S'pore, Brunei deny rumors of decoupling

S'pore, Brunei deny rumors of decoupling

SINGAPORE (AFP): Singapore and Brunei yesterday denied market rumors of a decoupling between their currencies and affirmed their commitment to a one-to-one peg.

"The governments of Brunei and Singapore wish to dispel such rumors and state clearly and categorically, that we have no intention of terminating the currency interchangeability agreement," a joint statement released here said.

Speculation that Brunei would decouple its currency was triggered last month by the oil-rich kingdom's moves to diversify its economy by boosting non-petroleum exports, which would benefit from a weaker local currency.

"These speculations may have caused some feeling of uncertainty in our financial communities or led observers to question the good relationship between the Brunei Currency Board and the Board of Commissioners of Currency, Singapore," the joint statement said.

The currency peg took effect in 1967. Under the interchangeability agreement, three months' notice is required if one of the two parties wants to divorce its currency from the other.

Currency dealers and analysts confirmed there were rumors of a possible delinking between the currencies but said fundamentals rule out such a drastic move for Brunei, which has no independent central monetary authority.

"The market was reacting to that (rumor), so I suppose that the strength of the rumors triggered this press release," said an analyst with British financial consultance I.D.E.A.

At 3.15 P.M. (0715 GMT), 90 minutes after the joint statement's release, the Singapore dollar was stronger at 1.4387 to the dollar, from an opening quote of 1.4465, but other factors were at play.

A foreign exchange dealer with a French bank said the joint statement "may have some slight impact" on the market.

The Singapore dollar has strengthened against most currencies in recent years. Between 1994 and 1996, it appreciated by almost 15 percent to 1.4 against the U.S. dollar, but has depreciated this year.

Analysts say that the peg to a robust unit like the Singapore dollar can affect the competitiveness of Brunei's exports, but allows the kingdom to share Singapore's financial stability.

Sultan Hassanal Bolkiah of Brunei announced last month that he was allocating 7.2 billion Brunei dollars ($5.14 billion) to finance the seventh national development plan, aimed at diversifying Brunei's economic base.

Oil and gas, which account for more than 95 percent of its exports, have turned Brunei into one of the world's wealthiest countries.

But present oil and gas reserves are expected to last for only about 20 years at current production rates, reinforcing the need to gradually reduce Brunei's dependence on its oil wealth.

Finance Minister Richard Hu said over the weekend that the Singapore dollar, whose strength has been built on a massive current account surplus, will now appreciate more modestly as global inflation slows to tamer levels.

The rate of the currency's appreciation against the U.S. dollar has slowed from 10 percent in 1994 to 3.3 percent in 1995 and one percent last year, ending 1996 at about 1.4 to the greenback.