Currency speculators

The recent bashing of so-called "currency speculators" in Southeast Asian countries deserves to be looked at from another perspective.

These players are labeled speculators because there is no certainty that their actions will be profitable. It is known that international banks have lost money on their foreign exchange dealings and even George Soros lost considerably when he tried his hand with the German mark not so long ago.

Instead of trying to criminalize these currency speculators, one has to thank them for telling the various governments in Southeast Asian that they have not been managing their economy well.

More often than not, these players have big stakes in the economy of the countries they concern themselves with. If you are a fund manager with a substantial portfolio of investments in a country and its economy is not healthy for a variety of reasons -- be it huge foreign debts, a large current account deficit, unsustainable high inflation, undermanaged growth or, more likely, a combination of all these reasons -- you need to do something.

If they perceive that the economy is not heading in the right direction and feel that the value of their investments in the original currency is threatened, they have little choice but to sell this currency rather than dispose of the investment, which could still represent good value and compensate them for the exchange loss.

Their simple preventive or self-preserving action will be seen as speculative. And if enough people are taking the same action, the result is predictable. But then again, it simply means they all believe there are problems with the economy.

In short, the currency speculators hedge the currency because they are concerned about the economy and the value of their investment.

Instead of accusing the currency speculators of disrupting the monetary wellbeing of a country, the government should examine the reasons behind the speculations and take remedial action to correct the country's weakness.

The Southeast Asian countries at the mercy of the currency speculators share a common factor: an economy needing attention. But the government did not face up to the problem for political reasons or it believed the market economy would adjust itself.

If it is the latter, then what happened is the market's reaction to reflect the currency's correct value. The outcome may have been different if actions had been taken earlier to prevent, for example, the overbuilding of properties, growth of an unsustainable and chronic current account deficit and foreign debt -- all of which are the consequences of the prolonged, strong growth experienced over the past decade or so.

The actions needed for adjustment are usually quite unpalatable and unpopular with voters. But this is the price they must pay if they do not take timely corrective measures to deal with an economy which grows unimpeded.

P.H. LOO

Jakarta