By Kevin Yao
SINGAPORE, Feb 25 (Reuters) - Tumbling exports have prompted authorities in Taiwan and Thailand to push down their currencies, but an Asia-wide round of depreciation is unlikely because of fears it will hurt consumer spending and spur capital outflows.
Cheap currencies contributed to the region's export-led recovery from the 1997/98 Asian crisis, but the current export slump has been caused largely by collapsing demand in the West, whose economies are slumping deeper into recession.
With Asian currencies expected to drift lower of their own accord as regional economies worsen, analysts say most Asian governments are likely to resist the temptation to deliberately push their currencies lower. "I wouldn't expect a region-wide trend to try to weaken Asian currencies," said Sean Callow, currency strategist at Westpac in Sydney. "No one is going to export their way out of this slump, at least not within the next 12 months and probably longer."
Weaker currencies would make exports more price competitive and boost bottom-lines of firms like Taiwan micro-chip maker TSMC by increasing their local currency income when they send dollars home, keeping factories humming and people employed.
But they would also make prices of imported goods in those countries more expensive, fueling inflation, and pressure currencies of their Asian neighbours, creating a downward spiral.
Further declines in Asian currencies could also see more foreign investors pull money out of the region. Stocks in Asia excluding Japan have fallen almost 60 percent since the start of 2008 amid a global market rout, spurring capital flight.
The political sensitivity of the regional currency issue was highlighted last week after China strongly denied reports that an official had suggested the yuan may weaken to as low as 7 to the dollar. The central bank has pledged to keep the yuan stable.
Still, signs abound that more Asian governments are looking to ease some of the growing strain on their economies by showing a greater tolerance for weaker currencies.
South Korea's new finance minister said on Wednesday the cheap won could help the economy, distancing himself from his predecessor and suggesting an end to heavy official intervention to prop up the won The won lost 25 percent of its value last year and has tumbled another 16 percent so far this year.
The won's sharp slide against the U.S. dollar may have persuaded authorities in Taiwan and Thailand to let their currencies soften, said Tim Condon, head of Asia research at ING.
"People look at what happened to the Korean won and say 'hey, I've got to get a little bit more competitive against the won'," Condon said.
"They have a sort of economic cover from the crisis in global markets to do something that is a little bit opportunistic, but (actually) will be of marginal benefit."
Central banks in Taiwan and Thailand have turned into dollar buyers in the past few weeks to weigh their currencies down, which traders and analysts see as an effort to limit the damage from a double-digit plunge in exports.
The Taiwan dollar has lost about 7 percent since the start of 2008, but the island's exporters have lobbied for an even faster depreciation after exports plunged 44 percent in January.
Taiwan's central bank urged importers on Monday to hedge their foreign exchange positions, signalling it was ready to let the local dollar weaken further, though government officials have publicly sounded a more cautious line.
Weakening the currency drastically was not the best way to save the economy, Chen Tain-jy, chairman of the Cabinet-level Council for Economic Planning and Development, said recently.
"If the Taiwan dollar were weakened too much, it would make imports more expensive and add more pressures to importers."
EVERYBODY HURTS
Thailand seems to be taking a more gradual approach, with the Bank of Thailand expected to avoid sudden, aggressive action which could alarm already frail financial markets.
"At the moment, I think they will try push the baht lower step by step," said a currency trader in Bangkok, who declined to be identified because of the sensitivity of the issue. In Singapore, the central bank is expected to depreciate the local dollar in April by shifting its secret trade-weighted trading band moderately lower to help spur growth.
Singapore, Taiwan and Thailand are the most vulnerable in Asia due to their higher reliance on exports, though their currencies have held up relatively well despite the crisis.
The Singapore dollar has fallen 6 percent since the start of 2008, while the Thai baht has lost 6 percent.
Exports are equivalent to over 200 percent of gross domestic product (GDP) in Singapore, about 100 percent in Malaysia, and 80 percent in Taiwan and 70 percent in Thailand.
The average ratio for Asia is around 30 percent.
Indonesia's central bank, meanwhile, is still trying to support its sliding currency, which has lost 20 percent of its value since the start of 2008.
Analysts expect most Asian currencies to weaken further anyway in coming months as economies deteriorate, but some believe they could bottom out later in the year if foreign investors return to buy Asian stocks and bonds in anticipation of a recovery in 2010.
Offshore non-deliverable currency forwards markets now imply a 10 percent fall in the Indonesian rupiah in six months, though the won may stabilise near current levels.
Analysts at Nomura expect the Singapore dollar to fall to 1.55 per U.S. dollar by the end-June -- down 2 percent from the current rate -- before recovering to 1.52 by the end of 2009.
The International Monetary Fund earlier this month cut its 2009 growth forecast for Asia to just 2.7 percent from a November forecast of 4.9 percent, but predicted a fast recovery in 2010.
"The massive fiscal impulse (from governments), as well as monetary easing, will likely lead to a rebound in growth in Asia over the second half of 2009," said HSBC economist Frederic Neumann.
"However, this forecast assumes that growth in the West will stabilise over the course of the next year," he added. (Reporting by Kevin Yao; Editing by Kim Coghill)