MUMBAI, MAY 18: International credit rating agency, Standard & Poor (S&P) sees a stabilisation in credit quality throughout the Asia-Pacific region.Effective economic policies of Asia's emerging market governments, financial restructuring and a positive shift in balance of payment flows have supported a stable outlook for nine of the 12 economies in the region, according to a statement here today.Last month, S&P has reaffirmed India's foreign currency rating at `BB' and local currency rating at `BBB' with a stable outlook. ``Interest rates and inflation are declining, exchange rates are stable and prospects for economic recovery are improving in a range of countries'', S&P managing director of sovereign ratings, David Beers said.``Policy makers now seem to be rebuilding credibility by pursuing economic programs with greater consistency and determination'', Beers said. He also expected political backing for sound economic policies to continue to grow.Another factor supporting the credit standing ofthese economies was the progress in restructuring financial systems, the weaknesses of which were at the heart of the 98-99 crisis.In combination with financial restructuring in the private sector and sustained foreign direct investment flows, the large trade and current account surpluses of these economies have helped boost central bank reserves, reduce short term debt and external balance sheets, he added.He, however, expressed concern with regard to the cost of industrial and banking sector reforms in China and the government's capacity to implement them.``Exchange controls and substantial foreign exchange reserves helped shelter China from the worst of Asia's financial contagion but could prove to be effective if domestic confidence in the banking system begins to unravel'', Beers said.The risk of a confidence crisis in China was real as the pace of business activity slows, owing to the continued lack of financial transparency and high domestic leverage, he said.``A related concern is thepossible linkage between weaker economic conditions and rising social tensions, which could cause the leadership's commitment to reform to falter,'' he added.China's economic and financial troubles, or adverse political developments in Indonesia, could have a highly negative impact on the region if they were to spiral out of control, he cautioned.However, in the near term, S&P was confident that a growing number of Asian sovereigns could absorb external shock from China or elsewhere with less risk to their credit rating than in 1997-98.
