RI currency board plan drives Asian currencies

RI currency board plan drives Asian currencies

SINGAPORE (Reuters): Asian currencies recovered some lost
ground late yesterday as traders hedged their bets on signs
Indonesia would go ahead with a currency board system to
stabilize its rupiah despite mounting criticism of the plan.

Dealers said the rupiah jumped on comments by U.S. economist
and advocate of the system, Steve Hanke, who said Indonesian
President Soeharto shared his view that setting up a currency
board was the least risky option.

Soeharto's judgement was that the risk of installing a
currency board was "tiny", Hanke said after a meeting with the
Indonesian leader in Jakarta.

The rupiah had earlier slumped through the 9,000 level to the
dollar as traders grew concerned that their doubts about the
proposal would prove justified.

U.S. Treasury Secretary Robert Rubin repeated his reservations
over the plan overnight and even the International Monetary Fund
(IMF), which has so far avoided public comment, joined the
growing chorus of dissent.

"We have concluded that a lot of options need to be in place
before a currency board would make sense," IMF First Deputy
Managing Director Stanley Fischer said in Washington.

Dealers said the rupiah was likely to run up against a wall of
dollar demand near the 7,000 level despite expectations that it
would be pegged at 5,000-6,000 to the dollar under the proposed
fixed rate regime.

"The market is very thin and nervous at the moment. I have a
feeling they'll go ahead with it (the currency board) and then
the dollar will go higher," a dealer in Singapore said.

"To peg it at 5,000-6,000 is totally out of line with the
fundamentals, the political situation. I can't see how they can
maintain the peg at that level," he added.

Signs that Research and Technology Minister Jusuf Habibie may
be Indonesia's new vice-president and a potential successor to
Soeharto continued to depress the market, analysts said.

"The market does not take Habibie well. When there were
rumors that he'd be vice-president previously, the rupiah dropped
immediately," a U.S. bank dealer said.

"Now it seems quite certain that he will be and that's just a
recipe for disaster," she added.

Indonesia's ruling Golkar party named House Speaker Harmoko
and Habibie as vice-presidential candidates on Thursday ahead of
the March presidential election.

Elsewhere, the Malaysian ringgit bounced back from a low of
4.00 to the dollar as interbank players and foreign funds booked
profits on the dollar's sharp rise earlier. Dealers said it was
likely to trade in a 3.60-4.00 range for the time being.

The Singapore dollar recovered after finding little reason to
stay below the 1.67 level to the U.S. dollar.

"When dollar/Sing went above 1.67, the central bank was in the
deposit market, squeezing up interest rates to prevent the
Singapore dollar from weakening too much," a dealer said.

The Thai baht recovered from its lows with other Asian
currencies, helped by positive domestic developments.

Finance Minister Tarrin Nimmanahaeminda said he expected any
partial Japanese bank recall of loans to Thai debtors ahead of
corporate book closings in March to have limited impact on the
baht as the market was fully aware of it.

News the IMF had decided to relax its fiscal target for
Thailand, allowing a fiscal 1998 budget deficit equivalent to one
to two percent of gross domestic product, had already been widely
discounted and barely produced a twitch.

Deputy Prime Minister Supachai Panitchpakdi said the IMF
easing of Thailand's budgetary surplus requirement would help
prevent the economy from contracting this year.

IMF Asia-Pacific director Hubert Neiss said new terms
governing Thailand's $17.2 billion IMF-led aid package would be
sent to the fund's board for approval by March.

The Philippine peso ended down but off its lows as importers
held back from buying dollars on expectations the peso would
strengthen again.

The Taiwan dollar finished above T$33 to the U.S. dollar,
boosted by the recovery in Southeast Asian currencies and foreign
fund flows to the bullish stock market.

Foreign funds had a net inflow of US$692 million during
February 1-9, compared with a net outflow of US$85 million for
the whole of January, the central bank said earlier this week.

The Hong Kong dollar softened and forwards extended their
gains on expectations of higher local interest rates in the wake
of growing uncertainty in Asia.

The South Korean won ended fractionally higher in slow trade
as traders remained cautious despite the cancellation of a trades
union strike.