Thailand backs ASEAN currency trade idea

Thailand backs ASEAN currency trade idea

BANGKOK (Reuters): Visiting Malaysian Prime Minister Mahathir Mohamad said yesterday Thailand had agreed to his proposal that ASEAN countries trade among themselves in their local currencies as a way to overcome current problems.

"He (Thai Prime Minister Chuan Leekpai) has agreed that we should do that but it will have to have some preliminary work before implementing it," he told reporters.

"And for this, he will be sending his deputy prime minister (Supachai Panitchpakdi) to Malaysia to speak to my deputy," added the Malaysian premier, who left yesterday for Singapore.

Mahathir said he had come to Thailand as part of a swing through member countries of the Association of Southeast Asian Nations (ASEAN) to promote his idea of them using regional currencies to conduct trading among themselves.

ASEAN countries could use foreign currencies saved from such intra-trade in local currencies to purchase vitally needed goods from Europe and the United States, he added.

But separately, Thai premier Chuan said the Malaysian proposal was a good initiative, although a more thorough study of it was needed.

"It is a good initiative, but we are not ready and more and thorough study needs to be done...like when we settle the debt, what kind of currencies need to be used," he told reporters.

"There is no conclusion now on this matter. Thailand has assigned Deputy Prime Minister Supachai to further study this...whether it contradicts the agreement we have with the International Monetary Fund," Chuan added.

Thailand, unlike Malaysia, last August accepted a $17.2 billion multilateral IMF bail-out package to beat a severe liquidity squeeze and is bound by some terms attached to the rescue package. The country is facing its worst economic crisis in decades.

On Thursday, the Thai Bankers Association said it supported Malaysia's proposal, called the ASEAN payments system proposal, and the use of the strong Singapore dollar as a common currency for intra-regional trading.

Mahathir said Malaysia was ready to start implementing the proposal almost immediately, but if it was to be done on a large scale in the region, then there should be a clearing house that should handle settlement of payments in the various ASEAN currencies.

Unrealistic

A proposal to use the Singapore dollar as a common trading currency between Southeast Asian countries is unrealistic and likely to encounter resistance from several quarters, analysts and currency dealers said yesterday.

The Singapore dollar gained sharply on Thursday after the Thai Bankers Association (TBA) said it supported its use as a common currency for trading within the nine-member Association of Southeast Asian Nations (ASEAN).

TBA president Olarn Chaipravat said such a move would help curb the region's demand for U.S. dollars, removing pressure on Asian currencies which have depreciated substantially since Thailand floated its baht in July.

But analysts said Singapore's economy was too small and not representative enough of the region for such a proposal to work.

"Singapore, although it's a major trader, is a very small economy. Hence the amount of Singapore dollars out there is not that great," said Simon Mahadevan Flint, senior emerging markets economist at research house I.D.E.A.

He said the Monetary Authority of Singapore (MAS), the de facto central bank, was unlikely to warm to the proposal as it has long resisted the internationalization of Singapore's dollar.

The MAS had no immediate comment on the proposal.