Economics & Finance in Jakarta.
As for Malaysia, the surge of the regional currencies can only
be positive, economists said.
Since the beginning of September, the ringgit was effectively
pegged at 3.80 ringgit to the dollar as the government imposed
foreign-exchange curbs that closed the capital account.
Prime Minister Mahathir Mohamad recently raised the
possibility that the ringgit (MYR) might be devalued if the value
of other Southeast Asian currencies were to be eroded
dramatically.
With the dollar's decline against the region's currencies,
analysts said, Malaysia has the added advantage of a more
competitive exchange rate, and export volumes could pick up.
"There was some concern when the peg was first introduced that
it was a bit high and may need to be adjusted," a local economist
at a brokerage house said. "But any change would have undermined
the whole point of the capital controls.... This rally in the
currencies, for Malaysia, is good news."