STRATFOR.COM's Global Intelligence Update - 27 January 2000 By The Internet's Most Intelligent Source of International News & Analysis http://www.stratfor.com/ __________________________________________ Know the every move of your competitors -- even before they do. Stratfor Intelligence Services http://www.stratfor.com/services/ __________________________________________ Coming tomorrow: The World After Chechnya __________________________________________ WHAT'S GOING ON IN YOUR WORLD Musharraf Sacks Supreme Court Justices http://www.stratfor.com/asia/commentary/m0001270100.htm The Succession Questions of Kuwait's Royals http://www.stratfor.com/MEAF/commentary/m0001262217.htm __________________________________________ STRATFOR.COM Global Intelligence Update 27 January 2000 The Philippines: Are New Currency Controls A Sign of Asian Relapse? Summary The Philippine Central Bank on Jan. 26 announced a 90-day holding period for foreign currency placed in time deposits in the local currency - the peso - in Philippine banks. The move, a limited form of currency controls, is officially intended to "plug the loopholes" in the current exchange system. While the central bank's action is based primarily on domestic weakness, it reflects endemic economic and political problems across Asia. Asia has yet to fully recover from the crisis of the late 1990s. Indeed, regional economic and political instability is more apparent than before the original crisis. Foreign investors and currency traders are quicker to react. The problems in the Philippines may be an early sign of another regional economic downturn. Analysis Philippine Central Bank Deputy Governor Amando Tetangco Jr. announced on Jan. 26 that foreign currency funds in peso time deposits would be subject to a 90-day holding period before withdrawal. The decision, according to Tetangco, was to "plug the loopholes in the present system" and to "strengthen the procedure of monitoring foreign investments." While the currency controls are a response to domestic economic and political trouble, the underlying situation is endemic of many of the Philippines' neighbors and could signal another regional downturn. The announcement by the Central Bank was accompanied by an unusual admission: Tetangco said that currency speculation using peso time deposits has declined significantly since 1998. Nonetheless, the Central Bank decided that now was the time to establish greater control over foreign exchange. The timing suggests apprehension that currency speculation may again pose a direct threat to the Philippine economy. While the government insists that the controls are positive for Philippine markets and will have little or no detrimental effect, the decision acknowledges the weakness of the economy. A report by the Asian Development Bank this month said that the slow pace of financial reforms is hampering economic recovery and "beginning to be a major source of concern for investors." The delay of financial reforms is a symptom of growing doubts about the viability of President Joseph Estrada's government. [http://www.stratfor.com/asia/specialreports/special102.htm]. In addition, recent government infighting appears to be weakening foreign confidence. For example, there is a political feud between Estrada and Securities and Exchange Commission chief Perfecto Yasay. A member of the Fund Managers Association of the Philippines has suggested that this squabble is helping to reverse a trend in which foreign fund managers have been net buyers of Philippine stocks, according to a report by the Philippine Daily Inquirer. The imposition of a limited form of capital controls in the Philippines is unlikely to have an immediate and direct impact on the economies of the rest of the region. But there are underlying political and economic instabilities throughout the region. In Indonesia, the new government is relying on foreign investment and assistance to lessen the social stresses that threaten to tear the nation apart [http://www.stratfor.com/SERVICES/giu2000/012000.ASP]. In China, economic reform has uncovered the pervasiveness of corruption within all levels of the government and business. Beijing's national anti-corruption drive is increasingly ineffective as higher-level government and military officials become enmeshed in the scandals [http://www.stratfor.com/asia/specialreports/special106.htm]. While a further weakening of the Indonesian or Philippine economies would not shock investors, the increased economic weakening of China would have greater impact. China has largely avoided being lumped into the list of Asia's financial lepers. Through careful manipulation of economic reports, China initially pretended to be unaffected - even growing - throughout Asia's economic crisis. However, China has since admitted that its economy was deeply affected by the Asian flu, making any future claims of financial stability less likely to be taken at face value by foreigners. With the current political uncertainties in Beijing, a financial collapse in China could have grave repercussions. Lack of transparency in the Chinese system makes confidence difficult. In short, the question is whether the Philippine situation is one of a kind or a harbinger of things to come in Asia. During the 1997 economic crisis, foreigners were slow to grasp the underlying structural problems of the region. Today, these same issues are at the forefront of the minds of observers and investors. This increases the possibility that a downturn in the Philippines could spill over into the region at a time of economic and political instability. Asia has yet to pull out of the 1997 financial crisis [http://www.stratfor.com/services/giu/giu1998/1998.asp]. It has failed to seriously tackle its financial structure, focusing instead on maintaining social stability. [http://www.stratfor.com/asia/specialreports/special27.htm] (c) 2000, Stratfor, Inc. http://www.stratfor.com/ __________________________________________________ SUBSCRIBE to FREE, DAILY GLOBAL INTELLIGENCE UPDATES by clicking on http://www.stratfor.com/services/giu/subscribe.asp UNSUBSCRIBE FROM THE GLOBAL INTELLIGENCE UPDATES (GIU) http://www.stratfor.com/services/giu/subscribe.asp or send your name, title, organization, address, phone number, and e-mail to [EMAIL PROTECTED] ___________________________________________________ STRATFOR.COM 504 Lavaca, Suite 1100 Austin, TX 78701 Phone: 512-583-5000 Fax: 512-583-5025 Internet: http://www.stratfor.com/ Email: [EMAIL PROTECTED] ___________________________________________________
