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What happens next?

By David Swartzentruber
AseanAffairs     6 October 2010

The word from the developed world is that central banks will move as early as November to purchase government debt, thus raising the supply of funds that can be invested in higher-yielding assets.

Meanwhile, in Asia currencies continued to rise . Nine of the 10 most-actively-traded currencies in Asia outside Japan have gained against the dollar this year, led by the Thai baht and Malaysia’s ringgit. The Thai baht hit its highest value in 13 years. Overseas funds have poured money into the region as economic growth outpaces the U.S. and Europe.

Thailand’s baht has appreciated more than 11 percent this year, the best performance among Asia’s most-traded currencies excluding the yen. The Bank of Thailand yesterday issued details on deregulating currency transactions to enable local businesses to more effectively manage foreign-exchange risk.

Thai exporters seem quite befuddled, asking for help while exports are increasing by 20 percent in spite of the rise of the Thai baht. Thailand’s finance ministry said Sept. 27 the economy may expand as much as 7.8 percent this year, the fastest growth since 1995.

Asia’s developing economies are expected to expand 9.2 percent in 2010, compared with growth of 2.6 percent in advanced countries, the International Monetary Fund forecast in July. Foreign investors bought more than $35 billion of stocks in India, South Korea and Taiwan than they sold this year, according to exchange data.

So the last quarter’s economic growth appears to be on an upward trend with 2011 bringing a “normalization” of economic conditions, according to many Asian monetary officials. It really sounds as though they are quite unsure about the path the economy will take with the slow recovery of developed nations a key.

The low value of the U.S. dollar should be a boon to that country’s exports. The first quarter of 2011 should be most interesting.