Firmer Asian currencies likely: Analysts

Firmer Asian currencies likely: Analysts

SINGAPORE (Reuters): Asian regional currencies have lost as
much as 80 percent of their value since the crisis first hit last
July but later this year the picture should look much rosier,
financial analysts said.

The fixed or semi-fixed currency regimes that were prevalent
across Asia at the beginning of last year were basically blown
apart by widening current account gaps.

As the amount of cash to pay for imports accelerated away from
that coming in from export earnings, the currencies labored under
an increasingly heavy burden -- and eventually it was too much
for them and they fell.

But the crisis has flattened the Asian Tigers economically and
domestic demand is already contracting sharply. This means fewer
imports and a sharp improvement in the current account position.

"On the one hand weaker domestic currencies allied to slumping
levels of domestic demand are going to lead to a sharp fall off
in imports, while cheaper currencies are going to lead to higher
exports," said Desmond Supple, head of Asian currencies research
at BZW in Singapore.

"This year Asia is actually going to be a capital-exporting
region as defined by a large current account surplus."

Thailand has already announced bigger-than-expected trade and
current account surpluses for September and October, the first
clear sign that the baht's plunge is helping the country's
balance of payments.

Credit Lyonnais Securities in Singapore forecasts these
current account balances for the region this year, and bullishly
for the currencies, they are all surpluses: Indonesia $2.5
billion, South Korea $6 billion, Malaysia $1.1 billion,
Philippines $600 million, Singapore $11.9 billion and Thailand
$10.6 billion.

The effect of all this will certainly take a while and at
present Asia is still in the adjustment process and only in
January did negotiations get underway to solve the problem of
Indonesia's massive debt mountain.

The Asia crisis has moved into its second phase. The market
turmoil is over, now the period of economic adjustment can begin.

As economies slow down unemployment will raise its ugly head
and with it will come the possibility of social unrest.

Forthcoming elections in Indonesia and the Philippines will
also keep Asian currencies jittery, so before the improvement in
the current account position can have an impact there is likely
to be continued pressure on the regional currencies.

"We are not out of it yet," said Tim Fox, chief treasury
economist at Standard Chartered in London. "Currencies are
perhaps a little more stable due to the fact we have come a long
way very fast... (But) we are still waiting for issues, including
political issues, to be resolved so we are not at the end of
this."

So until the short- to medium-term issues are resolved trading
is likely to remain volatile and currencies soft.

"I think you are looking at the second half of the year...
Currencies won't show any meaningful bounce until you get beyond
medium- and short-term social and economic concerns," Standard's
Fox added.

So there will be an improvement and analysts are agreed that
by almost any measure Asian regional currencies are oversold a
current levels.

But until overseas investors can be tempted back in or cash
begins to flow into the region from increased exports the current
state of affairs is unlikely to change very much.