Search for scapegoats as hot money flees Asia

Search for scapegoats as hot money flees Asia

By Nick Cumming-Bruce

BANGKOK: Another bad day for the Thai baht Wednesday threatened more turbulence for the currencies of its Southeast Asian neighbors, just as their club of tiger nations is celebrating its 30th anniversary by admitting two new members -- including the military-run Myanmar.

One result is certain to be more searching for foreign scapegoats, notably George Soros, the Hungarian-born financier and philanthropist who reportedly made several billion dollars as the pound was ejected from the European exchange rate mechanism five years ago.

Thailand's currency plunged 4 percent against the dollar Wednesday, its steepest fall since July 2 when the government was forced by a deepening financial crisis to float the baht. It prompted renewed fears of a domino effect on currencies in the region, with a resurgence of speculative attacks.

Thai banks' total outstanding debts amount to 800 billion baht (US$27.2 billion) and the suspicion is that property companies have defaulted on at least 40 percent of these. Thailand's stock market shared the sentiments of currency markets Wednesday by slumping 4.3 percent.

The baht's fall will further test the mechanisms and tactics adopted by other Southeast Asian economies to prevent the feared domino effect. Foreign investors are haunted by a repeat Mexico where the plunging peso forced an international rescue operation three years ago.

Malaysia's central bank revealed on Tuesday it had blown 12 percent of its reserves, or $3.4 billion, attempting to beat back currency speculators but to little effect -- the ringgit still dropped 3.1 percent. Financial analysts say it may only make future interventions harder.

The Philippines, which experienced a 6 percent drop in the peso, and Indonesia, where the rupiah lost 2.5 percent, widened the band for trading their currencies. Even the once rock-solid Singapore dollar has lost ground.

Malaysian prime minister Mahathir Mohamad put the blame for the turmoil on a powerful American financier who, he implied, wanted to punish ASEAN countries for their decision to admit Myanmar.

Soros felt the need Wednesday to insist there was "absolutely no connection" between his objections to Myanmar's rulers and the volatile state of regional currency markets.

Mahathir's fears of conspiracy were only sharpened by the currency fall at a time when Malaysia is still riding a boom that has seen the economy grow at 8 percent a year for the past nine years and is forecast by Malaysian economists to bound along at 8.9 percent next year.

Thai authorities appear even more prone to paranoia. A shocked financial community is still mulling over police raids last week on the offices of two foreign brokerage houses. Their mission: to try to track down who was responsible for rumors overseas about the imminent closure of five smaller banks.

Market analysts say the raids have only served to underline the disarray among Thai political leaders and financial authorities about how to cope with a crisis screaming for swift action to implement long overdue reforms.

The International Monetary Fund's concerns over Thai management of the crisis surfaced earlier this week when its first deputy managing director, Stanley Fischer, warned of a "prolonged period of slow growth" if authorities do not come up with measures to rescue its finance sector.

Thai officials have consulted the IMF but have yet to make up their minds whether to seek an IMF loan. Thai finance minister Thanong Bidaya said Wednesday only that authorities were weighing "secret options".

-- The Guardian