S&P expects more sovereign defaults<\/p>\n
LONDON (Reuters): Sovereign credit rating cuts so far this
\nyear outnumber rating rises and countries defaulting on debts are
\nexpected to increase in the coming decade, a study by rating
\nagency Standard & Poor's said yesterday.<\/p>\n
There were no new sovereign defaults in 1997, but bonds issued
\nby Pakistan and Indonesia face the greatest risk of default in
\nthe near term, the sovereign default study said.<\/p>\n
\"The number of sovereign issuers in default...will fall again
\nthis year and possibly in 1999. Looking into the next decade, S&P
\nexpects the default rate in the sovereign sector to pick up,\" S&P
\nsaid.<\/p>\n
\"After a number of years in which rating upgrades exceeded
\ndowngrades, the tide turned in 1997 and now is running sharply in
\nthe other direction. Thus far in 1998, downgrades are outpacing
\nupgrades by eight to one.\"<\/p>\n
The study, which analyses rated and unrated local and foreign
\ncurrency bank loans and bonds issued by 201 governments and
\nterritories, said the value of debt in default in 1997 fell to
\naround $77 billion from $84 billion in 1996.<\/p>\n
\"Financial stress in Asia, and its fallout on emerging markets
\nmore generally, so far is not affecting the declining trend in
\ndefaults by sovereign governments,\" S&P said.<\/p>\n
\"Fiscal discipline, debt management, and the contingent
\nliabilities arising from weak banking systems represent
\nsignificant policy challenges for many governments,\" it said,
\nadding the associated credit risks can mushroom quickly.<\/p>\n
\"Given these factors, it would be surprising if a new
\nsovereign bond default cycle did not emerge over the next
\ndecade.\"<\/p>\n
The total amount of debt in default could fall to $35 billion
\nthis year and fall a further $10 billion in 1999. Much of this is
\ndue to debt rescheduling, with Peru and Bosnia, for example,
\ncompleting bank debt default restructurings.<\/p>\n
S&P said around $44 billion of foreign currency sovereign debt
\nfalls in the B and CCC rating categories, well below investment
\ngrade. Of this amount, bonds issued by Pakistan and Indonesia
\nwith a combined value of around $1.2 billion \"face the greatest
\nrisk of near-term default\".<\/p>\n
\"But S&P expects that the majority of sovereign debt rated in
\nthe B category will continue to perform this year and next.\"<\/p>\n
The last sovereign debt crisis happened in the 1980s, when
\nmany governments, particularly in Latin America, were not able to
\npay loans taken out from international banks.<\/p>\n
S&P said the number of foreign currency bond issuers, while
\ngrowing, is smaller than the number of governments which had
\naccess to cross-border bank finance in the run-up to the 1980s
\ndebt crisis. Also, demand for speculative grade debt was likely
\nto fall once sovereign defaults start to occur.<\/p>\n
\"These factors, together with a still benign global interest
\nrate environment, the general improvement in sovereign credit
\nquality since the 1980s and, in some cases, timely IMF financial
\nsupport, should make the next round of defaults somewhat more
\nmuted than the last one,\" S&P said.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/sp-expects-more-sovereign-defaults-1447893297",
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