KUALA LUMPUR, February 8: A proposal by crisis-hit south-east Asian nations to use local currencies to settle trade amongst themselves would be unlikely to have an immediate impact if adopted, but could help regional integration longer term, analysts said.They said they were still unsure how the currency plan would work, but the hectic activity generated by leaders of the region travelling to each other's countries was becoming a show to shore up confidence in their economies.
``I am seeing them as making an effort. The market would rather see that the governments are doing something to ease the burden on their economies," said Liew Yin Sze, chief economist at JM Sasson & Co in Singapore.
``As someone said, this will probably accelerate the pace of economic integration (in the region) due to necessity rather than choice," he said. ``But, a European Union kind of amalgamation is quite a long way. We are not even close to common economic zone."
On Saturday, Malaysia's prime minister Mahathir Mohammadconcluded a tour of three Association of South East Asian Nations members, Thailand, the Philippines and Singapore, to promote the local currency trade concept.He told a news conference on Saturday that the proposal would be implemented if it was found feasible.
``In principle, they have no objections but they will study the advantages and disadvantages of the Singapore currency being used as a peg for trade and use of each own's currencies for the purpose of trade between Asean countries," he said.
The Asean also groups Brunei, Indonesia, Laos, Myanmar and Vietnam.Indonesia, Malaysia, Thailand, the Philippines and, to some extent, Singapore, have seen their currencies depreciate sharply against the US dollar in the last six months.
The interest from leaders of the region in the new payments system has caused a slight, but discernible shift in the stand of economists and market watchers, most of whom had dismissed the plan as unworkable a few weeks ago. ``People have not come to any conclusion on this(currency plan). Most are waiting to see how it is going to work," said Ng Bok Eng, economist with Daiwa Institute of Research. ``On a limited scale it is probably workable, but I don't think it will take on any major role," he said.
Malaysia's deputy prime minister Anwar Ibrahim said on Saturday that the new system would be bilateral payments arrangement between central banks, which would provide guarantees to private and public sector traders for a specified list of products.
However,the economists were unanimous in saying that the use of Singapore dollar as a peg for the region's currencies, to replace the US dollar, was not workable.
"I don't think the Singapore economy is big enough for its currency to be used outside," Liew of Sassoon said.
Added Ng of Daiwa: "I don't think the MAS (Monetary Authority of Singapore) will allow the currency to be internationalised."
Much of global trade, for nearly five decades, has been done by using the US dollar as the base currency. Even among Asean nations,most of which are export-based economies, commodities and products for export are priced in US dollars.
Another important deterrent for the new payments system was the thin trade between most Asean countries, a fact admitted by Anwar of Malaysia. ``This (the new system) is done essentially for countries that have no major trading activity with Malaysia. For the purpose of encouraging intra-Asean trade...we think that this arrangement would be a good beginning," he said.Over 50 per cent of the region's trade is with the US,Japan and Europe.
``That itself would undermine any attempts to impose a new currency system. I don't think importers and exporters would use it," one Malaysian analyst said. Said Ng of Daiwa: "If you are Singapore exporter and get(Indonesian) rupiah, you would probably want to convert it to US dollar or at least hedge it."
Meanwhile, Singapore's former prime minister Lee Kuan Yew has said that the worst of Asia's financial troubles will not be over until after Indonesian presidentialelections next month, the local Sunday Times newspaper reported. ``If there are no upsets in the election, the situation will stabilise and improve. If there are, the currencies and stock markets in the region will be affected by a bout of panic and nervousness," it quoted Lee as saying in a speech on Saturday.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
