'ASEAN' won't default on debt': Studies

'ASEAN' won't default on debt': Studies

SINGAPORE (AFP): Indonesia, Malaysia, the Philippines and
Thailand are unlikely to default on their largely yen-denominated
debt despite the Japanese currency's steep appreciation against
the U.S dollar, studies say.

"Our estimates show that the impact of the yen's rise on the
debt burden of the ASEAN-4 is unlikely to significantly raise the
prospects of a debt default," a just-published study by
Singapore's United Overseas Bank (UOB) Group said.

Apart from the four countries, the other member states of the
Association of Southeast Asian Nations (ASEAN) are Brunei and
Singapore.

Another study, Crosby's Quarterly Economic Review of Asia,
said the regional economies were fundamentally different from
Mexico, whose currency crisis in December sparked concerns
whether Asia's developing countries would face a similar
predicament.

The Japanese currency's estimated 20 percent rise against the
US dollar this year had particularly caused persistent concerns
that Indonesia, Malaysia, the Philippines and Thailand will face
problems servicing their debt.

This was because yen-denominated loans make up a substantial
portion of their total debt.

Thailand has 52 percent of its total debt denominated in yen,
the highest proportion among the four, while Indonesia has the
highest external debt-service ratio, estimated at 32 percent,
currency analysts said.

The UOB study estimated that as of March 15, the debt burden
of the four countries had risen by between six and 8.4 percent as
a result of the yen's appreciation against the US dollar since
1994.

The study said the prospects of a debt default was unlikely
because the export growth of the ASEAN-4 was well above the
increase in their debt burden.

Furthermore, concessional debt constitutes between 12 and 30
percent of the four countries' total debt.

Concessional debts are those given to developing economies by
rich countries at discounts, usually at two-three percent, with
an additional grace period of about five years.

The UOB study, exclusively based on economic factors, also
showed that the risks of devaluation among the ASEAN-4
currencies, with the exception of the Philippine peso, were
generally lower than Mexico's.

But it pointed out that the current state of the Philippine
economy was comparatively better than the Mexican economy before
its currency plunged.

Crosby said that Thailand, Malaysia, the Philippines and
Indonesia suffered current account deficits but the source of
their deficits generally reflected "economic strength and not
economic imbalance."

Such strength, it said, was based on very high levels of
foreign investment financed largely by long-term foreign direct
investments.

In another study, Salomon Brothers said that Indonesia's
current account deficit as a percentage of its Gross Domestic
Product fell from 3.2 percent in 1990 to an estimated three
percent in 1994 -- "well within the lower range of the region's
levels."

Thailand's equivalent percentage was higher, at 7.7 percent in
1990 but down to 5.2 percent in 1994, it said, adding that these
percentages were likely to remain stable during 1995.

Combined with foreign exchange reserves enough for five months
of imports at the end of 1994 for Indonesia, and 6.8 months for
Thailand, these deficits on their own will not present specific
threats to exchange-rate stability, even in the context of the
rising yen, Salomon Brothers said.