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.