S.E. Asian funds face speculative attacks
S.E. Asian funds face speculative attacks
SINGAPORE (AFP): The currencies of most Southeast Asian countries will be exposed to speculative attacks due to widening current-account deficits, but central banks are well-armed to thwart them, analysts said yesterday.
The Indonesian rupiah plunged sharply on selling by Singapore- based banks while the Thai baht was engulfed in an offshore-led sell-off at the end of last week following a renewed run on the Mexican currency, dealers said.
The two currencies have since recovered from their lows as traders were forced to short-cover from the market.
Analysts said they came under speculative attacks because foreign investors drew a parallel between the Thai and Indonesian economies and that of Mexico which have expanding current-account deficits.
There was a similar slide involving regional currencies during last January's Mexican peso crisis.
"Regional currencies, especially the rupiah, the Thai baht and to a certain extent the Malaysian ringgit, will be subject to occasional speculative attacks because of their rising current account deficits," said Andy Tan, economist with MMS International here.
Tan told AFP that although the economic fundamentals of Southeast Asian nations were very much stronger than Mexico's, their currencies would be targets of speculators who tend to link the economic ills of one emerging market with another.
"The volatility of these currencies is an unavoidable outcome, this is part of the economies' growing pains, he said.
Sim Moh Siong, an economist here with British financial consultancy Institute for Development of Economic Analysis (IDEA), said Southeast Asian central banks had enough reserves to counter such speculative attacks.
Except for Singapore and Brunei which have favorable balances, Indonesia, Malaysia, Thailand and the Philippines are among the rapidly growing Southeast Asian economies whose current accounts are sinking deeper into the red.
The current account, a key component of a nation's balance of payments, measures trade in goods and services plus financial transfers.
A recent Malaysian finance ministry report estimated that in 1995, Thailand's current account deficit was expected to grow to US$7.8 billion followed by Malaysia's $7.3 billion, the Philippines' $4.5 billion and Indonesia's $5 billion.
Daniel Lian, economist with NatWest Capital Markets, attributed the soaring deficit to the widening gap between the rate of savings and investments. The deficit, he said, probably had reached a peak and could see a modest correction at the end of 1996.
"It is not because these countries are not saving enough, but their investment rate has shot up, there has been a huge inflow of foreign investments," Lian said.
"Currencies will be subject to more volatility because the difference between savings and investment has to be financed by foreign savings," Lian noted.
He felt that any speculative attacks on the Southeast Asian currencies would be brief as the strong economic fundamentals in the region would get the better of the market forces.