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.