The credit-worthiness of most governments in Asia will not be affected by a possible downgrade in the United States’ credit rating following the latter’s close call with debt default this week.
Debt watcher Fitch Ratings said Asian policymakers had learned their lesson during the Asian financial crisis in 1997. Since then, Fitch said, they have built up significant buffers that would help insulate the region from crises in developed markets.
“Asian sovereign credit profiles have generally benefited from a strengthening of their foreign-currency balance sheets since the Asian financial crisis in 1997-1998,” Fitch said in a statement. “This has been driven by a rapid pace of reserve accumulation by most countries in the region, up until 2011.”
Earlier this week, Fitch Ratings put the US on negative watch, indicating the potential for a credit downgrade in the next few months. This was brought on by the stalemate at the US Congress which could spawned an unprecedented default on US treasuries.
Officials in the Philippines noted that a US default would have triggered a disaster bigger and deeper than the global financial crisis of 2007.
Fortunately, Asian economies have been able to accumulate vast foreign exchange reserves that would protect their markets in the event of a shortage of foreign money.
“Regional reserves remain an important buffer against external shocks, and therefore underpin overall sovereign credit-worthiness. This factor is not eroded by the Rating Watch Negative on the US’ AAA sovereign rating,” Fitch said.
The Philippine central bank maintains $83 million in reserves as of September. The amount is enough to cover the country’s import needs for a year. The foreign reserve positions of Korea, Taiwan, Hong Kong, Singapore and India remain among the largest in the world—each with an excess of $200 billion.
Fitch noted that at the end of July 2013, Asian governments owned around 26 percent of the total marketable treasury debt. The largest holders were China and Japan, with 11 percent and 10 percent, respectively. Nine other Asian sovereigns held 5 percent.
At end-September, IMF data showed that 62 percent of global reserves is held in US dollars.