Asian Leaders Assail 'Rogue Speculators' : Tough Talk Fails to Aid Currencies
International Herald Tribune
June 25 1997
Michael Richardson  

Southeast Asian political leaders angrily assailed a fresh wave of speculation against their currencies Thursday, urging united action against a "security threat" and "a well-planned effort to undermine" the region's economies.

Despite the comments, several regional currencies fell to fresh lows as traders discounted the likelihood that any effective new curbs would be imposed.

Analysts said that a meeting in Shanghai on Friday of central bank officials from 11 Asian and Pacific countries was not expected to result in a plan

for a coordinated counterattack against speculation because the costs would be high and it would have little chance of success.

Prime Minister Mahathir bin Mohamad of Malaysia on Thursday blamed "rogue speculators" for what he said was "a well-planned effort to undermine the economies of all the ASEAN countries by destabilizing their currencies."

Opening a meeting of the Association of South East Asian Nations here, he called for a "common stance" to support currencies with the backing of unspecified new regulations.

Foreign Minister Prachuab Chaiyasarn of Thailand branded currency speculation a "security threat," while his Indonesian counterpart, Ali Alatas, said he also questioned the motivation behind "the onslaught of speculation."

The Thai finance minister, Thanong Bidaya, said for the first time that Bangkok would consider borrowing from the International Monetary Fund or Japan. He did not specify the size of any possible loans. (Page 13)

Despite this talk, the Singapore dollar — considered one of the region's strongest currencies based on economic fundamentals — hit a 32-month low against the U.S. dollar after Finance Minister Richard Hu said that its value would be set by market demand, a comment taken to mean that the country's central bank would not intervene.

The Malaysian ringgit also touched its lowest point against the dollar since the Thai baht was floated on July 2, a move that sent tremors through the region's financial and stock markets. The baht — which has lost almost 20 percent of its value since the float — and the Indonesian rupiah also fell sharply in early trading on Thursday before recovering.

Analysts attribute the baht's weakness, which quickly spread to other regional currencies, to a coming report on the bad debts of Thai financial institutions and poor half-year results of banks. They say that with so many regional currencies under attack, most of the monetary authorities taking part in the Shanghai meeting were likely to be too busy guarding their own currencies to take part in a sustained joint intervention. Countries represented include Australia, China, Hong Kong, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea and Thailand.

Desmond Supple, head of Asian currency research at Barclays (BZW) Global Foreign Exchange, said there might be "vociferous verbal support" from the Shanghai meeting on the need for currency stability, "but market conditions mitigate against a successful currency market intervention," Agence France-Presse reported from Singapore.

Mr. Supple said that all Southeast Asian economies burdened with current-account deficits were vulnerable to currency weakness.

Angus Armstrong, regional economist at Deutsche Morgan Grenfell, said that if the countries "want to really stop currency speculation, they have to fundamentally alter their economies and rely much less on foreign capital," Bloomberg News reported.

"If countries are intent on running current-account deficits, they are going to have to borrow money and that money can leave if it doesn't like the fundamentals," he said.

The ringgit fell to a three-year low against the dollar July 18 after its central bank ceased defending it through higher interest rates. That defense left Malaysia with its highest interest rates in about a decade, as well as a drop of 12.4 percent — equivalent to more than $2 billion dollars — in foreign-exchange reserves in the first two weeks of July.

While the countries forced to effectively devalue their currencies this month — Thailand, the Philippines, Malaysia and Indonesia — were worried that high interest rates would choke growth and make their exports uncompetitive, analysts said they were now concerned that instability would frighten investors away and put economic recovery at risk.

Mr. Mahathir warned that the commitment of regional governments to liberalize their financial and trading systems was being called into question by the speculators.

"Our economic fundamentals are good, yet anyone with a few billion dollars can destroy all the progress that we have made," he said. "We are told we must open up, that trade and commerce must be totally free. We want to embrace borderlessness but we still need to protect ourselves from self-serving rogues and international brigandage."

Copyright © 2006 The International Herald Tribune