ASEAN policy on Cambodia hailed

ASEAN policy on Cambodia hailed

HONG KONG (Reuter): Fund managers yesterday welcomed ASEAN's decision to postpone Cambodia's entry into the group, but said the recent chaos in the country was unlikely to damage already weak sentiment towards the rest of Asia.

"I think it would have called into question the credibility of the organization," said Eugene Chung, regional strategist at SBC Warburg.

Sources said the Association of South East Asian Nations had decided to postpone Cambodia's induction into the group at an emergency meeting in Kuala Lumpur yesterday.

Cambodia, Laos and Burma were set to join the group at the end of this month. ASEAN groups Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

ASEAN's decision to include Burma first grabbed attention from Western nations, but the spotlight quickly swung to Cambodia when fighting erupted in last weekend's virtual coup by the nation's second prime minister, Hun Sen.

Hun Sen is effectively in control of the capital Phnom Penh and well entrenched in the south and east of the country, while forces loyal to his ousted rival, First Prince Norodom Ranariddh, are regrouping in their traditional strongholds in the north and northwest of the country.

"What is ASEAN supposed to mean?" Chung asked. "Taking money out of ASEAN, that kind of rejection wouldn't be associated with an increase in political risk (had they gone ahead), it would have been associated with the credibility of the organization."

International protests would have been inevitable, he said. Most international investors are well-versed in a country's political risk before they invest, but Cambodia could well face the loss of foreign direct investment from countries such as Malaysia, Japan and Singapore.

But the effect on regional stock markets would be minimal.

"I don't think there is any particular issue that is likely to influence financial markets in Asia from what's arising in Cambodia," said Stewart Aldcroft, director of marketing at Templeton.

"If there is any market likely to be affected, it's possible to be those around it, including Thailand. But Thailand is already pretty well worked out as a market, so I wouldn't expect too much (impact)."

Currency weakness in the Philippines was a far more serious factor for sentiment than Cambodia, fund managers said.

"Well, hell, yeah," said one institutional investor, when asked whether speculation on the peso was more important than Cambodia. "I think the peso's going to go."

The Philippine Central Bank raised its key overnight borrowing rate by two percentage points on Thursday to 32 percent, the highest in 2-1/2 years, to keep the peso at about 26 to the U.S. dollar.

The overnight rate has roughly doubled in the past week as the Central Bank tries to spare the peso the fate of Thailand's currency.

There were reports of massive intervention, with US$300 million reportedly dumped into foreign exchange markets on Wednesday. Speculation on the peso followed Thailand's July 2 float and effective devaluation of the baht.