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."