Currency swing spells fears in Asia-Pacific
Currency swing spells fears in Asia-Pacific
By Tim Cribb
HONG KONG (AFP): As Tokyo and Washington struggle to resolve
the yen-dollar crisis, other Asia-Pacific economies are becoming
worried about the impact on their current accounts and inflation.
While the depreciation of the dollar is likely to boost the
competitiveness of the region's exports, it would also make
imports more expensive and that translates into higher prices for
consumers.
In Hong Kong, where inflation is running at around nine
percent, analysts said the currency's official peg to the U.S.
dollar exposes the territory to "imported inflation" -- price
rises forced upon it by external factors, such as the yen's
appreciation.
Jim Wong, an economist at Hong Kong and Shanghai Banking
Corp., said that about 25 percent of imported consumer goods come
from Japan, and while price increases were being absorbed in the
short term, consumers would have to pay if the dollar fails to
rebound.
Rory Robertson, senior economist at Bankers Trust Australia,
said the recent fall of the Australian dollar as it followed the
U.S. unit down would push up import prices and renew pressure on
firms to pass on the cost to final prices.
Analyzing recent falls in the Australian dollar and its effect
on prices, he estimated that a 10 percent drop in the value of
the currency against those of major trading partners would
translate to a 1.0-to-1.5 percentage point rise in inflation
after a year.
Reserve Bank Governor Bernie Fraser has said he aims to keep
underlying inflation, measured at 2.1 percent in 1994, at two-to-
three percent.
He recently warned: "Downward pressure on the exchange rate,
if it were to persist, would add to inflationary pressures and
force the authorities into tough policy measures."
In Malaysia, the ringgit has declined 20 percent against the
yen since January, triggering fears of an larger current account
deficit with Japan.
"Malaysia has to pay more for imports and we are not sure if
exports can be spurred," said Mustafa Mohd Noor, chief economist
at Arab Malaysian Securities Sdn. Bhd.
Malaysia had a 21.1 billion ringgit (US$8.57 billion) deficit
with Japan last year and, if the yen continued its surge, that
was likely to grow a further three billion ringgit, Mustafa said.
Malaysia has also been hit by the falling U.S. dollar as its
exports to Japan are mainly commodities denominated in dollars.
In Thailand, where the baht has appreciated 2.6 percent
against the dollar and fallen 20 percent against the yen, there
were also inflation worries.
Jakraphand Phuthayanonda, treasurer of Citibank Bangkok, said
there would be no "sudden impact" in the short term, but a long-
term impact could not be ruled out if the baht remained strong.
He pointed out that the Bank of Thailand (BOT) has its own
measures to control inflation and prevent the economy
overheating.
Singapore Finance Minister Richard Hu said earlier this week
that the Monetary Authority of Singapore had to intervene quite
actively to support the U.S. dollar to prevent the local currency
from rising too rapidly.
"And we have to continue to do this. The consequence of this
is that it then drives liquidity in the market up and then
depresses interest rates. If this persists for any length of
time, it causes asset inflation and you've got to balance it," Hu
warned.
The Singapore dollar has appreciated by more than three
percent against its U.S. counterpart this year, an increase that
came on top of a strong 10 percent rise last year.
Indonesian analyst Rizal Ramli, of the private Econit advisory
group, said the dollar's depreciation would add to inflationary
pressure by increasing the cost of imports, especially capital
goods, which came mainly from Japan.
The Philippines current account deficit meanwhile "may
adversely be affected" since the depreciating dollar could
strengthen the peso and affect competitiveness of the country's
exports, said Mario Lamberte, vice-president of the semi-official
Philippine Institute for Development Studies.
He added some Philippine industries, such as automotive
assemblers, rely on Japanese imports, and higher prices could
fuel the current account deficit.
However, the depreciating dollar "would impact less" on
inflation in the Philippines since such products as automotive
parts imported from Japan have less weight in the calculation of
the rate, he said.