[IWAR] ASIA 6 months of turmoil

From: Michael Wilson (MWILSON/0005514706at_private)
Date: Sun Dec 28 1997 - 09:58:12 PST

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                       Asia's financial turmoil enters sixth month
          Copyright ) 1997 Nando.net
          Copyright ) 1997 Agence France-Presse
       SINGAPORE (December 27, 1997 10:07 p.m. EST http://www.nando.net) -
       Asia's financial turmoil enters its sixth month this week amid forecasts
       that the region's currency meltdown will persist in 1998 as economies
       contract, governments tighten spending and people put up with higher
       interest rates.
       The Chinese calendar's Year of the Tiger could see Japan, South Korea,
       Indonesia and Thailand engulfed in a biting recession and little growth
       forecast for the economies of Malaysia, the Philippines and even
       Singapore, analysts said.
       While governments battle inflation -- due to galloping costs suffered by
       the sharp erosion in their currency values -- and unemployment stemming
       from business closures, they would at the same time beef up exports for
       speedy recovery, according to the analysts.
       They believe that pressure on the troubled Asian currencies would ease
       by the middle of 1998 when markets shift their focus to Europe where
       efforts to forge a single Euro currency would take centrestage.
       "The second half of 1998 is likely to be a period of consolidation for
       many Asian currencies," said Philip Wee, regional treasury economist
       with Standard Chartered in Singapore.
       Wee said during that period, he expected more evidence of the export
       cycle picking up in Asia where currencies have devalued rapidly, adding
       that governments would encourage investments that generate foreign
       exchange earnings as opposed to those that encourage consumer imports.
       "The belt-tightening in Asia in 1998 will discourage foreign direct
       investments aimed at exploiting the domestic consumer markets or
       significant foreign portfolio flows seeking to derive capital gains in
       the asset markets, " he said.
       The meltdown in the Asian currencies had followed plunges in stock and
       property markets in the region and snowballing of debts leading to
       bankruptcies and winding down of companies, banks and industries.
       "The debts are stacking up and most of them are unhedged. Against this
       scenario, we could possibly see near zero growth in Indonesia, just as
       in South Korea and Thailand," said Jimmy Koh, regional economist with
       British financial house I.D.E.A.
       Analysts warn that if currencies, especially those of South Korea,
       Thailand and Indonesia -- the three economies that have come under the
       belt of the International Monetary Fund (IMF) -- continue to slide, a
       debt moratorium would be the only answer.
       If they default on their foreign debt and declare a moratorium,
       creditors would have to form a consortium to negotiate a repayment
       Asia's currency crisis was sparked off by Thailand's de facto
       devaluation of its baht on July 2 and spread to neighbouring Southeast
       Asian countries and engulfed North Asia as well.
       Since July 2, the U.S. dollar has appreciated by a staggering 120
       percent against the Indonesian rupiah, 84 percent against the Thai baht,
       53 percent against the Malaysian ringgit, 52 percent against the
       Philippine peso and 17 percent against the Singapore dollar.
       The greenback had chalked up 65 percent against the Korean won since
       September 15.
       Although there was relief after the IMF announced a speed-up of aid to
       South Korea last week following a $60 billion bailout pledge for the
       ailing economy, analysts warn the South Korean finance sector is still
       in trouble.
       "I think the action by the IMF last week underscores the desperate state
       of South Korean finances," said David Cohen, analyst with US research
       house Standard and Poor's MMS in Singapore.
       Cohen said based on preliminary figures, South Korea notched a surplus
       in the current account for the second month running in December and
       "this gives some hope and shows some progress."
       "If they can simply not suffer a big capital outflow, this can help
       resolve their problem," he added.
       Jacqueline Ong, a regional economist at I.D.E.A., said the Asian
       currency storm did not show signs of receding and "we continue to hold a
       bearish view for the next three to six months."

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