S&P rules out repeat of Asian financial crisis

Asian economies have gotten stronger and are now better equipped to deal with volatility in financial markets caused by the repatriation of foreign funds that flowed into the region over the past four years.

According to debt watcher Standard & Poor’s (S&P), a repeat of the 1997 Asian crisis that saw economies in the region crashing was unlikely. S&P added that growth countries like the Philippines, which rely on domestic demand to drive economic expansion and enjoy a surplus of foreign exchange income, would not be derailed.

S&P described two types of external macroeconomic risks, namely “growth” risks and “external financing” risks. Growth risks stem from the openness of the economy.

“The key metric is the ‘growth beta,’ or an economy’s sensitivity to GDP growth in other (major) economies and regions,” S&P said in a statement released this week.

S&P said smaller, more open and more trade-dependent economies in Asia such as Singapore and Hong Kong have higher growth betas, or risks to growth. “In contrast, the larger, more domestically driven economies such as China, India, Indonesia and the Philippines have lower growth betas,” S&P said.

On external financing risks, S&P said economies that run current account deficits, or markets that earn less dollars than they need to spend.

A country’s current account summarizes what is spent on imports, as well as income from exports and services. Overseas Filipino workers’ (OFW) remittances are also counted in the current account.

In the first quarter of the year, the Philippines booked a current-account surplus of $3.44 billion, better than the $393 million posted in the same period last year. This compares to Indonesia’s current-account deficit of $5.27 billion in the first quarter of 2013.