Speculators Play On Market Trends

Malaysian Prime minister specifically named the financier, Mr. George Soros, as being behind the speculative attack and argued that it was carried out probably because the financier and the U.S. could not accept the ASEAN's decision to admit Myanmar into its fold. U.S. officials, who were then in Malaysia, not only refuted the charge but also defended Mr. Soros.

They took the line that no single operator could undermine a market or currency chart and that speculators only played on market trends. Even if they were strong, the fundamentalists in most of the regional economies were vulnerable and the currencies were sometimes overvalued. So long as the market was open, speculation was part of the business and could not be averted.

Western brokers and financial agencies took the view that Singapore was the least affected because it was relatively more open than other markets. Similarly, Hong Kong has not been touched till now - though the threat still looms over the former British colony - because it was also the most open market place in the region.

The Central Banks in the region and the financial markets remained worried and did not fail to notice that except for the German Deutsche Mark, none of the other major currencies were subjected to these pressures. Even the Japanese yen, which collapsed earlier in the year and fell to a low of over 125 to a dollar, has stabilized in recent weeks, remaining well below the 120 mark. That was why there was considerable agreement that this speculative attack was a pre-determined, deliberate attempt to slow down the pace of growth of South East Asia and its dynamic economies.

Sources in Bank Negara in Kuala Lumpur, when contacted, said the Central Banks had little to choose. In the absence of a determined, political initiative to fight together, the banks have little to fall back on. We cannot play around with the limited reserves, because that will have an adverse impact on imports, on the development projects and the economy itself. So the choice was very limited. It is costly to keep defending the currency and that too over a period of time.

A one-time intervention or action to prevent an emergency is a different proposition, the sources explained. As a result of the currency depreciation, both Indonesia and Malaysia are now taking a second and closer look at the funding of major projects. The Finance Ministers of both the countries hinted that those which were not yet launched and could be put on hold would be delayed. The mega projects which were essential for infrastructure and economic growth would go ahead.

Officials explained that the problem with devaluation or too much of a depreciation of the currency was the pressures on inflation. The consumer would be the worst hit, especially on imported items, whose prices would go up with a lower value for the currency. The dollar value of exports will drop, but the cost of imports goes up. If we are an oil importing country, this can cause a new crisis in the management of the economy and the reserves.