Weak dollar could affect SE Asia

Weak dollar could affect SE Asia

SINGAPORE (AFP): Southeast Asia's fast-growing economies could
face problems requiring policy adjustments if the U.S. dollar
persists at current weak levels, a report on the outlook for
regional currencies has warned.

Singapore, Malaysia and Thailand could come under pressure to
tighten monetary policy, said the quarterly economic review by
the British investment research firm Crosby Research Ltd.

The Indonesian rupiah and the Philippine peso meanwhile are
vulnerable to speculative attacks in greenback-led currency
market turmoil, the report said.

Regional currencies have come into focus since the Thai baht
and the rupiah came under attack in January following the sudden
devaluation of the Mexican peso which sent currency markets into
a tailspin.

Crosby noted in the April report that the Monetary Authority
of Singapore has been fighting a rapid appreciation of the
Singapore dollar, while the Philippine central bank in February
raised interest rates to defend the peso.

The report predicted continuing upward pressure on the
Sing dollar to appreciate to 1.36 to the greenback by year-end.

The currency has already surged 4.1 percent from 1994-end to
around 1.40 to the U.S. unit, which recently has hit historical
global lows against the Japanese yen, it said.

The greenback's fall could increase U.S. demand for
electronics and industrial equipment, boosting Singapore's
exports and overall economic growth, estimated at 9.2 percent for
the current year.

But, Crosby said: "With strains already beginning to emerge
from last two years of very high economic growth, this boost to
growth implies that the government may have to rely increasingly
on administrative measures to control stability in the economy."

Malaysia also would have to tighten policy with a combination
of higher interest rates and mild currency appreciation as it
faces the prospect of overheating in both investment and
consumption, fanning inflation, it said.

More volatility was predicted for the Thai baht as Thailand's
accelerating economy comes under strain from stronger external
demand, enhancing its central bank's shift to tighter monetary
policy.

Thai borrowers have become wary of foreign currency loans
following the Mexican crisis, increasing the demand for baht
credits and exerting upward pressure on domestic interest rates,
Crosby said.

"This widening of interest rate differentials between Thai and
international, especially U.S. dollar, will result in greater
short-term capital inflows," making for volatility, it said.

Indonesia, with 40 percent of its debt denominated in yen,
faces the danger of interest rates overshooting should the rupiah
come under renewed speculative attack, the report said.