Asian sovereign credit ratings improve, S&P says

Asian sovereign credit ratings improve, S&P says

MANILA (AFP): Asian sovereign credit ratings have improved two
years into a financial crisis, but the outlook is clouded by
possible defaults by Pakistan and Indonesia and potential trouble
in China, US ratings agency Standard and Poor's said Sunday.

Takahira Ogawa, a director of Standard and Poor's sovereign
ratings group, said "China's economic and financial troubles"
could have an impact on the region, currently slowly pulling out
of its worst economic crisis in 50 years.

"Pressures weighing on the creditworthiness of Asian emerging
market sovereigns have abated in 1999," he told a seminar on the
sidelines of the Asian Development Bank (ADB) annual meeting in
Manila.

"We are surprised on the upside in terms of the robustness of
the recovery (which) could have positive credit implications," he
added.

"The confidence of foreign investors in Asia is rebounding,"
Ogawa said, but he added that this time, "investors will be more
discriminating, more focused on sovereign fundamentals ... and
less herd-like in their behavior."

He also warned that "Asia will likely suffer further bouts of
financial volatility" even as it rebounds.

"The uncertain impact of possible future defaults by Pakistan
or Indonesia" could affect investors in the whole region, the
analyst said.

Standard and Poor's rating for China remained negative and
Ogawa warned that "the risk of a confidence crisis is real."

He expressed concerns about China's industrial and banking
sector reforms, saying possible social tensions could prompt
China's leadership to slow the pace of the reforms.

Ogawa also warned about Hong Kong, saying its standing is
linked to its exposure to the "weakening economic and financial
conditions on the mainland and the possible adverse affect on
confidence should China's currency be devalued."

Ogawa said that politically, Singapore, South Korea and the
Philippines appear most likely to persist in their restructuring
efforts while Malaysia is less certain and Indonesia "is the
biggest question mark" due to its volatile political situation.

Progress in restructuring of financial systems had been made,
he said, particularly in South Korea and Thailand, as well as
Malaysia -- which also imposed capital controls in reaction to
the crisis.

Many countries now have improved balance of payments with
large current account surpluses helping to boost reserves, reduce
short-term debt and strengthen external balance sheets, he added.

"All this will make a number of countries less vulnerable to
the external financial pressures that contributed to the Asian
crisis to begin with."

In response to these favorable developments, Standard and
Poor's had upgraded the ratings of South Korea, the Philippines
and Malaysia, Ogawa said, adding that "broadly speaking ...
sovereign credit quality has stabilized throughout the region."

However while Thailand's government had a strong commitment to
reforms, bank restructuring there was moving slowly and the cost
of the restructuring could ultimately amount to about 35 percent
of Thailand's 1998 gross domestic product, he said.

He conceded there had been more positive action in Thailand in
the last two months, citing progress on legislation affecting
bankruptcy, foreclosures and financial sector recapitalization.

Ogawa also warned against complacency and emphasized that
governments must still stick to tough restructuring which will
take years.

But M.G. Quibria, the ADB's assistant chief economist, said:
"It is perhaps too early to declare the end of the Asian crisis."

He said the crisis had been caused partly by "large persistent
current account deficits", huge short-term external debts, fiscal
deficits and industrial policies that lead to preferential
lending to certain industries, saying these contributed to the
crisis.

He said financial systems and corporate governance should be
well-regulated to avoid another crisis but added that they should
also be subject to "market discipline."