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.