Asian currencies shine on hopes of G-7 help

Asian currencies shine on hopes of G-7 help

SINGAPORE (Reuters): The fate of Indonesia and its neighbors rests on this weekend's meeting of finance ministers and central bankers from the Group of Seven (G-7) nations, dealers said yesterday.

Asian currencies were mostly firmer as dollar positions were squared off on hopes the G-7 would announce a concerted currency intervention to prop up beleaguered Asian units.

A communique at the end of the G-7 meeting is also expected to include an alternative way to stabilize Indonesia's rupiah to head off Jakarta's proposed currency board system, which has been under heavy international fire.

"There is an optimism at large that the G-7 will come out with strong measures to resolve Asia's crisis and this has to, must, include an alternative to Indonesia's currency board," said a senior dealer with a European bank.

"Because if they do not, and Indonesia goes, Asia will be destabilized and we will head for a global recession," he said.

This hope was fueled by a Japanese report that there would be concerted intervention, a measure advocated by Japan and aimed at restoring confidence in Asia and notably the rupiah, which has lost over 70 percent of its value against the dollar since July.

The rupiah was firmer yesterday, hitting a high of 8,600 as confusion reigned over its planned currency board.

"The rupiah bearishness has been capped at 10,000 over the last few days because no one wants to short rupiah at this level in case the currency board is implemented," said a dealer with a Singapore bank.

"There is still a lot of nervousness over President Soeharto's intentions although it now appears more likely the proposal might have to be shelved," the dealer said.

International institutions, the United States, the European Community and some other countries have fought hard to persuade Jakarta not to implement a currency board system, at least, not yet.

Deputy Prime Minister Lee Hsien Loong told parliament yesterday Singapore's proposed guarantees for Indonesian trade financing would be formalized only after Jakarta decided whether or not to use a currency board system.

The International Monetary Fund (IMF) has even suggested it might withdraw its $43 billion bail-out package if Indonesia goes ahead with the proposal.

Asian currencies firmed in tandem with the rupiah.

The Malaysian ringgit stayed firm at 3.7400/00 on offshore demand as players scrambled to sell the greenback.

"There is strong selling in the dollar/Malay. Stop losses were triggered at 3.75 and good interest to buy the ringgit at 3.71 to 3.73 by two major American players," said the senior dealer with a European bank.

The sale of dollar/ringgit triggered sales in dollar/Sing.

The Singapore dollar eased to 1.6310/60 from a low of 1.6210 after the government said it was reviewing specific adjustments to the use of the Singapore dollar, particularly in the capital markets.

Lee said if the Singapore dollar was widely held, it would be more vulnerable to speculative attacks even though Singapore could fend this off with its huge reserves.

The Singapore dollar was expected to hover between 1.62 to 1.65 in the next few days, dealers said.

"It should hold those levels until after the G-7 and after the situation between Iraq and the United Nations (UN) is clearer," one said.

Tension is high in the Gulf over a possible U.S.-led military action against Iraq. Two UN officials arrived in Baghdad yesterday to prepare for Secretary-General Kofi Annan's last ditch peace mission.

"While the focus is on the G-7, there will be a spillover from the UN-Iraqi tension if it worsens because any outcome will affect the G-7 currencies and Asian units cannot escape," the dealer said.

Fund selling ahead of the G-7 gave the Thai baht a boost to 44.60/900 compared to 45.25/45.55 on late Wednesday.

Waigel's comment that the baht's current level did not reflect its true fundamentals also lifted the currency, dealers said.

The South Korean won and the Taiwan dollar got an added boost from their robust stock markets, which mirrored Wall Street's record close on Wednesday.

Bucking the regional trend was the Hong Kong dollar as the sharp drop in local interest rates following the release of a better-than-expected fiscal 1998/99 budget proposals.