U.S. News

Dollar Drops in Asia Double-Edged Sword

AP
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Thai frozen food exporters are calling for the government to stop the baht's surge and South Korean automakers are seeing their earnings shrink.

At the same time, Indonesian textile makers are happy to see raw material prices decline and more Filipinos are flying abroad.

The dollar's drop against many Asian currencies is a double-edged sword, dealing a blow to the region's export-driven economies, but drawing cheers from some quarters as imports get cheaper and overseas travel less expensive.

The dollar, already weakening for much of the year, has taken a tumble since last week amid concerns over a slowdown in the U.S. economy and speculation that China is swapping dollars for euros and yen in its nearly $1 trillion foreign currency reserves.

Alarmed about the baht's 14.2 percent gain against the dollar this year, the Bank of Thailand intervened in the currency market Friday and earlier in the week, to try to curb the baht's surge, said Nitaya Pibulratanagit, the assistant governor.

"The baht has risen beyond its fundamentals," said Suchada Kirakul, the central bank's senior director for the domestic economy, blaming at least some of the appreciation on speculative inflows from offshore investors.

Central banks in the Philippines, Taiwan and South Korea also bought dollars in the currency market this week, traders said.

But the dollar continues to languish, falling Friday as low as 115.48 yen, 35.7 baht and 927.5 Korean won before recovering some lost ground.

Optimism about Asian economies has also contributed to currency gains. The South Korean won is near its strongest levels since 1997. The Philippine peso and Indonesian rupiah have strengthened. Even China's yuan is steadily inching higher, hitting fresh highs nearly every week, though U.S. authorities would like to see it appreciate even more.

These gains mean that American consumers could pay higher prices on at least some Asian exports just as the holiday shopping season gets into full swing.

Recent indicators of U.S. consumer spending are mixed, with sales during the Friday and Saturday of Thanksgiving weekend up 3.4 percent compared to the same period last year, according to retail outlet monitor ShopperTrak RCT Corp. But the consumer confidence index fell unexpectedly in November, according to the New York-based Conference Board.

"World trade has been growing so that's probably enough to offset the currencies' appreciating," said David Cohen, Singapore-based chief of Asian economic forecasting at Action Economics. "So far it looks as if the U.S. consumer will continue to spend."

South Korea's Kia Motors Corp. has felt the won's strength _ the dollar is down 8 percent this year _ pinch its foreign income. To avoid currency exposure, it plans to dramatically boost output at factories in China, Slovakia and the U.S. due to come on line by 2010 to 1.03 million vehicles from 130,000 now.

"Obviously one of the main motivations of our aggressive overseas production expansion to a certain extent addresses the currency risk," said Kia spokesman Michael Choo.

The appreciation of the Thai baht _ at an eight-year high against the dollar _ has been one of the sharpest, prompting exporters to submit a petition this month to Prime Minister Surayud Chulanont, the finance chief and the central bank governor.

"We demand that they implement appropriate measures to maintain baht stability in order to maintain the country's competitiveness," said the petition by 10 export-oriented groups, including the Thai Frozen Foods Association. "The persistent rise in the baht makes us unable to compete in terms of price."

Japan, Asia's biggest economy, hasn't seen a dramatic appreciation in its currency: The dollar is down just 1.6 percent this year against the yen. But the dollar's recent tumble has prompted investors to sell major exporters' stocks like Toyota Motor Corp. and Sony Corp.

In the Philippines, where the dollar has declined about 6 percent against the peso this year, the pain has been most acutely felt by small and medium-sized exporters of indigenous products like furniture, handicrafts, processed foods, and marine and agriculture-based products, said Sergio Ortiz-Luis, head of the Philippine Exporters Confederation Inc.

But the Philippine Travel Agencies Association says the stronger peso and budget airfares have sparked a marked increase in outbound travel in the last quarter of the year.

"It's also because of affordable airfares offered by budget airlines," said Jose Clemente III, head of the association. "The stronger peso complements that, so travel becomes much cheaper now."

Also, the dollar's drop against the Indonesian rupiah _ around 7 percent this year _ has helped companies such as building materials and textile makers that import large quantities of raw materials in dollars _ sometimes as much of 40 percent _ which are then used to make products for export.

The Chinese yuan, meanwhile, has climbed a modest 3.5 percent since authorities revalued it in July 2005 and Friday hit a new high against the dollar.

Though the official American position is that a strong dollar is in U.S. national interests, officials like Treasury Secretary Henry Paulson want China to further loosen currency controls to allow the yuan to appreciate as a means of addressing Beijing's trade surplus with the U.S., which hit an all-time high of $102 billion last year.

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