Asian currencies shaken by doubts on RI plan

Asian currencies shaken by doubts on RI plan

SINGAPORE (Reuters): Doubts about Indonesia's plans to adopt a
currency board system weighed upon Asian currency markets on
Thursday, putting an abrupt end to recent gains.

Dealers said skepticism about the proposal was heightened by
U.S. Treasury Secretary Robert Rubin's comment that Jakarta
needed to strengthen its banks and reaffirm its commitment to
reforms before introducing a currency board.

"They can't resolve the whole crisis with just that. The
market needs to see what solid measures they are going to come up
with," a European bank dealer in Singapore said.

"It was probably just a temporary thing, all the regional
currencies going up. The question is how are they going to do
this (implement a currency board)," she added.

In Indonesia, the rupiah was unsettled by mounting concerns
over social unrest and the country's political succession but
dealers said expectations its value would soon be pegged limited
the damage.

It remained near the 7,000 per dollar level for most of the
day, up from a low of 7,800 after the ruling Golkar party named
parliamentary speaker Harmoko and Research and Technology
Minister B.J. Habibie as vice-presidential candidates ahead of
the March election.

"We see a balance of political concern and the fixed-rate
regime which would keep the rupiah traded between 7,000 and
8,000," a dealer said.

The proposed system would glue Indonesia's rupiah to a
convertible currency, expected to be the U.S. dollar, and tie
cash in circulation to central bank reserves.

It effectively eliminates the need for a central bank or an
independent monetary policy because any increase in money supply
must be matched by an increase in reserves. If reserves fall,
interest rates must rise to protect the currency.

The IMF said it had started talks with the Indonesians about
what was needed to bring in a currency board. But a spokesman
gave no details.

Finance Minister Mar'ie Muhammad said on Wednesday the
government was putting together a framework to set up a currency
board system which it would submit to parliament for approval "in
the near future".

Elsewhere, the Malaysian ringgit slid back through the 3.70
per dollar level and dealers said it was likely to head for
3.80/83 in the face of renewed dollar demand from U.S. funds and
Kuala Lumpur companies.

"U.S. funds seem to have reversed their decision earlier in
the week which had taken dollar/ringgit from 3.85 to below 3.50,"
another European bank dealer in Singapore said.

Bank Negara Malaysia said it had no plans to set up a currency
board to control fluctuations in the ringgit.

The Singapore dollar slithered lower in synch with its
neighbor. Dealers said dollar/Sing appeared to have found a base
below 1.62 and should soon revisit 1.65/66.

The Thai baht also weakened on dollar demand from Thai
companies seeking to make loan payments, but dealers said its
fall was being cushioned by offshore dollar sales.

"We are waiting for Indonesia to see what will happen about a
currency board. Nobody wants to long it (the dollar) anymore,"
said a foreign bank dealer in Bangkok.

The Bank of Thailand (BOT) said it had not discussed the idea
of a currency board with the International Monetary Fund (IMF) to
stabilize the baht, as reported by a Thai newspaper on Wednesday.

"We have not been contemplating this at all as we decided to
go with the baht's flotation and now that seems to have gone
well," BOT spokeswoman Duangmanee Vongprathip told Reuters.

A senior IMF official said any relaxing of terms for the
fund's multilateral $17.2 billion bail-out package for Thailand
should be done cautiously.

IMF Asia-Pacific director Hubert Neiss said he expected a
review of Thailand's efforts at economic reform to be completed
by Friday.

The Philippine peso snapped a three-day rise to end lower,
pulled down by weakened Asian currencies and dollar demand from
oil firms.

In North Asia, the Taiwan dollar was also dented as losses in
Southeast Asian currencies triggered strong buying of the dollar
through non-delivery forward trading.

The Hong Kong dollar fell through 7.74 to the U.S. dollar and
forwards reversed course to head higher amid concerns about
Indonesia and tension between the United States and Iraq.

The South Korean won remained prey to labor concerns as a
trade union said it would launch a general strike on Friday, to
protest planned layoff legislation, despite a warning from state
prosecutors that strikers would be severely punished.