S&P warns against impact of territorial disputes

Standard & Poor’s has warned against the potential damage that territorial disputes involving the Philippines, China and a few other Asian countries could eventually bring to their economies.

In one of its latest reports on the Asia Pacific, the credit-rating firm said that if tensions among the countries heightened and left unmanaged, these could disrupt the favorable performance of their economies and drag their credit standing.

S&P, however, stressed that an escalation of the ongoing tension to levels that could adversely affect economies was unlikely at the moment. It said economic relations among countries in the region, in fact, were somehow helping keep geopolitical situation in the area relatively stable despite the territorial disputes.

But the credit watchdog also cautioned that a scenario where tensions could flare up and spill over to the economic front should not be discounted.

“The risks highlighted above could severely strain international economic relations, even if we believe the likelihood is relatively low for now,” S&P said.

It cited the probability that one country could misinterpret a statement of another in the ongoing dispute and aggressively respond.

“Standard & Poor’s believes that the region’s economic importance provides an anchor for geopolitical stability… Nevertheless, the risk of a miscalculation that could materially weaken sovereign creditworthiness is not negligible,” S&P said.

At the moment, it said there was no solid evidence showing that the territorial disputes among the countries were significantly affecting their economies.

For instance, China remains one of the biggest export markets for Philippine-made goods and vice versa. Moreover, the Philippines and other members of the Association of Southeast Asian Nations (Asean) are preparing for integration of their economies that they intend to accomplish starting in 2015.

China and the Philippines both have claims over the West Philippine Sea (South China Sea). Other neighboring countries, including Vietnam, Taiwan, Brunei, Malaysia and Indonesia, also have claims over the area.

China is also engaged in a separate territorial dispute with Japan over a group of islands in the East China Sea.

S&P said that while economic ties in the region seemed isolated at the moment from the territorial disputes, an escalation of the tension could have repercussions on various economic areas such as tourism, trade and investments.

It said the conflicting territorial claims so far had no downward pressure on the credit ratings of the concerned economies. However, an escalation of the problem could eventually impact on their creditworthiness.

The Philippines last year secured its first investment grades from the three biggest international credit rating firms, including S&P.

Fitch Ratings upgraded the Philippines from junk to investment status in March. S&P and Moody’s Investors Service did the same in May and October, respectively.

They all cited the Philippines’ robust economic growth, benign inflation, sufficient foreign exchange reserves and improving fiscal situation as reasons behind their move.