Moody's downgrades four country<\/p>\n
HONG KONG (AFP): Moody's Investors Service said yesterday it
\nhad downgraded the foreign currency credit ratings of Indonesia,
\nMalaysia, South Korea and Thailand in a fresh blow to the
\nstruggling Asian economies.<\/p>\n
\"The East Asian financial crisis has exposed the vulnerability
\nto changes in market confidence of a number of countries that had
\nbuilt up high levels of short-term liabilities,\" Moody's said in
\na statement released here.<\/p>\n
The outflow of funds from those markets and resulting currency
\ndepreciations added to their existing banking sector problems
\nincluding poor asset quality, it said.<\/p>\n
The agency, one of the world's two major assessors of credit
\nrisk alongside Standard and Poor's, said weakness in the Japanese
\neconomy and banking system added a \"further, negative backdrop to
\nthe prospects for the region.\"<\/p>\n
\"Slow growth in Japan limits the prospects for rapid export
\ngrowth from the other countries while the problems of Japanese
\nbanks limit their ability to maintain lending activity in the
\nregion,\" Moody's said.<\/p>\n
While prospects for East Asia in the year ahead were \"very
\nchallenging,\" the medium-term outlook was for a return to more
\nrapid growth on a sounder financial footing, it said.<\/p>\n
Malaysia's foreign currency ceiling for bonds was downgraded
\nto \"A2\" from \"A1\" and for bank deposits to \"Baa1\" from \"A1\" while
\nthe short-term ceiling for debt and deposits was dropped to
\n\"Prime-2\" from \"Prime-1.\"<\/p>\n
South Korea's foreign currency ceiling for bonds was lowered
\nto \"Ba1\" from \"Baa2\" and for bank deposits to \"B1\" from \"Ba2.\"<\/p>\n
Thailand's foreign currency ceiling for bonds was dropped to
\n\"Ba1\" from \"Baa3\" and its \"B1\" ceiling for bank deposits was
\nconfirmed.<\/p>\n
The action against South Korea was due to concern that its
\nnear-term foreign currency financing needs may be greater than
\nfirst expected, \"suggesting that the balance of payments support
\nprogram led by the IMF may have less margin for error.\"<\/p>\n
South Korea's available foreign exchange reserves had dropped
\nbelow the gross level previously disclosed, Moody's said, urging
\nthe new government to implement economic reform and adjustment.<\/p>\n
In Malaysia, the downgrade was caused by its increased
\nvulnerability to financial instability in the region and
\npotential problems in the banking sector due to slower economic
\ngrowth, an overbuilt property sector and strains on corporate
\nfinance.<\/p>\n
\"The steep fall in the ringgit and in the country's stock
\nmarket are exacerbating these problems,\" Moody's said, noting
\nhowever that the \"A2\" rating reflected sound fiscal management
\nand relatively low external debt.<\/p>\n
Thailand's rating was cut due to concern over its credit and
\nfinancial fundamentals, the agency said.<\/p>\n
\"The new government has started a long and difficult
\nadjustment process,\" the statement said, \"however, domestic
\npolitical conditions may limit progress in this area.\"<\/p>\n
Thai junk bonds<\/p>\n
The news that the US-based agency had cut Thailand's foreign
\ncurrency ceiling for bonds to \"Ba1\" from \"Baa3\" sent immediate
\njitters through the financial markets, speeding up the fall of
\nthe Thai baht.<\/p>\n
\"This means that Thai instruments are now junk bonds,\" an
\nanalyst at Vickers Ballas and Co. Pty Ltd. said in Bangkok.<\/p>\n
\"It is very bad news for the Thai economy as it worsens the
\nmacroeconomic outlook, making Thailand and especially Thai bonds
\nfar less attractive to foreign investors,\" he added.<\/p>\n
The latest downgrade flung Thailand's debt issues from the
\nlast rung of investor grade status into the realm of junk bonds
\nas the entire region is battered by a financial storm.<\/p>\n
The move means that \"nobody will want to buy Thai bonds which
\nwill cut off an important source of cash for the government and
\nwill further hit the already critical status of liquidity here,\"
\nthe Vickers Ballas analyst said.<\/p>\n
Another expert at a major western bank said the move could
\nalso affect the crucial rollover of Thailand's short-term foreign
\ndebt as investors become increasingly nervous of the country's
\neconomic outlook.<\/p>\n
\"It is most certainly not good news for Thailand,\" he said,
\nadding that some -- mainly US -- institutions were barred from
\nbuying any issues ranked lower than investment grade.<\/p>\n
Thailand has US$37 billion in short-term official loans as
\nwell as $72 billion in private sector foreign loans.<\/p>\n
Their rollover is crucial to Thailand, with both the public
\nand the private sector facing an unprecedented liquidity crisis
\nwhich is strangling importers, exporters, as well as the
\nfinancial and banking sectors.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/moodys-downgrades-four-country-1447893297",
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