Asian Economies can deal with liquidity squeeze : S&P's

New Delhi, Aug 25 (UNI) International rating agency Standard and Poor's believes that unless there is a sea change in the favourable outlook for Asia's real economies, the region will be able to weather the current turmoil in the global equity and credit markets.

In a study 'Asian economies able to withstand current liquidity squeeze', the agency said most policymakers in these economies appear to have learnt their lessons from the 1997 Asian financial crisis, and an overview of Asian countries shows few signs of apparent weaknesses.

''Asian economies have improved their banking systems, reined in fiscal deficits, brought down external debts, built up foreign exchange reserves, and improved their current account balances,'' Standard and Poor's credit analyst Ping Chew said.

However, Mr Chew notes that capital inflows resulting from international investors' search for yield enhancement have created some difficulties for a few central banks. Current market volatilities have also placed investors, borrowers, and policymakers in a state of uncertainty.

He says easy financing has attracted many lower-rated borrowers to the market. ''In Asia (excluding Japan and Korea) more than half of the corporate issuers with outstanding debt are rated sub-investment grade. Hence, in an environment in which the sovereign and banks' creditworthiness are improving, the vulnerability of the corporate sector to a capital outflow or liquidity crunch could be increasing,'' Mr Chew said.

While a sudden reversal of foreign capital is still a nagging concern for some in emerging markets, the significant reduction of external debt in recent years has considerably eased worries of steep currency depreciations. Further mitigating the risk of a capital exodus is the fact that foreign participation in domestic currency markets at this point remains small.

''Any significant and prolonged decline in asset and market valuations could also sap confidence, but while economic activity and confidence remain robust, the Asian economies are likely to suffer minor setbacks but not major reversals,'' Mr Chew said.

UNI