Asia currencies firm but still eye Indonesia

Asia currencies firm but still eye Indonesia

SINGAPORE (Reuters): Indonesia's currency board dilemma
dominated trade in Asian foreign exchange markets again on
Wednesday, but traders appeared to be losing interest as the
issue dragged on with no sign of a clear resolution.

Most Asian currencies firmed in thin, technically-driven trade
as players became increasingly reluctant to commit themselves
against a backdrop of uncertainty in Indonesia.

The rupiah remained comfortably above the 10,000 per dollar
level, but its gains were expected to be capped due to persistent
anxiety about Indonesia's political and economic outlook.

"There's all this haggling between having a currency board and
not having one ... People are pretty nervous. If they decide to
go ahead, the IMF may pull out of the rescue package," a senior
regional currencies dealer in Singapore said.

Singapore's Business Times newspaper quoted an unnamed senior
Indonesian government official as saying Jakarta had decided to
jettison discreetly plans to adopt a currency board.

"I can tell you that, as of yesterday, we have been quietly
orchestrating the burial of the currency board proposal," the
newspaper quoted the official as saying.

But all signals from Indonesia suggested the plan was still on
the cards.

New Bank Indonesia (BI) governor Sjahril Sabirin was quoted as
saying Indonesia would be in constant touch with the
International Monetary Fund (IMF) over the proposed board.

"I believe the IMF does not contradict the government's plan
of applying the CBS, therefore we will continue consultations,"
Antara news agency quoted him as telling BI directors.

"Right now we are preparing the necessary infrastructure which
might minimize the adverse effects of the application of the
currency system," he said.

Other Southeast Asian currencies benefited from the rupiah's
improvement and dealers said market sentiment and technical
factors suggested more near-term gains.

"It seems we're going to see stronger Asian currencies against
the U.S. dollar in the short term. I wouldn't be surprised to see
dollar/Sing back near the recent 1.61 lows or dollar/ringgit
below 3.50," a U.S. bank dealer said.

The Singapore dollar surged to a high of 1.6420 to the U.S.
dollar as U.S. funds sold dollars from the 1.6740 level,
triggering stop-loss sales at 1.66 in a relatively thin market.

"I believe the market is very long dollars. Those who were
structurally long above 1.80 were just dumping dollars. I think
we could go to 1.63 tonight," a European bank dealer said.

Dealers said Singapore's raft of proposed reforms of the
banking and finance sectors was unlikely to have immediate
impact.

The Malaysian ringgit firmed through the 3.80 per dollar
level, helped by stock market gains and buying of the
ringgit/Singapore dollar cross.

The Thai baht and Philippine peso were also stronger but
doubts about Indonesia discouraged trade.

"We are just sorting out the corporates and we will go with
the market because it's just not worth trying to read it at this
point," a local bank dealer in Bangkok said.

While the baht was beginning to stand on its own feet, dealers
said a dramatic move in the rupiah would have an inevitable
knock-on effect despite signs Thailand was handling its economic
woes well.

"The word regional is still quite strong. Although there is a
difference, you can't altogether separate the markets," the
dealer said.

In North Asia, the Hong Kong dollar was largely steady and
interest rates fell sharply on the government's better than
expected budget proposal.

Financial Secretary Donald Tsang presented a 1998/99 budget,
which included a variety of personal tax allowances and a
proposal to cut corporate tax.

The proposed budget could help boost the depressed economy at
least in the short run, said Toby Yuen, treasury manager at Bank
Brussels Lambert.

Earlier, the Hong Kong Monetary Authority was heard offering
term funds with maturities below one month, causing local
interest rates to ease.

The South Korean won weakened on dollar short-covering by
importers as traders remained uninspired by Standard and Poor's
move to raise Seoul's credit rating.

The agency raised its long-term foreign currency credit rating
to BB-plus from B-plus on Tuesday, citing government progress in
implementing labor, corporate and bankruptcy reforms. It left
Korean debt still below investment grade status.

The Taiwan dollar finished firmer, reversing an early decline,
on late U.S. dollar sales in the non-deliverable forward market
and foreign fund inflows to the stock market.