MANILA: Less than a decade ago, the International Monetary Fund used to talk about Asian countries piling up too much in their currency-reserve stockpiles.
The global financial crisis turned that conclusion on its head, and now that US interest rates are poised to keep climbing, the race is on to identify which countries have the strongest buffers against capital flowing out toward developed markets.
A measure developed by the IMF itself shows that Thailand and the Philippines may be best placed to withstand further downward pressure on the emerging currencies in Asia, based on calculations taken before the Donald Trump-induced US reflation play roiled the foreign-exchange market.
The IMF last month forecast Thailand’s reserves at US$163.3 billion at year-end, compared with the US$64.9 billion needed, according to the so-called Assessing Reserve Adequacy gauge, which incorporates criteria from short-term debt to money supply, imports and investment flows. The Philippines was heading for a US$84 billion hoard, against a US$31 billion need.
“In this broad trend of the dollar strength — or emerging-market currency weakness — the currencies of countries that have plenty of reserves will probably perform better than others,” Tsutomu Soma, general manager of fixed-income department in Tokyo at SBI Securities Co., said in a phone interview.
“You don’t attack the currency when you know the monetary authorities have plenty of money to intervene. Instead, you look for a currency that has less ability to defend it.”
The measure shows Malaysia – not coincidentally the worst performing of the major emerging Asian currencies against the dollar this month – faring poorly by comparison, with a US$100 billion reserves projection against short-term external debt of US$128.2 billion, based on IMF estimates. Looking beyond Asia, Turkey, South Africa and Mexico are among those deemed more vulnerable by the assessments.
