Merrill Lynch sees no fast end to Asian crisis

Merrill Lynch sees no fast end to Asian crisis

FRANKFURT (Reuters): There are no signs of the Asian currency
crisis abating as the region's businesses and households shun
local units in favor of the U.S. dollar, Merrill Lynch chief
global currency strategist said on Monday.

At a presentation of Merrill's annual global currency and debt
outlook, Michael Rosenberg said the economies in the region were
trapped in a vicious circle of currency and debt crises.

"What we've had in Asia was a huge debt build-up which led to
a currency crisis which in turn led to a debt run and as the debt
crisis gets worse it adds to the currency crisis," he said.

He said that even though some currencies could appear
undervalued after the recent steep falls, investors should avoid
them until the situation stabilizes.

William Belchere, Asian fixed income strategist, who attended
the presentation, said a currency to watch in 1998 was the Hong
Kong dollar. It so far has managed to defend its U.S. dollar peg,
but could still come under renewed speculative attack, he said.

He also said that while current rescue efforts focused on
restoring liquidity in the region by rolling-over short term
debts and debt restructuring, a necessary overhaul of the
region's financial systems would take years.

As the immediate fallout of the crisis, Merrill Lynch expects
a significant slow-down in growth with some economies already
falling into a recession.

Belchere said that even though the countries of the region
should contribute to a global deflation trend by trying to export
their way out of the crisis, steep depreciation will drive
domestic inflation rates sharply higher.

He said costly bailouts would worsen fiscal balances in the
region. Also further credit rating downgrades should be expected.

Such downgrades were still possible for Indonesia, Malaysia,
Thailand, Korea, India and Pakistan, Merrill Lynch said in its
report.

It rated Philippines, Singapore, China, Hong Kong and Taiwan
as stable.