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Southeast Asian Currencies Regain Strength - 2002-05-30

Five years ago, Southeast Asian currencies collapsed, setting off the Asian economic crisis and a long regional recession. Now, the Southeast Asian currencies are strengthening against the U.S. dollar. Currency analysts say the gains are a sign of confidence in the region's economic improvement.

The Indonesian rupiah is at a nine-month high against the U.S. dollar, the Philippine peso is near its highest point in a year and the Thai baht is hovering around 15-month highs.

Currency analysts say there are several reasons for the gains. One is that since the Asian economic crisis in 1997 and 1998, most Southeast Asian governments have reformed their banking systems and corporate laws.

That makes foreigners more willing to invest in the region, especially now, as the global economic recovery increases demand for Southeast Asian exports.

The U.S. dollar's weakness also helps. One Bank of America analyst in Singapore says investors are becoming nervous about the U.S. dollar, because the U.S. has a large trade deficit and is expected to run a budget deficit this year. He says the U.S. preoccupation with its war against terrorism hurts investor confidence also.

James Malcolm is a currency strategist for JP Morgan in Singapore. He says the region's central banks are not worried about the current rate of gains as long as all of the region's currencies rise. A stronger currency makes a country's exports more expensive. "That is to say they do not want to see export competitiveness deteriorate as a result of their currency appreciating more than other currencies. But at the same time they recognize that fundamentals are strong, that investor appetite is picking up and to some extent they take this as a vote of confidence in the progress that's been made over the last few years," Mr. Malcolm said.

Mr. Malcolm also notes that stronger currencies make it easier for Southeast Asian nations to pay foreign debt, which is mostly in dollars. Also, it makes cheaper for them to import crucial goods, especially oil. The gains may continue over the coming months, in part because Japan's yen is strengthening against the dollar. One analyst predicts the yen will continue to rise in the weeks ahead, and that will pull up the value of Southeast Asian currencies, because of the region's trade ties with Japan.

But the analysts say the bullishness will turn bearish if India and Pakistan go to war, or if the United States suddenly widens its war on terrorism.