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Fitch: PHL, China, Taiwan well-equipped to face global downturn


China, Taiwan and Philippines are likely to survive another round of global economic downturn and the fallout from the European financial crisis, credit rating agency Fitch Ratings said in a report Monday. “Exposure to a sharp deterioration in global market liquidity as judged by the adjusted liquidity ratio appears greatest for Indonesia, Korea and Malaysia, and more limited for China, Taiwan and the Philippines," said Fitch analysts Andrew Colquhoun and Philip McNicholas in the report, "Emerging Asian Sovereign Pressure Points: Assessing Exposure to a Volatile Global Economy." The impact of a sudden reversal of capital flows into emerging market economies, including the Philippines, except for Sri Lanka and India, would be limited, according to New York-based Fitch. "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," Fitch said. Emerging market economies in Asia with current account surpluses suggest the region is well placed to handle a liquidity shock, the agency noted. The current account deficits of some countries are almost entirely offset by net foreign direct investment inflows restoring the basic balance to surplus and suggesting the exposure to a sudden stop in external financing is minimal, Fitch added. "Financial market disruption and the impact that may have on the balance of payments can feed through into the real economy and hurt performance. The current account balances for [emerging market] Asia suggest the region as a whole is well placed to handle a liquidity shock," it 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, the agency said. In terms of the external payments environment, the Philippines, China, and Mongolia are in the position to withstand the deterioration of the global economic environment based on their respective economies’ liquidity ratio that include portfolio equity capital liabilities, the report noted. PHL, China and Mongolia “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. Conversely, it would appear strongest in China, Mongolia and the Philippines," it said. Bangko Sentral ng Pilipinas data showed the amount of money in the domestic economy or M3 grew at a slower pace of 7.4 percent to P4.356 trillion in September from P4.056 trillion a year earlier after monetary authorities imposed higher reserve requirement ratio to siphon off excess liquidity in the financial system. The amount of money circulating in the economy helps influence the Bangko Sentral shape its monetary policy. Malaysia, Mongolia, and Thailand are most open to trade in the region and suffered growth shocks terms of gross domestic product (GDP) in 2009, Fitch noted. "Trade openness does not fully explain the extent of the growth shocks felt in the region in 2009. That shock coincided with a significant decline in global commodity demand, and by extension prices. A downturn in the global economy would likely hit commodity prices with potential consequences for the region’s commodity exporters and importers," Fitch said. Fitch gave the Philippines on June 23 a credit rating upgrade of ‘BB+’ or two notches below investment grade. The Bangko Sentral increase the reserve requirement ratio for banks by a combined 200 percentage points on June 16 and on July 28, raising the ratio to 21 percent from 19 percent to stem inflationary pressure from excess liquidity. Also, the Philippine gross international reserves widened by 32.6 percent to $75.814 billion in the 10 months to October from $57.153 billion year-on-year In the same comparable period, the Philippine balance of payments (BOP) surplus widened by 8.2 percent to $9.929 billion from $9.179 billion Those numbers give the Philippines a comfortable level of protection against external shocks, according to Bangko Sentral officials. — VS, GMA News

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