RP among Asian economies seen to withstand Euro woes

The Philippines along with China and Taiwan were given the biggest chance of escaping unscathed from the global financial turmoil brought about by the European debt crisis mainly as a result of internal liquidity among the three economies, a study released yesterday by credit watchdog Fitch Ratings.

The Philippines, despite having a low investment level, is getting huge financial infusions from remittances of the estimated 10 million Filipinos working abroad.

The study titled Emerging Asian Sovereign Pressure Points noted exposure to a sharp deterioration in global market liquidity as judged by the adjusted liquidity ratio (ALR) appears greatest for Indonesia, Korea and Malaysia, and more limited for China, Taiwan and the Philippines.

Fitch said the study serves as a guide to the exposure of emerging Asian economies and sovereign credit-worthiness in the event of a sharp deterioration in the global economy or heightened financial system stress.

“Emerging Asian exposure to a “sudden stop” in external financing also appears limited, with only Sri Lanka and India running deficits on their basic balances, which was defined as the current account balance plus net foreign direct investment (FDI) inflows,” it noted.

Financing flexibility appears greatest in China, Taiwan and the Philippines, but is weakest in Indonesia, Korea and Malaysia, according to the study.

Exposure to a “sudden stop” in external financing appears limited, with only Sri Lanka and India running current account deficits once net FDI inflows are accounted for, it said.

The study said Indonesia’s position as a net commodity exporter leaves it more exposed to commodity price declines, though favorable inflation and debt ratios suggest the sovereign has scope to stimulate the economy.

Tight international liquidity, owing to substantial foreign involvement in domestic capital markets, suggests sovereign credit-worthiness is exposed to capital flow volatility, it added.

Malaysia’s exposure to an external shock, through either trade or finance, appears high, it said.

Trade openness and reliance on commodity exports point to risk of a significant impact on gross domestic product (GDP) growth from a global slowdown, according to the study.

It added from a financing perspective, despite substantial foreign currency reserves, Malaysia’s international liquidity appears tight and may be more so than before the global financial crisis.

Fitch said another measure of the capacity to withstand deterioration in the external environment is the economy’s liquidity ratio.

“Given the prevalence of foreign ownership in regional equity markets, Fitch has adjusted this ratio to include portfolio equity capital liabilities,” it said.

It said incorporating this adjustment, the capacity of foreign exchange reserves to handle potential capital outflows in a period of risk aversion is weakest in Indonesia, Korea and Malaysia,” it said.

It added, conversely, it would appear strongest in China, Mongolia and the Philippines. -Daily Tribune