Repeat of 1997 Asian crisis not likely

As Turkey’s economic woes have sparked emerging market contagion fears that add to depreciation pressures on the Philippine peso, this is not likely to lead to any turmoil in this region similar to the Asian currency crisis of 1997, according to economists from Swiss global bank Credit Suisse.

Credit Suisse expects the peso to trade at 54 against the dollar within the next three months and to hover at 54.50 against the greenback over the next 12 months. The forecasts suggest a depreciation from the 53.73 closing on Friday.

But while other currencies in the region have likewise tumbled, particularly the Indonesian rupiah, the pressures on these currencies are not likely to turn into another 1997 Asian crisis, during which a wave of corporate defaults strained banking systems and resulted in economic downturns.

“I’m not particular on whether a currency appreciates or depreciates. What I care about is if that appreciation or depreciation causes financial distress in the corporate sector or the banking sector,” Ray Farris, Credit Suisse chief economist for Asia-Pacific, said in a press briefing last week.

For currency depreciation to cause financial distress, Farris said external debt exposure must be too huge to service. “Those exposures at the level of the economy simply do not exist in the way they existed in 1997,” Farris said.