Confusion over RI's peg plan keeps marts mixed

Confusion over RI's peg plan keeps marts mixed

SINGAPORE (AFP): Confusion over Indonesia's proposal to peg its beleaguered rupiah despite stern warnings from industrialized nations will keep Asian market sentiment mixed this week, analysts said.

Regional currencies last week strengthened against the U.S. dollar, decoupling themselves from the rupiah and most Asian stock markets took heart from their respective currencies' gains.

The rise against the dollar was also boosted by speculation the Group of Seven (G7) industrialized nations would jointly intervene to stabilize the regional units, but the currencies succumbed to weakness as the idea was scuttled by the United States a day before the G7 finance ministers' meeting in London Saturday.

"The region is still interlinked, and as doubts linger over the rupiah, the other regional currencies could slide into weaker range trading this coming week," said Jacqueline Ong, regional economist with IDEA.

Analysts forecast the rupiah will test the 10,000-to the dollar-level this week from its close last Friday of 9,000, while the Malaysian ringgit could weaken to 3.8500 from 3.7500, the Singapore dollar at 1.6500 from 1.6360, the Thai baht at 46.00 from 44.60, and the Philippine peso at 41.50 from 40.36.

The G7 ministers added their voices to a chorus of international protest over Indonesia's proposal to impose a currency board, that would effectively peg the rupiah to a fixed rate against hard currency reserves.

The G7 stated "our support for the IMF view that it is not the appropriate time for a currency board to be established" in Indonesia, British Chancellor of the Exchequer Gordon Brown said.

U.S. President Bill Clinton made another call Friday to Indonesian President Soeharto, his second in seven days, urging him "to demonstrate (Indonesia's) political commitment to reform," under the International Monetary Fund (IMF) agreement, a White House spokesman said Saturday in Washington.

Some analysts said the currency board plan would be shelved until the presidential elections on March 11, and the absence of a clear, official Jakarta statement on whether to proceed with the board or not would give the rupiah support against the U.S. dollar.

"We believe the IMF (and) U.S. Treasury would only allow Indonesia to pursue such an exchange system if Indonesia can achieve measurable progress in strengthening her domestic banking system and rescheduling her private foreign currency debt," ANZ Investment Bank said in a report yesterday.

With Indonesia taking centerstage, positive developments were overlooked in South Korea, which continued to see the return of foreign funds, following a ratings upgrade from Standard and Poor's and a positive IMF review prompting the release of additional IMF funds.

The won was also expected to weaken against the greenback after closing at 1,658 on Friday, with an expected "potential currency crunch in March," ANZ Bank noted, as US$10 billion of South Korean debt was due to mature.

Amid the focus on Indonesia, Saturday's G7 meeting and a Europe-Asia Forum in Singapore reiterated that apart from IMF reforms, much of the recovery in Asia hinged on the recovery of Japan's economy and China's resolve to keep its' yuan and the Hong Kong dollar's peg to the U.S. dollar.

The G7 ministers stressed the need for Japan to take further measures to kick-start its economy, although Japan rebuffed suggestions to increase introduce extra fiscal measures after the new economic reform package announced Friday.

Japanese yen was the big loser last week, as investors took a dim view of an economic stimulus package proposed by the ruling party and nerves set in over an ongoing bribery scandal hitting the finance sector.

The Japanese currency stood at 126.79-82 to the dollar late Friday, compared with 124.71-74 a week earlier.

Indonesian rupiah fell 1.76 percent over the week to close Friday at 8,650 to the dollar, from around 8,500 the previous week, as confusion mounted about government plans to set up a currency board.

Thai baht gained strongly to close at 44.70-90 against the dollar from 46.15-25 the previous week.

Malaysian ringgit ended the week slightly easier at 3.75 units to the dollar, down from 3.72 a week earlier. The closing level was nevertheless the high point for the week which saw the Malaysian currency at one stage drop to 3.90 ringgit to the dollar.

Philippne peso barely budged against the U.S. dollar, closing at 40.36 pesos to the dollar on Friday from 40.35 last week.

Singapore dollar ended the week higher against its U.S. counterpart at 1.6360 from 1.6500 the previous Friday.

Hong Kong dollar closed the week at 7.7447-7.7457 against the greenback from 7.738 to 7.74 the week before.

Taiwan dollar was little changed on the week, closing trade on Saturday at 32.826 against the greenback from 32.820 the previous week.

Australian dollar spent the week stuck in a rut amid mounting evidence that the Asian economic crisis will not leave Australia unscathed, analysts said.

The local unit closed at 67.58 U.S. cents Friday from 67.31 a week ago.

New Zealand dollar lost ground from a strong start to close Friday worth 57.97 U.S. cents on late offshore selling.