Peso still better off compared with regional counterparts (After Thai crisis, Korean woe plagues market)

With the rapid economic growth of Thailand’s economy from the mid-’80s to the mid-’90s, the baht had become one of the most stable currencies in the region and the world.

However, an unchecked widening current account deficit mainly due to a sharp slowdown in exports put the baht under pressure.

Unable to contain widespread speculative attacks on its currency, the Thai government was forced to adopt a “managed float” policy last July 2. That same day, the baht tumbled 18% to 28.85 to a dollar.

The depreciation was immediately felt in the Philippines, where a panic selling of the peso ensued.

Amid fears that the peso will have the same fate as the baht, investors converted their peso-denominated holdings to dollars.

Volume turnover at the Philippine Dealing System reached an alltime high of $1.049 billion.

The government’s reaction to the event was a costly undertaking. In defense of the peso, total dollar sales and purchases of the Bangko Sentral ng Pilipinas (BSP) hit $575.1 million, or 58.4% of the total volume turnover.

To quell speculative attacks, the BSP hiked overnight borrowing rates to 20% from 15%. Within an hour, it was further raised to 24% since the P10- million facility had already been depleted.

Within days, overnight rates would further be hiked to 30% and then peak at 32%.

In reaction to the developments in the foreign exchange market, the Philippine Stock Index goes down 50.65 points to 2,746.89 points.

On July 11, the peso incurred the same fate as its Thai counterpart. That day, the Bangko Sentral allowed the peso to seek its own level. The peso drops 6.4% to P28.082 to the dollar.

After the de facto devaluation of the baht and the peso, currency speculators turned to the Malaysian ringgit. Despite token resistance offered by Bank Negara — Malaysia’s central bank — the ringgit was next on the chopping block. Also on July 11, that currency fell to a 16- month low of 2.5500/ 10 to a dollar.

It was the same story for the Indonesian currency. The rupiah posts its biggest one-day drop in five years, around 7% on July 22.

Earlier, analysts have noted the rupiah was, in fact, undervalued since the currency is subject to a managed depreciation by the Indonesian government.

However, even the “undervalued” rupiah was not immune to the economic virus.

In the months that followed, the four currencies — baht, peso, ringgit and rupiah — continued their tumble.

By November, the Southeast Asian currencies were exhibiting signs of stability. That month, the peso fell by a mere 0.03% from October; the ringgit and baht by 2.6% and 4.5%; the rupiah even managed to appreciate by 3.3%. But the worst was yet to come. As the economic woes of South Korea began to unfold, a new wave of contagion has re-infected the region. Once again, the value of the four currencies plummeted to historic lows.

Analysts say the Philippines was the least affected in the currency turmoil. That the country is much better off than its neighbors, however, is yet to be seen.

For this year, the government has already scaled down its growth targets by several percentage points, and the early part of the year is still projected to feel the ripple effect of the currency crisis; even as speculative attacks on the peso continue in the early days of trading in the new year.