Thai worries depress Asian currencies

Thu, 23 Oct 1997, 00:00 WIB | Source: REUTERS

SINGAPORE (Reuters): Southeast Asian currencies were
pummelled to fresh lows yesterday as Thailand's mounting
political crisis looked set to throttle prospects of an economic
recovery before it could even get off the ground.

Even the Hong Kong dollar, which has Asia's strongest link to
the U.S. dollar, faced growing pressure despite efforts by the
territory's officials to shore up confidence.

In Thailand, street protests demanding the resignation of
Prime Minister Chavalit Yongchaiyudh entered their third day as
the baht tumbled towards the 40 level to the dollar in both
domestic and offshore markets.

It recovered to 38.05/30 per dollar onshore and 38.50/60
offshore at 1015 GMT from lows of 39.80 and 39.90 earlier, partly
due to market talk that a favorable candidate had agreed to
accept the finance ministry portfolio.

Finance Minister Thanong Bidaya's decision to resign after an
impending cabinet reshuffle had prompted concern Thailand might
not meet the conditions for a $17.2 billion loan package arranged
by the International Monetary Fund (IMF), dealers said.

Bank of Thailand governor Chaiyawat Wibulswasdi attributed the
sell-off in the baht to political factors and said the central
bank would let the market determine its level.

The cabinet reshuffle is expected to be finalized this week
and should show some major changes, a minister with the powerful
Chart Pattana Party told Reuters yesterday.

Dealers said the baht's decline might be limited for the time
being, but the market remained determined to test the 40 level
and possibly push the baht lower.

The Malaysian ringgit also caved in to worries about Thailand
and lingering disappointment with Malaysia's efforts to address
its problems in its 1998 budget.

It skidded to 3.43 to the dollar, eclipsing its previous
record low of 3.4080, but later recovered to 3.3880/980.

Dealers said the central bank might have been checking rates
when the ringgit fell through 3.40 and Kuala Lumpur banks were
active dollar sellers above 3.41/42.

The Singapore dollar slithered to a fresh 42-month low of
1.5885 to the U.S. dollar, over two percent below its Tuesday low
of 1.5740.

Dealers said the hemorrhaging stock market did not help the
currency, with the benchmark index falling 2.23 percent to close
at a new year low of 1,731.68.

The Monetary Authority of Singapore was believed to have
checked rates and possibly intervened sporadically, but this only
smoothed the Singapore dollar's decline.

The Indonesian central bank's intervention helped pull the
rupiah back to 3,645/55 to the dollar from a day low of 3,700.

Dealers said the currency was holding up relatively well as
players focused on the outcome of talks between Indonesian
authorities and the IMF.

Further north, the Hong Kong dollar slipped to 7.7497/02 to
the dollar from 7.7475/85 late on Tuesday.

Fierce selling of Hong Kong stocks did little to bolster
sentiment as the blue chip Hang Seng Index lost a whopping 765.33
points or 6.17 percent to end at 11,637.77, its lowest in 13
months.

In London, Hong Kong Chief Executive Tung Chee-hwa vowed
yesterday not to use devaluation to keep the economy competitive,
insisting it was different from other countries in Asia that had
taken this route.

He said interest rates may have to rise to maintain the Hong
Kong dollar's long-standing peg to the U.S. dollar amid a second
wave of currency turmoil in Asia.

"We are not going to go the route of devaluing to remain
competitive," he told an audience at the Royal Institute of
International Affairs in London.

Dealers did not expect Hong Kong to surrender its 14-year peg
to the U.S. dollar easily but they noted that defending it would
drain reserves.

"The pressure is quite immense this time because the stock
market is really performing badly...and all the countries around
Hong Kong have already surrendered to this pressure," a U.S. bank
dealer in Singapore said.

With huge reserves backing the Hong Kong dollar, Tung declared
the currency remained strong.

Tung said the U.S. dollar peg had served Hong Kong well for 14
years.

"In the process of defending the (Hong Kong) dollar, interest
rates may have to go up," Tung said.

The Taiwan dollar closed firmer at T$30.211 against T$30.615
on Tuesday as investors booked profit on the dollar's sharp rise
since the central bank stopped defending the Taiwan dollar last
Friday.

The Korean won was propped up by the central bank's continuous
dollar sales between 922 won and 916 won to the dollar. The won
closed at 915.0 against Tuesday's 924.40.