S&P upgrades ratings for Thailand and Malaysia

S&P upgrades ratings for Thailand and Malaysia

Agence France-Presse, Bangkok

Global ratings agency Standard and Poor's on Wednesday raised
its ratings for Malaysia and Thailand to reflect the Southeast
Asian nations' improving fiscal positions, it said.

Analysts said the upgrade showed the region was an attractive
prospect for investors relative to the rest of the world, a
marked turnaround from the 1997-1998 financial crisis when
capital rapidly drained out of the region.

S and P raised by a notch all its currency ratings for
Thailand -- whose baht devaluation triggered the crisis -- to
reflect the country's improving fiscal balance and strong
external position, it said.

Foreign currency ratings are now BBB/A-2 and the local
currency ratings A/A-1, with the outlook remaining positive.

"Strong fiscal consolidation over the past few years has
prompted the upgrade," said Takahira Ogawa, S and P credit
analyst and director in the Asia-Pacific Sovereign Ratings Group.

Ogawa said Thaksin Shinawatra's ruling Thai Rak Thai party,
which came to power in January 2001 on a populist platform, had
been able to implement its social agenda without damaging the
government's fiscal position.

He said the general government deficit, which peaked at 2.9
percent of gross domestic product (GDP) in the 1999 fiscal year,
was estimated at less than 1.0 percent for 2003.

S and P noted however that Thailand's banking sector remains
fragile, with system-wide gross non-performing assets still about
30 percent of total loans under Standard and Poor's definitions.

Malaysia's long-term foreign currency credit rating meanwhile
was lifted to A-minus from BBB-plus to reflect a better-than-
expected fiscal performance and a smooth transition of leadership
so far from Prime Minister Mahathir Mohamad to Deputy Prime
Minister Abdullah Ahmad Badawi.

Badawi is due to take the country's reins on Oct. 31.

The Malaysian government has demonstrated its commitment to
fiscal consolidation by announcing a lower deficit target of 3.3
percent of GDP for 2004, even though it has to contest a general
election before January 2005, the agency said.

"While the 2004 fiscal target appears overly optimistic,
indeed we would not be surprised to see an outcome closer to 4.2
percent of GDP, the trend of narrowing deficits is expected to
continue," S and P credit analyst Chih Wai Liew said.

Sompop Manarangsan from the economics department at Bangkok's
Chulalongkorn University said the upgrades showed the region was
ready to accept more capital inflow, but warned that more
restructuring in the countries needed to occur.

"Southeast Asia relatively has more positive aspects or
positive prospects compared to some other regions. It's more
ready to absorb capital inflows," he told AFP.

"Even though they have not been restructured and reformed
completely (since the crisis), in relative terms it seems that
these three countries have the dynamics to be better off compared
to other regions.

He added that for sustainable growth rates, "the prerequisites
are structural reform. That means that they should have more
efficient legal frameworks and more efficiency in financial,
money and capital markets in particular."