Asia Should Have Own Rating Agency

Rating agency Fitch has downgraded Malaysia and on Business Times, Fitch sites its reasoning, Fitch cites deficit concern for lowering Malaysia's rating

• The slight downgrade has little implication for Malaysia's fiscal deficit financing in the international market, says RAM group chief economist
  
  FITCH Ratings has cut Malaysia's long-term currency rating from "A+" to "A" due to concern over the country's growing budget deficit.
  
  It also revised its outlook from negative to stable and maintained Malaysia's long-term foreign currency rating at "A-" with a stable outlook.
  
  RAM Holdings group chief economist Dr Yeah Kim Leng said the slight downgrade has little implication for Malaysia's fiscal deficit financing in the international market.
  
  "This (fund-raising) can still be done domestically due to our ample liquidity," he said when contacted yesterday, adding that there was still some minimum impact on the risk premium for existing sovereign debt holders.
  
  "But this will not make our debt papers unattractive for long-term investors," he said.
  
  A market analyst concurred with Yeah's views, saying that Malaysia remained in Fitch's "A" category, adding that the downgrade was consistent with rating deterioration in some "AAA" countries like Japan and the UK.
  
  The rating downgrade by Fitch is the first since the onset of the global financial crisis, Yeah noted, adding that Standard and Poor's (S&P) and Moody's had yet to announce their ratings.
  
  Fitch, in a statement yesterday, said that it expected Malaysia's budget deficit to increase to 7.7 per cent of gross domestic product (GDP) this year.
  
  Last year, the budget deficit peaked when a RM67 billion stimulus package was announced to counter the effects of a global economic slowdown.
  
  Fitch said that by next year, Malaysia's general government primary deficit of -6.4 per cent of GDP would be among the worst of all Fitch-rated sovereigns, after only Latvia, Bahrain, Ireland and Vietnam.
  
  It noted that the ratio of Malaysia's revenues as a proportion of GDP was just 21.6 per cent, and that the ratio could worsen to 19 per cent by next year.
  
  "Revenue reform measures are still a work-in-progress as plans to shift away from the 'selective' sales and services tax to goods and services tax (GST) do not look forthcoming, while plans to monetise government assets through leasing, selling or developing government-owned prime land yield less than 1 per cent of GDP worth of non-tax receipts," Fitch analyst Ai Ling Ngiam said.
  
  S&P said the worst seemed to be over in the Asia-Pacific region, but cautioned that the road ahead remained bumpy.
  
  The rating agency added that fiscal deterioration resulting from stimulus and banking sector support measures would continue to put pressure on a number of sovereign ratings in the medium term.
  
  S&P sovereign credit analyst KimEng Tan said the region had not escaped the turmoil in the global economy and the international financial markets.
  
  He anticipates an increase in corporate defaults putting pressure on banking systems in the region, particularly those that are highly leveraged.

And CIMB group CEO Datul Seri Nazir Razak isn't too impressed. Nazir calls on Asia to set up own rating agency

• ASIA needs to establish an Asian-owned and managed rating agency as years of Western domination of finance has created an inherent systemic bias impeding the progress of Asian banks.
  
  CIMB group chief executive Datuk Seri Nazir Razak said this was necessary, especially since Asia was the main supplier of investment funds.
  
  "It seems that even when Asians look at one another, we tend to use Western spectacles. The clearest evidence is our reliance on global credit rating agencies," he said in his keynote address at the Third Euromoney Thailand Investment Forum in Bangkok, Thailand, yesterday.
  
  Nazir said he could not understand the basis of China, the world's biggest lender, being accredited "A1" by Moody's compared with "AAA" for the the UK and "AA2" for Italy.
  
  "Fitch is no different: China at 'A+', UK at 'AAA' and Italy 'AA-'. The story is not too different for bank ratings: Asia's lowly leveraged banks versus US and European banks with 'intoxicated' balance sheets.".
  
  Nazir said ratings affected how banks allocated capital and influenced the level of transactions conducted between banks, adding that sovereign ratings also defined the ceiling for national bank and corporate ratings, amplifying ramifications of the problem.
  
  "As if that isn't enough, the introduction of Basel II would compound the problem as loans would also be subjected to ratings, trapping the entire credit system in this biased web."
  
  He also said that the current crisis, which started in the US, provided a unique window of opportunity for Asian banks to decisively alter the share of global banking in their favour.
  
  "Once Asians have a greater share of global finance, I think that we will also see a more balanced and equitable world where Western perspectives give way to global perspectives, where a new financial architecture is designed without prejudices and where intra-Asian trade and investment flows grow exponentially." - Bernama