S & P Sees Little Impact On Asia-Pacific Ratings

Global rating agency Standard & Poor's (S&P) does not expect to make substantial changes to the ratings on the 17 sovereign governments including India in the Asia-Pacific region in the aftermath of the terrorist attacks on the United States.

The agency expects that any future rating actions will be prompted more by policymakers' responses to changed events, rather than the events itself.

The ratings on India (BB/Negative/B) along with Thailand and the Philippines would suffer if the public has to inject funds into these financial systems, as general government debt to gross domestic product (GDP) exceeds 60 per cent in each case, the agency said. Like Japan, the credit standing of these countries would have been bolstered if they had pursued financial sector reform with more alacrity.

Apart from potential bank recapitalisations, the debt dynamics of India and the Philippines may prompt ratings adjustments, as both have been able to contain the effects of accommodative fiscal positions with high growth. Should that growth now prove unsustainable, the resulting higher ratio of debt to GDP would no longer be consistent with their current rating levels.

S&P in August lowered its long-term local currency sovereign credit rating on India to triple 'B-' from triple 'B'. At the same time, it affirmed its double 'B' long-term and 'B' short-term foreign currency sovereign credit and 'A-3' short-term local currency sovereign credit ratings on India. The outlook on both long-term ratings was revised to negative from stable.

According to the agency, in the wake of the attacks five themes have emerged about the deteriorating global economic prospects for the near term:

-- Although trade balances will worsen for Asian exporters beyond their already weakened positions, most Asian sovereigns are managing more resilient capital accounts and stronger reserve positions than before the 1997 Asian financial crisis.

-- Financial sector weaknesses in many Asian countries will exacerbate the current regional recession, thus penalising those governments that did not undertake reform more promptly. However, the agency does not expect Asian financial systems to lose external funding in the manner that many lost access to the cross-border interbank market in 1997.

-- Because of the high cost of government bank bailouts following the Asian crisis, some governments have little additional room for large fiscal accommodation at their current rating levels.

-- With fewer imbalances in their economies, the ratings on Australia and New Zealand are less at risk than those of their Asian peers.

-- Several highly indebted sovereigns will face challenging debt dynamics as growth slows but fiscal deficit persists. Some of the lower rated sovereigns may seek debt forgiveness in exchange for support for the US-led coalition against terrorism.

The terrorist attacks will hurt US consumer confidence and is likely to push the country into a recession for at least the third and fourth quarter of 2001, with the global economy at near zero growth. Weak global demand will particularly deepen the recession in Japan and the other open economies of Southeast Asia. Although their current account surpluses will narrow, most rated Asian sovereigns face manageable external funding requirements.