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.