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.