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.