Newspaper article International New York Times

Devaluations Could Hurt Global Growth ; Foreign Exchange Experts Fear Effects of a Currency War in Southeast Asia

Newspaper article International New York Times

Devaluations Could Hurt Global Growth ; Foreign Exchange Experts Fear Effects of a Currency War in Southeast Asia

Article excerpt

A number of foreign exchange specialists worry that potential devaluations in South Korea, Singapore and Taiwan could hurt the global economy.

China's decision to push the value of its currency lower has opened a new front of worry for global investors: a potential wave of currency devaluations among the so-called Asian tigers -- South Korea, Singapore and Taiwan.

Such an outcome, say a number of foreign exchange specialists, would put a further damper on global growth expectations, which already are being revised downward as China's once-booming economy retrenches.

The dollar's strong run recently -- together with the plunge in the price of oil and other commodities -- has damaged fragile emerging market economies like Brazil, Turkey and South Africa, with the Brazilian real and the South African rand each weakening more than 130 percent against the dollar since mid-2011.

The currencies of fast-growing Asian countries, including India, have largely been insulated, thanks to their better-performing economies and their ability to stockpile large foreign currency reserve positions.

But having a strong currency at a time when manufacturing competitors like Japan and China have weaker currencies leads to a sharp fall in exports, which have been the economic lifeblood of these countries for decades.

"These countries have some of the most overvalued exchange rates on the planet," said Julian Brigden of Macro Intelligence 2 Partners, an independent research firm based in Vail, Colo., that advises large money management firms on global investment issues.

The fear is that a currency war in Southeast Asia -- where the Asian financial crisis erupted in 1997 -- could result in lower growth and add to the already substantial concerns about the global economy this year and next.

In the past week, the World Bank lowered its estimate for global growth to 2.9 percent from 3.3 percent, with expectations for just about all major economies being revised downward.

Already, global money managers have begun to pull money out of some of these Asian markets.

The Korean won and the Singapore dollar are down 5 percent, while the Taiwan dollar has lost 7 percent over the past six months.

Even in India, perhaps the most popular emerging market among global investors, the currency has given ground, about 7 percent, against the United States dollar.

Underpinning the fears about a currency war have been the disappointing export figures from the region.

For example, South Korean exports last December fell 14 percent compared with the same month in 2014. For the year, exports shrank 8 percent -- the worst result for the country since the global financial crisis in 2009.

In Taiwan, government officials say they expect exports for last year to have been down 10 percent; and in Singapore, the manufacturing sector at the heart of the country's export-based model slumped 6 percent in the most recent quarter. …

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