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S&P says Asia-Pacific sovereign ratings safe

August 8, 2011

SYDNEY: Standard & Poor’s today said its US credit rating downgrade will have no immediate impact on Asia-Pacific sovereign ratings, but could have negative consequences longer-term.

The agency on Friday cut the credit rating for US Treasuries for the first time ever from AAA to AA+, pointing to deep divisions in Washington over its long-term fiscal standing.

The decision by S&P sparked scathing criticism from US Treasury Secretary Timothy Geithner, who called it a “terrible judgement”.

But S&P said in a statement issued in Australia: “There is no immediate impact on Asia-Pacific sovereign ratings resulting from the lowering of the issuer credit ratings on the US to AA+ on Friday.

“However, the US rating change, together with the weakening sovereign creditworthiness in Europe, does point to an increasingly uncertain and challenging environment ahead.

“Uncertainties in the global financial market and weakened prospects in the developed economies have further undermined confidence.

“The potential longer-term consequences of a weaker financing environment, slower growth, and higher risk aversion are negative factors for Asia-Pacific sovereign ratings.”

For the moment, the agency said its generally stable outlooks for Asia-Pacific countries was supported by sound domestic demand, relatively healthy corporate and household sectors and plentiful external liquidity.

However, it listed New Zealand, Japan, Vietnam and the Cook Islands as exceptions to this.

It also warned countries with financial systems reliant on off-shore markets may face reduced liquidity and a heightening of refinancing risk in the near term.

Nations vulnerable to disruptions in offshore capital markets were listed as Pakistan, Sri Lanka, Fiji, Australia, New Zealand, South Korea and Indonesia.

“The adverse impact on Asia-Pacific in that scenario would likely require governments to use their balance sheets to support their economies and financial sectors once again,” it said.

“And, in our opinion, most governments would promptly oblige.”

But it added that some economies continued to struggle from the global financial crisis and “if a renewed slowdown comes, it would likely create a deeper and more prolonged impact than the last one”.

“The implications for sovereign creditworthiness in Asia-Pacific would likely be more negative than previously experienced, and a larger number of negative rating actions would follow.”

The US credit downgrade – despite the US Congress agreeing to cut some US$2.5 trillion over 10 years in exchange for raising the congressionally-set debt ceiling – saw stock prices fall sharply in early Asian trade Monday.

The deal fell short of the S&P’s call for the United States to cut US$4 trillion over the same period.

The ratings agency also gave a negative outlook for the US, saying there was a chance its rating could be lowered again within two years if progress is not made to cut the government budget gap.

- AFP


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