Regional monies mixed on upheaval

Regional monies mixed on upheaval

SINGAPORE (Dow Jones): Southeast Asian currencies were mixed against the U.S. dollar in late trading Monday, as political strife and further economic potholes continue to undermine the region.

The detainment of Malaysia's former Finance Minister Anwar Ibrahim Sunday prompted investors to sell the Singapore dollar Monday, in anticipation of civil unrest in the neighboring country.

The Singapore dollar - which has been acting as a liquid proxy for Southeast Asia's illiquid currencies - fell as low as S$1.7340 against the U.S. dollar in early trading. But at 0930 GMT, the U.S. dollar had retreated to S$1.7295, down from S$1.7327 in earlier trading but up from S$1.7200 in late trading Friday.

The currency traded largely sideways throughout the day, although dealers expect the U.S. dollar could climb above S$1.74 if civil unrest increases in Malaysia.

Political melee aside, support for capital and currency controls is gaining ground, traders and economists said, following Malaysia's move to peg the ringgit at 3.80 to the U.S. dollar and drive down interest rates by artificially injecting liquidity into a domestic economy now cut off from the international market.

At the same time, civil unrest, political bickering and what is becoming a crippling recession has prompted a debate questioning the value of the International Monetary Fund's prescribed medicine for ailing economies in Thailand, Indonesia, the Philippines and South Korea.

The IMF plans haven't worked because they haven't been fully implemented by governments," said one Singapore-based economist at a U.S. bank.

Those governments are now being driven by frustration at the extent of the recession to consider restrictive policies or controls, he added.

"But capital controls - without aggressive structural changes - are not going to solve anything," he warned. "If Malaysia does not undertake structural reforms, then the country could be in much worse shape once those controls come off."

Despite numerous denials by the Indonesian government, the threat of capital curbs or currency controls has kept investors firmly entrenched on the sidelines, traders said. The U.S. dollar is trading at 10,850 rupiah, down slightly from 11,175 in late trading Friday.

The prospect of controls is still there for Indonesia, especially if Malaysia's controls are successful," said an economist in Hong Kong, adding that Indonesia's gross domestic product should contract by more than 16 percent this year.

"There is still a tremendous amount of government liability in cleaning up the banking sector in Southeast Asia," said John Seel, associate director at Bear Sterns Asia in Hong Kong. "The only economy that has made a clear statement is Thailand, and even there no one is sure if the proposal of non-tradable government bonds is really sustainable."

The U.S. currency is being traded at 40.60 baht, slightly lower than 40.625 in late trading Friday. "The baht has been trading within this range for some time now," said a trader at a Thai bank.

"The positive government actions have propped up the baht, but the large outstanding debts mean that it won't be trading at 38 baht anytime soon."

The Philippines appears to be caught in the oncoming headlights of an economic malaise, economists said.

The government tried to soothe equity and currency markets by repeatedly saying that public money would not be used to bail out Philippines Airlines, the beleaguered national flag carrier.

"It sends a poor message to the market," said one trader at a French bank. "The government can't broker a deal with the airline's management, and one wonders what this means for other Philippine companies."

More importantly, the government still has to contend with the absence of a coherent economic plan to deal with slowing exports, a shrinking trade surplus and a growing budget deficit, economists said.

The U.S. dollar was trading at 44.290 pesos in late trading, well up from 43.785 Friday. "The market is negative right now with the news about Philippine Airlines and that is affecting everything at the moment," said a trader at a U.S. bank in Singapore.

The U.S. dollar is also trading at 1,392 won, up slightly from 1,386 in late trading Friday. South Korea's falling exports and dwindling corporate inventories are expected to place downward pressure on the won, especially as the government mulls injecting more liquidity into the system by easing monetary policy, economists said.

The U.S. dollar is also trading at NT$34.476, slightly lower than NT$34.521 Friday.