DOOMSDAY scenarios for the US dollar do not appear to have fanned fears in Brunei's business and economy. Traders and analysts, however, see the possibility of the pummelled currency adversely affecting the Sultanate via higher prices of some Japanese car brands and lowered export earnings from oil which is traded in US dollars.
The US dollar remains to be one of the world's main trading currency. The majority of goods and services imported by Brunei are traded in the US currency. Hence, should the US dollar continue to depreciate, the Brunei economy would be affected in four main areas both imports and exports, the government budget and inflation.
Over the past few years, the US currency has depreciated from an exchange rate of $1 (Brunei dollar) to $1.3. Market analyses predict a US dollar collapse in the first quarter of next year.
Brunei imports over 80 per cent of its food needs. Bulk of its export receipts come from its hydrocarbon industry.
Pg Hjh Nirmala Pg Hj Mohammad, assistant director of planning at the Department of Economic Planning and Development (JPKE), said a weak US dollar could translate to cheaper prices of many imported goods in Brunei.
"Normally when the US dollar weakens, the Brunei dollar, which is tied to the Singapore dollar, would strengthen. So with most of our imports coming from Singapore and other countries (and) the trade value for these items would be in the US dollar which would mean that we are able to import more items at a cheaper price," she said.
However, with oil and gas being Brunei's main export and contributor to its revenues, the weakened US currency would also mean that exports would be affected.
"(The hydrocarbon) products are valued acording to the exchange rates, which is traded in the US dollar, (so) if the US dollar weakens, it would not necessarily be a good thing for Brunei," she added, explaining that this would lead to modifications in the nation's government budget.
"Depending on how much the US dollar weakens, by percentage, you can count that the national budget will also be amended by that percentage," she said.
"The basic thing is also that if some goods suddenly become more expensive, because producers are increasing their prices to suit the dropping US dollar, it would result in a high inflation (rate)," she added.
Tareq Muhmood, HSBC (B) chief executive officer, on the other hand, sees no tremendous impact on Brunei. "The truth is that Brunei has already been living with the US dollar weakening for the past few years," he said in an interview. "When I first came to Brunei about four or five years ago, the US dollar was valued at $1.6 (Brunei dollar) or $1.5 and it has dropped a lot already, down to about $1.3."
From a financial point of view, normally when the US dollar weakens, commodities such as steel, copper, grain and so on, that are traded in the US dollar, start to rise in value, he explained.
"I don't see that there will be a tremendous impact on the economy because Brunei has already been living with the weakening (US) dollar for the past few years, and (this) is normally offset by the rise in commodity prices," he said.
"During these times when the US dollar weakens, the demand for grain and steel will go up."
Asked about how banking clients would be affected should the US dollar collapse, Tareq said the banks have come up with tools and products to help protect clients should anything happen. "These tools are ... called hedging."
Car dealers that are likely to be affected in the event the US dollar is pummelled further also resort to hedging. Brunei's automotive market remains one of the largest that is affected by swings in the value of the US dollar.
"If the US dollar goes down, the Japanese yen will go up, and that would mean that Japanese distributors will have to pay a higher price," said an industry insider.
He added that there is a method to overcoming the rising yen. Some car distributors "buy forward" their stocks, for example.
"If I notice that the Japanese yen is now at this value, and I predict that it will rise in the next few months, what a distributor can do is to say that they will take the risk and buy $10 million worth of Japanese yen so that when they do trade in the future, they will be trading at the old rate," he said.
He explained that this has its upside and downside because the yen could shift both ways.
"At the end of the day it is speculation on how the currencies will move, but there will always be ways to counter the risk in business," he said.
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