Weak currencies may not spur Asia, says BIS

Weak currencies may not spur Asia, says BIS

ZURICH (Reuters): The sharp depreciation of the currencies of
some troubled Asian countries may do little to spur their exports
or economies, the Bank for International Settlements said.

In a quarterly report to be published on Tuesday, the BIS said
the countries which had suffered most -- Indonesia, Korea and
Thailand -- still had painful adjustments ahead.

"More generally, these three countries still need to face the
actual economic, financial and social costs of adjustment," it
said.

"While international rating agencies have incorporated the
related uncertainty into their ratings, most recent forecasts
suggest that, despite their heavy export orientation, the ability
of these countries to reap the benefits of currency depreciation
might be limited," said the report, released in advance to the
press.

One reason was that the "response of exports to the sizable
competitive gains" was partly neutralized by the importance of
intra-regional trade, including with Japan.

The BIS also cited the countries' dependence on imported items
for production, as well as "difficulty in obtaining trade
financing and, in view of exchange rate uncertainty and
inflationary prospects, the lack of willing counterparties for
the hedging of liabilities".

It also said weakness in the financial and corporate sectors
was subduing economic activity, forcing "a sharp downward
adjustment in borrowing and spending" alongside tighter monetary
policies.

The report said Korea and Thailand had made progress in taking
the necessary steps to restructure financial systems and foreign
debt.

"At the end of March, the currencies of the two countries
showed signs of stabilizing at higher levels, official reserves
had been partly replenished, domestic interest rates had fallen
back and the spreads on their foreign currency debt had narrowed
to around three percentage points."

But Indonesia's exchange rate at the end of the first quarter
still reflected a high degree of uncertainty and turbulence. The
BIS said a further recovery of the currency would depend on
progress in implementing a reform package signed with the
International Monetary Fund in April.