SINGAPORE: Tumbling exports have prompted authorities in Taiwan and Thailand to push down their currencies, but an Asia-wide round of depreciation is unlikely because of fears it will hurt consumer spending and spur capital outflows.
Cheap currencies contributed to the region's export-led recovery from the 1997/98 Asian crisis, but analysts note the current export slump has been caused largely by collapsing demand in the West, whose economies are slumping deeper into recession.
With Asian currencies expected to drift lower of their own accord as regional economies worsen, analysts say most Asian governments are likely to resist the temptation to deliberately push their currencies much lower.
"I wouldn't expect a region-wide trend to try to weaken Asian currencies," said Sean Callow, currency strategist at Westpac in Sydney.
Weaker currencies would make exports more price competitive and boost bottom-lines of firms like Taiwan micro-chipmaker TSMC by increasing their local currency income when they send dollars home, keeping factories humming and people employed.
But they would also make prices of imported goods in those countries more expensive, fueling inflation, and pressure currencies of their Asian neighbours, creating a downward spiral.
Further declines in Asian currencies could also see more foreign investors pull money out of the region. Stocks in Asia excluding Japan have fallen almost 60 per cent since the start of 2008 amid a global market rout, spurring capital flight.
Still, signs abound that more Asian governments are looking to ease some of the growing strain on their economies by showing a greater tolerance for weaker currencies.
South Korea's new finance minister said yesterday the cheap won could help the economy, distancing himself from his predecessor and suggesting an end to heavy official intervention to prop up the won. The won lost 25 per cent of its value last year and has tumbled another 16 per cent so far this year.
The won's sharp slide against the US dollar may have persuaded authorities in Taiwan and Thailand to let their currencies soften, said Tim Condon, head of Asia research at ING.
Central banks in Taiwan and Thailand have turned into dollar buyers in the past few weeks to weigh their currencies down, which traders and analysts see as an effort to limit the damage from a double-digit plunge in exports.
The Taiwan dollar has lost about 7 per cent since the start of 2008, but the island's exporters have lobbied for an even faster depreciation after exports plunged 44 per cent in January.
Thailand seems to be taking a more gradual approach, with the Bank of Thailand expected to avoid sudden, aggressive action which could alarm already frail financial markets.
In Singapore, the central bank is expected to depreciate the local dollar in April by shifting its secret trade-weighted trading band moderately lower to help spur growth.
Singapore, Taiwan and Thailand are the most vulnerable in Asia due to their higher reliance on exports, though their currencies have held up relatively well despite the crisis. - Reuters
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