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Wednesday, 28 January, 1998, 11:44 GMT
South Asia: Rupee down
Rupee
The recent political turmoil in India, coupled with the devaluation of many Far Eastern currencies, has meant that the Indian rupee reached its lowest level against the dollar for at least 30 years. Pakistan, Bangladesh and Sri Lanka have all devalued their currencies over the past 12 months. These currency movements are expected to have a significant impact on the economies of South Asia. Regional specialist Alastair Lawson has this assessment.

Although the Indian Rupee has dipped sharply in recent months, its decline in value appears to be relatively minor when compared with falls of up to 35% per cent in Thailand and Indonesia. The rupee has not been officially devalued, even though it is just under seven-and-a-half percent below its early August level.

Yet the economic woes of the East Asian economies are still likely to take a heavy toll in South Asia. That is because the devaluation of East Asian currencies has led to a drop in export prices, especially in plastic and fibres, which threatens to edge out Indian exporters in particular.

Economists argue that India -- and the rest of South Asia -- need to have weaker currencies to compete with falling Asian currencies elsewhere. The chances are that the latest round of economic and political instability in India will mean that the country will be hard pushed to sustain its annual growth rate above six percent.

It seems as if India's influential Planning Commission realised this when it warned that the poor state of the country's economy was being forgotten amid the political crisis being faced by the United Front government.

Economists say that India is the only country in South Asia to be directly affected by the economic uncertainty in East Asia.

Pakistan and Bangladesh had already carried a series of currency devaluations over the last eighteen months, before the current bout of economic instability in the Far East. The Bangladeshi Taka has been de-valued eleven times since the government of Sheikh Hasina was elected last year. In Pakistan the frequency of devaluations is only marginally lower.

Economists say that instability in East Asia is likely to wipe out whatever benefits may have been derived by those devaluations.

The value of the Sri Lankan rupee has also dropped. That is principally because economic uncertainty in South Korea has had a knock-on effect in Sri Lanka. South Korea is one of Sri Lanka's largest investors, but that investment could be curtailed now that Seoul may soon receive a billion dollar rescue package from the International Monetary Fund.

Perhaps the key challenge facing Pakistan, Bangladesh and Sri Lanka is the same as that confronted by India: the ability to maintain the competitive edge over exports. None is likely to benefit if export prices continue to drop.

Links to more Asian economic woes stories are at the foot of the page.


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