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."