Optimism premature in Asian currency crisis

Optimism premature in Asian currency crisis

By Roberto Coloma

SINGAPORE (AFP): Asia's currency woes are not yet over despite the buoyancy in regional financial markets because of lingering jitters over Indonesia and other potential problems, bankers and economists said Tuesday.

Regional currencies except for the Indonesian rupiah and South Korean won continued to strengthen Tuesday against the U.S. dollar, carrying over Monday's massive gains in Asian foreign exchange and stock markets.

The bullish sentiment stemmed from last week's rollover of US$24 billion in South Korean short-term debt, Indonesia's efforts to negotiate a similar deal, and Thailand's abolition of a two-tier exchange rate system.

"We are seeing some light at the end of the tunnel, but it is too early to say whether the worst is over," said Alain Bailly, chief executive of France's Banque Nationale de Paris (BNP) in Singapore.

"Hopefully, Asia over time will again be a driving force in the growth of the world economy, and it is why we are investing in the region," he said, referring the BNP's ongoing expansion plans.

Sim Hwee San, an economist with Swedish bank Skandinaviska Enskilda Banken, said: "I don't really think the end is over unless we see substantial signs in Indonesia that they are very committed to reform."

Markets are monitoring fresh outbreaks of unrest over rising prices in Indonesia ahead of the March elections, when attention will focus on who will become vice president with 76-year-old President Soeharto assured of reelection.

But Sim said "we don't expect the currencies to tumble as much as they did last year," echoing World Bank president James Wolfensohn's statement here Monday that recent developments "have clearly diminished the chance of further eruptions."

Fears of a devaluation in China and an end to the Hong Kong dollar's peg to the U.S. dollar also hover in the background despite strenuous denials by Beijing and the territory's authorities.

"If these happen we will see another period of pressure on the regionals," Sim said.

Chinese Deputy Premier Li Lanqing told the influential World Economic Forum in Davos, Switzerland, over the weekend that Beijing "will not depreciate" the yuan despite pressures from Southeast Asia's weaker currencies, which make their exports more competitive with China's.

The onset of a recession in Indonesia, Thailand and South Korea -- which have received rescue packages totaling close to 120 billion dollars engineered by the International Monetary Fund (IMF) -- is also a source of worry.

"Recession is coming and who can tell how long the recession will last?" said Seah Hiang Hong, senior analyst at Kim Eng Securities in Singapore.

"Are there any reasons for the market to continue its rally? The answer appears to be none," he added as doubts over regional recovery began to surface in the Singapore stock market Tuesday.

After a 13.7-percent index rise Monday, the single-biggest points jump in a single day for the local bourse, Singapore share prices slipped into negative territory on Tuesday.

This occurred despite massive gains in neighboring Malaysia, which was enjoying a delayed stocks boom, having been closed Monday when the region was in a buying frenzy.

"There is a long way to go as far as adjustment is concerned. Effectively there is nothing to look forward to over the next 18 months," Seah said.

On South Korea, ANZ Investment Bank head of Asian markets research Daniel Lian said that "the successful debt talks and a general buoyant outlook in the region may have a large part in the current positive sentiment."

"However, we maintain that this is perhaps the last piece of good news coming from Korea," he said, citing rising inflation and 20-percent interest rates, a looming contraction in industrial output, and unresolved labor laws.