Asian currencies poised for new dive as won falls

Asian currencies poised for new dive as won falls

SINGAPORE (AFP): Asian currencies threatened to test new
depths against the U.S. dollar yesterday as South Korea scrambled
to avert a crash and proposals for an independent Asian fund to
bolster regional currencies were junked.

Most Southeast Asian currencies ended near recent lows as
investors took profits on the back of the uncertainty in South
Korea and domestic concerns, said Alison Seng, regional economist
with Standard and Poor's MMS.

The Singapore dollar fell to 1.5970 to the U.S. dollar -- its
lowest since February 1994 -- from 1.5890 on Tuesday, while
worries over further bail-outs for Malaysian companies drove the
Malaysian ringgit lower at 3.4680 to the U.S. dollar from 3.4110
on Tuesday.

Reports that the central Bank Indonesia was on the lookout for
speculators had investors trading cautiously on the rupiah, which
weakened to 3,512 to the U.S. dollar from 3,465 on Tuesday.

The bank had intervened Tuesday to cap the rupiah below 3,500.
The Philippine peso ended firmer at 34.73 to the U.S. dollar from
34.96 on Tuesday, while the Thai baht was virtually unchanged at
39.83 to the greenback from 39.85 the previous day.

The saga of volatile Asian currency trading continued as Asia-
Pacific finance officials agreed Wednesday in Manila on a
mechanism for aiding troubled economies and to tighten financial
surveillance, with the International Monetary Fund (IMF) playing
a "central role."

But they shot down the idea of an independent Asian Fund.
They agreed that bailouts must be done in consultation with the
IMF and on a "case by case" basis to augment a country's reserves
when IMF funds are not enough, a joint communique said.

"It seems nobody wants to take the lead so it's best to give
it to the IMF, " said Tan Kee Wee, currency analyst of United
Overseas Bank, one of Singapore's top banks.

Until this week's developments, Southeast Asian units had
largely stabilized against the dollar.

But analysts warned that a crash in South Korea's economy, the
world's 11th biggest, would drag in its wake Japan, one of its
closest competitors in exports, and mean further beatings for the
Southeast Asian units.

Remarks by South Korea's newly-appointed economic minister Lim
Chang-Yuel on Wednesday that the country "could consider
applying" for an IMF bail-out only aggravated the won's
situation, analysts said.

"To just 'consider' IMF help doesn't mean anything," said Tan.
South Korea announced measures such as the widening of its
currency trading band to 10 percent from 2.5 percent, a special
fund to write off bank loans, and the restructuring of financial
systems.

But analysts said the rumbling negative sentiment in Asia's
currency markets would only be tamed once South Korea does seek
the help of the IMF.

MMS' Seng said the won was headed for 1,200 levels, as forward
contracts on the won were already trading at those levels.

Trading on the won was suspended early Wednesday when it fell
to a new record low and its daily allowable limit of 1,035 to the
U.S. dollar from 1,012. 80 on Tuesday.

The weakness of the won exerted fresh pressure on the Taiwan
dollar, which also fell to a record low of 32.79 to the U.S.
dollar from 31.770 Tuesday.

The Hong Kong dollar was holding steady at 7.7305 to the
greenback but the Hong Kong Monetary Authority (HKMA) admitted
the crisis in South Korea could expose the territory's currency
once more to speculative attack.

"People in Hong Kong are concerned that Hong Kong will be the
next one," said Joseph Yam, chief executive of the HKMA, the de
facto central bank.

UOB's Tan expressed worry that already undue pressure on
interest rates -- kept in check by the HKMA -- would force the
peg of the Hong Kong dollar against the U.S. dollar to break
within this year.

"If you interfere with the interest rates, there's a danger
that the peg will break," Tan said.