Asian currencies drop on Indonesian fears

Asian currencies drop on Indonesian fears

SINGAPORE (Reuters): Asian currencies weakened yesterday amid fears the International Monetary Fund's next disbursement of aid to crisis-riddled Indonesia might be delayed.

Senior banking sources in Jakarta said Indonesia's political preoccupations ahead of next week's election and the need to reassess some fundamental economic assumptions were likely to push back an IMF review of the country's performance.

An IMF review team is in Jakarta to assess progress on reforms and economic performance before the fund decides on the release of a second $3.0 billion assistance tranche.

Dealers said the Indonesian rupiah fell to a low of 9,500 per dollar as London players bought dollars from the 9,100/200 levels.

Mounting pressure on Jakarta to abide by IMF reforms and abandon plans for a currency board had pushed the rupiah below 9,000 per dollar overnight.

Deputy U.S. Treasury Secretary Lawrence Summers said the United States would not support payment of additional funds from Indonesia's IMF-led rescue package unless there was progress on budget, structural, monetary and banking sector reforms.

Indonesian financial markets were unimpressed by news of the country's $11.77 billion trade surplus in 1997 and $1.535 billion surplus for December.

Fears about a potential delay in IMF aid to Indonesia undermined the fragile stability of Asian currency markets, which had recovered some composure after sliding on news that Malaysia's Sime Bank had posted losses and needed fresh funds to recapitalize.

Bank Negara governor Ahmad Don said late on Tuesday that Sime Bank was not insolvent and depositors in the bank would not be affected as their interests were guaranteed by the government.

The ringgit fell from its highs above 3.60 to the dollar on Tuesday while Kuala Lumpur stocks ended nearly four percent lower on Wednesday.

But currency dealers said the ringgit had absorbed the worst of the shock and was unlikely to revisit a low of 3.85 to the dollar soon.

"If anything, it should correct back because they're still afloat and the talk of the RHB merger is positive. So people shouldn't get so nervous. The dollar was a bit overbought," a senior regional currencies dealer in Singapore said.

Malaysian financial services firm Rashid Hussain Bhd said on Tuesday it had received approval from Bank Negara to proceed with merger negotiations for the acquisition of Sime Bank.

Across the border, the Singapore dollar was pulled down by the rupiah's fall but steered clear of its early lows of 1.6450 to the U.S. dollar.

The Thai baht slipped from its recent perch as declines in the ringgit and rupiah added to domestic concerns about a no- confidence motion against the government and criticism of the central bank's heavy spending to defend the baht and bail out the finance sector.

The Bank of Thailand said it had loans worth 716 billion baht outstanding to ailing financial institutions.

Finance Minister Tarrin Nimmanahaeminda said the government was seeking the expertise of the World Bank, IMF and major central banks to help restructure the Bank of Thailand.

The market showed little immediate reaction to news that a new Japanese loan of $600 million to Thailand, currently under discussion, would be agreed by the middle of March.

The Philippine peso tracked movements of other Southeast Asian currencies, recovering slightly after dropping below 40.00 per dollar in early trade.

The South Korean won recouped early losses on unwinding of dollar positions by banks.

Seoul traders said the won's direction would be determined by foreign inflows to the stock market, which slowed on Wednesday.

The Taiwan dollar ended firmer on persistent foreign equity inflows to the stock market.

The Hong Kong dollar was steady while forwards extended their gains as the ringgit's drop shook the recent calm of regional currency markets.