Focus shifts to ringgit as rupiah, baht lose shine

Focus shifts to ringgit as rupiah, baht lose shine

SINGAPORE (Reuter): Southeast Asia's most sought after
currencies, the Indonesian rupiah and the Thai baht, are losing
their sheen as policy uncertainties and fear of capital controls
force investors to look elsewhere, analysts said at the weekend.

Benefiting on the rebound is the Malaysian ringgit, which
though dogged by a spate of not-so-good news for its economy has
been surging in the past two weeks, pushed up by fresh investment
and relocation of funds by international investors, they said.

Analysts said factors that had made the rupiah and baht
attractive, their high yields, or domestic interest rates, are
still the highest in the region.

But there was a possibility of both Indonesia and Thailand
putting in place controls to slow the flow of capital into their
funds-flush economies.

"There is a fear in the market that Thailand and Indonesia,
unable to manage the inflow of funds, may impose some capital
restrictions," said a dealer with a Kuala Lumpur bank.

High inflation in the two countries is making it imperative
for them to maintain a tight monetary policy, but inflow of funds
has been exerting pressure on interest rates.

The Bank of Thailand said about 240 billion baht (US$9.4
billion) of foreign funds flowed into Thailand in the first three
months of the year. Of the foreign funds, up to 170 billion baht
was invested in bills of exchange and 70 billion baht in non-
resident baht accounts.

Dealers in Bangkok said the Bank of Thailand was considering
various measures to curb the "hot money", or short term funds,
flow into the country, including changing the basket of
currencies against which the baht is valued and curbing sale of
all government paper to foreign investors.

"There is a possibility of some curbs (on foreign funds),"
said Desmond Supple, regional economist with British research
firm I.D.E.A. in Singapore.

He said in Indonesia too "there is growing pressure on the
government to allow greater depreciation of the rupiah".

"Inflationary pressures (in Indonesia) are undermining any
monetary loosening, but it has to maintain a tight monetary
policy," he said.

If these measures were implemented, the two currencies would
become less attractive, analysts said.

Fresh investment

In anticipation, a large part of fresh investments,
particularly from the Japanese in their new financial year which
started on April 1, have begun to keep clear of baht, rupiah and
even the safe but low-yielding Singapore dollar.

Much of that money has got diverted into the ringgit, pushing
it up to a seven-month high towards the end of last week, just
days after the country announced a 1.1 billion ringgit (US$438.2
million) trade deficit in January.

The ringgit had been sold down towards the end of 1995 and
early this year on predictions that the fast-growing Malaysian
economy was running out of control with a huge current account
deficit and high inflationary pressures, dealers said.

"Now we are saying that Malaysia will be better than even
Thailand," said Neil Saker, regional economist with Crosby
Securities.

Analysts said this did not mean that there will be no interest
in rupiah and baht.

"Together with the Singapore dollar and the (Philippine) peso,
currencies of the region will continue to be the most sought
after, though not for the same reasons," said an economist with a
Singapore-based bank.

While the Singapore dollar is considered a safe investment as
the Monetary Authority of Singapore does not allow wide
fluctuations, the prime determining factor for investment in the
others would continue to be interest rates.

The three-month interbank rate is at 16 percent in Indonesia,
9.0 percent in Thailand, over 14 percent in the Philippines and
7.10 percent in Malaysia.

The rate is at 2.10 percent in Singapore, 5.56 percent in the
U.S. and less than 0.5 percent in Japan.

According to I.D.E.A., this is bound to attract a lot of funds
to the region's currencies.

"However, this trend will be problematic for many central
banks in the region as they will impede the conduct of their
monetary policies," it said in a recent study.

Almost all the countries in the region were facing
inflationary pressures and needed to maintain a tight monetary
policy, which would be undermined by the huge funds inflow, again
particularly from Japan.

"Overall, therefore, while the expected influx of Japanese
funds into high yielding Asian economies will lead to a bullish
phase for those countries' currencies and asset markets, by
exacerbating overheating conditions the longevity of these
inflows is likely to be comparatively brief," I.D.E.A. said.