RI turmoil unlikely to spark currency contagion

RI turmoil unlikely to spark currency contagion

SINGAPORE (AFP): The political crisis gripping Indonesia which has battered the rupiah is unlikely to spark another regional currency meltdown, European bank ABN AMRO said in a report received here Tuesday.

But it said political uncertainty as well as an expected half a percentage point increase in U.S. interest rates are likely to weigh on regional currencies at least until the end of August.

The Indonesian rupiah has fallen to 9,500 levels against the U.S. dollar and there are fears it may test the 10,000 level.

Indonesia's crisis has adversely affected regional sentiment, but Asian countries are now better prepared to deal with volatility after their experience with the 1997 financial turmoil, the bank said.

ABN AMRO also said in its Asian quarterly market report that the situation was expected to stabilize after the annual convention next month of Indonesia's upper house, the People's Consultative Assembly (MPR).

Indonesian President Abdurrahman Wahid is to give an account of his first 10 months in office before the MPR in early August.

ABN Amro said Indonesian instability could depress Asian currencies to some extent to the end of this year.

"More generally, however, Indonesian political uncertainty should not trigger another regional crisis," the report said.

"Recovery remains on track for the rest of the region, albeit at different stages.

"Global demand will not collapse as ABN AMRO expects a U.S. soft-landing (as economic growth slows in the second half of the year) but better EU and Japanese growth," it said.

The bank also said that "regional liquidity has improved, with foreign reserves rising and short-term external debts falling" and that most Asian economies have small trade and investment linkages with Jakarta.

The de facto devaluation of the Thai baht in July, 1997 triggered the Asian financial crisis.