No contagion effect seen in Southeast Asia from Philippine peso crisis
No contagion effect seen in Southeast Asia from Philippine peso crisis
Agence France-Presse
Manila
Southeast Asia need not fear a 1997-type contagion triggered
by the rapid slide of the Philippine peso as the region is
protected by strong economic fundamentals and more discerning
investors, analysts say.
Political concerns have dragged the peso by as much as six
percent from its high in May and the embattled unit is within
striking distance of its historic low of 55.75 peso to the U.S.
dollar posted nearly two and a half years ago.
In the regional financial crisis six years ago, a rapid slide
of the Thai baht caused a contagion effect and sent the
currencies of Indonesia, Malaysia, Singapore and the Philippines
as well as those of South Korea and Taiwan into a tailspin.
Analysts said the tumbling peso was not the epicenter of a
financial storm similar to the baht-triggered turmoil, which
plunged the region into its worst recession in decades.
"In terms of possible contagion because of the peso decline,
we are not going to see a herd behavior like that in 1997 when
there was panic and both foreign and local investors bailed out
of the region," said Pradumna Rana, director of the Manila-based
Asian Development Bank (ADB) Regional Economic Monitoring Unit
(REMU).
"Investors are more discerning now in a sense that they view
countries in the region differently and according to the local
problems faced and structural reforms that have been taken," he
told AFP.
Even so, the peso's slide cannot be attributed solely to
fundamental problems as the Philippine economy is generally in
good shape with positive macro indicators, Rana said.
Unlike the peso, whose weakness has been largely blamed on
internal political problems, the currencies of the key
neighboring Southeast Asian countries have been stable or
appreciating, dealers said.
Rana cited studies by the ADB's REMU unit on Southeast Asian
bond spreads and currency movements to dispel the notion that the
peso could trigger a contagion effect.
"Bond spreads in the 1997 crisis or even before the crisis
were closely correlated to each other but the correlation has
been less now than before which basically shows that markets are
starting to differentiate between one Southeast Asian country and
another," he said.
"This suggests that the herding behavior which was evident in
the 1997 crisis may not be there now," Rana added.
Citing another study, he said while the peso depreciated by
about 0.6 percent against the dollar the past week, the
Indonesian and Thai currencies appreciated by 0.7 percent and the
Singapore dollar rose by 0.3 percent.
The peso fell to a fresh 31-month low of 55.60 peso against
the greenback on Tuesday, inching closer to its historic low of
55.75 peso. In early trading on Wednesday, the currency recovered
slightly to 55.42 ahead of a central bank meeting on Thursday
that would determine whether interest rates need to be raised to
stop the slide, officials said.
Thio Chin Loo, a senior currency analyst at BNP-Paribas bank
in Singapore, said that the fallout of other regional currencies
from the peso crisis was limited.
"Most currencies in the region are holding their ground
supported by the buoyancy of the equity markets.
"Also helping to limit the impact on these currencies is the
fact that most investors see the worst of the economic downturn
as being behind Southeast Asia," Thio said, citing the Iraq war
and the Severe Acute Respiratory Syndrome (SARS) which dampened
growth earlier in the year.
She said as business was normalizing, travel resuming and
consumers spending again in the region amid fewer macroeconomic
problems, central banks had been "able to turn on the monetary
taps to ignite growth.
ADB's Rana said a currency swap arrangement covering Southeast
Asia as well as China, Japan and South Korea to help countries in
liquidity distress was a key deterrent against speculative
attacks and currency turmoil in the region.