Asia exposed if Thais have to devalue baht

Asia exposed if Thais have to devalue baht

SINGAPORE (Reuter): If the political and economic turmoil in Thailand does leads to a devaluation of the baht it would have regionwide repercussions, with Malaysia the first in the speculators' firing line, currency analysts said yesterday.

Many analysts said they thought Thailand would not devalue and that such a move would only come if it is forced to politically following the resignation of its finance and commerce ministers this week.

So far the government and central bank have held their firm currency line. But what if a devaluation does come?

Analysts said Malaysia would be the first target because as well as some similar economic background factors, it also has a liberal enough exchange rate regime to allow speculators the liquidity they need to sell short.

"They do have some comparable economic figures," said Chiang Yao Chye, economist at CIBC Wood Gundy. "Speculators have been looking at Malaysia for some time now and the risk is obviously there if Thailand goes."

It was the ringgit which suffered most during the speculative attack on the baht in mid-May, prompting the central bank, Bank Negara Malaysia, to intervene aggressively.

The Malaysian authorizes are aware the ringgit is at risk again and last week top Bank Negara officials met local and locally-incorporated foreign banks over foreign exchange activities.

Analysts believe the central bank was whipping up support should the ringgit come under full-scale attack. News reports said the central bank had warned local banks not to lend money offshore for currency speculators.

"If baht jitters continue there could well be some more slippage of the ringgit, but after last week's meetings it's doubtful anyone will take a real pop at it," said one Singapore based analyst. "Bank Negara usually means business and things could get dangerous if you were short at the wrong time."

The Philippine peso is another possible target for selling and has indeed been hurt by the baht crisis, but like Bank Negara, Bangko Sentral ng Pilipinas has already moved to stave off further pressure.

On Thursday the central bank raised its overnight borrowing rate to 15 percent from 12.75 percent after the peso slid as the baht came under pressure following the departure of Thai finance minister Amnuay Viravan.

Last month, it raised rates to a two-year high of 20 percent when the baht's weakness pressured the peso.

The Indonesian rupiah also stands out as a speculative target and has already suffered amid fears by offshore investors that Thailand's problems could spill over into Indonesia.

But the spirit of regional cooperation seems to be alive and well and analysts said speculators will remain wary of aggressive selling, particularly those which were stung by the Bank of Thailand's aggressive moves during the baht crisis.

Singapore Finance Minister Richard Hu said on Thursday that Singapore would continue to help Thailand defend the baht against speculators.

"It's all very well looking at these currencies and seeing which is the most vulnerable, but after what Richard Hu said yesterday you have to be careful before taking a big position," said one forex trader at a leading European bank.

"You would certainly see the likes of the ringgit take a hit if we get a Thai devaluation, but you could get hit by intervention from every side...they've acted in concert before they could well do it again."