Mumbai, May 18: The sovereign credit quality has stabilised throughout the Asia-Pacific region since January 1999, said Standard & Poor's (S&P) managing director of sovereign ratings, David Beers in Hong Kong today.Effective economic policies of Asia's emerging market governments, financial restructuring and a positive shift in balance of payment flows have supported a stable outlook for nine of the 12 economies in the region, said a statement by S&P here today.
Last month, S&P has reaffirmed India's foreign currency rating at `BB' and local currency rating at `BBB' with a stable outlook.
The S&P stand might have gone long way to explain the resurgence of interest by the foreign institutional investors in recent times.
``Interest rates and inflation are declining, exchange rates are stable and prospects for economic recovery are improving in a range of countries,'' said Beers.
Another factor supporting the credit standing of these economies was the progress in restructuring financial systems, theweaknesses of which were at the heart of the 1998-99 crisis.
In combination with financial restructuring in the private sector and sustained foreign direct investment flows, the large trade and current account surpluses of these economies have helped boost central bank reserves, reduce short term debt and external balance sheets, he added.
So far this year, Standard & Poor's has returned its ratings on Korea to investment-grade, and has revised its outlook on the Philippines, Indonesia, Malaysia, and Thailand to stable from negative. Of outlooks on emerging market sovereigns in Asia as a whole, one (Korea) is now positive, nine are stable, and two are negative. Outlooks give Standard & Poor's view of the trend in ratings over a one-to three-year time horizon.
Factors supporting the credit standing of Asia's emerging market governments are:
The implementation of effective economic policies. Policymakers now seem to be rebuilding credibility by pursuing economic programs with greaterconsistency and determination, and are beginning to achieve promising results. Interest rates and inflation are declining, exchange rates are stable, and prospects for economic recovery are improving in a range of countries. Political backing for sound economic policies should also continue to grow. Progress in restructuring financial systems, the weaknesses of which were at the heart of the 1997-1998 crisis, is becoming more visible. This is particularly the case in Korea and Thailand, where foreign investment is playing an important role in the recapitalisation of banks. It is also striking in Malaysia, which is pursuing a strategy reliant on domestic resources.Bank restructuring helps promote economic recovery by cleaning bad loans from banks' balance sheets, gives added impetus to the deleveraging process in the corporate sector, and allows banks to focus on new risk-based lending. Equally important, effective bank restructuring helps contain the already high fiscal impact of recapitalisation,which governments will bear for years to come.
Along with a dramatic shift in balance of payments flows, the large trade and current account surpluses of the past year are being employed more constructively. In combination with financial restructuring in the private sector and sustained foreign direct investment flows, they are helping boost central bank reserves, reduce public and private sector short-term debt, and otherwise strengthen external balance sheets. All of these factors make the region less vulnerable to the external financial pressures that contributed to the 1997-1998 crisis.Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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