Rise of Asian monies against U.S. dollar not stifling exports: ADB
Rise of Asian monies against U.S. dollar not stifling exports: ADB
Agence France-Presse, Manila
East Asia's export competitiveness has not eroded even though
most regional currencies are rising against the dollar amid Iraq
war fears and U.S. fiscal deficit concerns, the Asian Development
Bank (ADB) said on Monday.
Except for a short period during the third quarter, most
regional currencies appreciated against the greenback in 2002 and
have remained buoyant so far in 2003.
The exceptions were the Philippines, where the overshooting of
the fiscal deficit target steadily dragged the peso down, and
China and Malaysia, whose currencies are pegged to the U.S.
dollar.
The Manila-based ADB's Regional Economic Monitoring Unit
(REMU) said the appreciation of the East Asian currencies ranged
from three percent for the Thai baht to about 17 percent for the
Indonesian rupiah.
Despite the appreciation, East Asia maintained its overall
export competitiveness, the ADB unit stressed.
This was because the yen and the euro had also climbed against
the greenback while East Asia maintained low inflation, REMU said
in a quarterly report card on the health of 12 East Asian
economies.
"Regional currencies, therefore, generally depreciated in
nominal effective terms" except in Indonesia and, to a lesser
extent, in South Korea and Singapore, it said.
"Since inflation rates are relatively low in the region, many
countries enhanced their export competitiveness last year,"
according to the ADB report.
East Asia's main export markets are the United States, Europe
and Japan.
"So when compared with its other trading partners Europe and
Japan, whose currencies appreciated, most of the East Asian
currencies effectively depreciated and maintained the region's
export competitiveness," REMU director Pradumna Rana said.
Thio Chin Loo, currency strategist with BNP Paribas in
Singapore, said based on economic fundamentals alone, East Asian
currencies were expected to trade higher against the dollar in
the medium term.
"The U.S. dollar is more susceptible to financial sector
volatility by virtue of them (U.S.) having a large current
account deficit," she said.
"Even before a possible war in Iraq, the U.S. dollar is more
vulnerable than the Asian currencies. So if there is war, it will
be even bleaker for the dollar as financing the war will widen
the deficit," Thio said.
She added however that the U.S. dollar could face a knee jerk
bounce when the war erupts due to the uncertainty of oil prices
and other immediate concerns.
"But in the medium to long term, market concerns over the U.S.
economy would remain intact."
Against the backdrop of a looming Iraq war and other negative
external factors and weakening growth prospects in East Asia, the
ADB said the region should consider slashing interest rates to
fuel economic expansion.
"The case for interest rate reductions is especially strong,
as the spread between short-term interest rates in most East
Asian countries and U.S. rates has widened because most central
banks in the region have not fully followed the latest rate cuts
by the U.S. Federal Reserve," it said.
The ADB said that fiscal and monetary easing in East Asia
should however be reinforced by pursuit of the remaining agenda
of financial and corporate sector restructuring and reforms.
Many of the East Asian economies were gripped by their worst
financial crisis in 1997-1998 which forced them to embark on
reforms.
The ADB's 12 member nations are Brunei, Cambodia, China,
Indonesia, South Korea, Laos, Myanmar, Malaysia, the Philippines,
Singapore, Thailand and Vietnam.