Monday, February 8, 2010

NYT: Asia Sails Smoothly Through Debt Waters

While I knew Japan's public finances were a mess, I did not realize India was neck in neck with the U.S. [Feb 5, 2010: Sovereign Risk Chart - Where Would the US Fit in, on Europe's Scale?] Also, I imagine after the massive loan growth of first half 2009, the Chinese governmen will be writing off a huge swathe of debt sometime in 2011-2013; but they have a massive annual surplus at this point so I assume much of the money will come from that, and not add to their smallish debt.

But overall, the lessons of the late 90s seemed to have given most Asian countries "financial religion".

Since we are on the general topic, the latest rumor is that the EU or IMF will somehow backstop all short term Greek debt, so that Greece can "kick the can" down the road a year.  I guess the idea is that the Greeks will stop their dissent to austerity measures more in 2011 than 2010.  [Feb 4, 2010: Greece's Biggest Union Sets Strike, Tax Collectors Stage 48 Hour Strike] Or... it's just part of the global kick the can party; we're doing the exact same things for the states here.  Hand them money via "stimulus" and give them another year to "work things out". 

Via NYT:
  •  While rising government debt is a growing concern in Europe and the United States, Asia’s economies remain remarkably resilient, even buoyant, underscoring how economic might is shifting from West to East
  • Even the Asian economies that have shrunk during the recession, like Malaysia and Cambodia, escaped the worst ravages — with the notable exception of Japan, Asia’s first industrialized country.
  • Because of the Asian financial crisis of 1997, many Asian countries have been more conservative about borrowing and spending over the last decade than Western nations, which went on a debt binge during the good times and continued to increase their borrowing during the recession to try to turn around their economies.
  • China has been repaying some of what little foreign debt it owes, even as economists wonder whether Greece will require an international bailout and ask how long the United States can sustain record budget deficits. “We took a pass on the economic crisis,” said Philip S. Carmichael, president of Asian operations at Haier, China’s biggest appliance maker.  China has been repaying some of its small external debt as it comes due, a luxury that a country with more than $2 trillion in foreign reserves can afford.   China showed a government budget surplus for the first 11 months of last year, but Western economists still expect a small deficit for the entire year because agencies tend to go on spending binges every December to avoid returning unspent money.
  • Many economists say countries have to spend during recessions, increasing deficits and debts. But investors and economists alike worry about the long-term effect of mammoth debt on the vitality of Europe and the United States. The longer it takes Western capitals to confront their overspending, the higher and more rapid Asia’s rise will be, many economists say.  (on a relative basis yes, on an actual basis I'd argue the 2 regions are co-dependant so a sluggish West is not great for the East)
  • Even though Asian stock markets fell last week, analysts say there is no obvious Asian equivalent to, say, Greece. Investors see little risk of default among even heavily indebted countries like India and Japan.  In India, the government’s debt is nearly 80 percent of the gross domestic product, but it owes more than 90 percent of that money to its own citizens. Of the rest, a big chunk is held by agencies like the World Bank, which, are not likely to press for quick repayment.
  • Compared to Greece, “the threat of these two defaulting is nowhere close, and the reason is that, thanks to high domestic savings rates, their debt is almost all domestically financed,” said Kim Eng Tan, a sovereign debt analyst in the Singapore office of Standard and Poor’s.  “If you sell bonds to your own citizens, and you do it in your own currency, you don’t have much of a problem,” said Ajay Kapur, the chief global strategist for Mirae Asset, a big South Korean financial services company.
That last point is interesting, because the last time the US came anywhere near to this level of deficit was World War 2 when it was paying for a huge expenditure.  Much of the debt was financed by it's own citizens.  But that was in a simpler time when any extra money did not burn the pockets of the average American's pocket, and house ATM's were the season's "must have" item.  [Dec 29, 2008: What Happens if America Returns to a Historical Savings Rate?] [Dec 3, 2009: Debt to Income Ratio Essentially Doubles for All American Households Past 2 Years]
But not all is rosy even in Asia...
  • Though the risk of a full-blown sovereign debt crisis in Asia may seem remote, economists say there are other reasons that investors and policy makers should be concerned about high deficits.  In India, the growing fiscal deficit — which reached 8 percent of G.D.P. last year, up from 3.3 percent in 2008 — could damp growth by making it harder and more expensive for corporations and individuals to borrow money, said Ila Patniak, a senior fellow at the National Institute of Public Finance and Policy in New Delhi.
  • India’s policy makers have signaled that they intend to pare the deficit by selling stakes in government-owned companies and reducing subsidies on fuel and fertilizers. Analysts point out that Indian governments have long promised those reforms but have struggled to deliver them due to internal political pressures.
  • A few smaller Asian nations have had difficulties in the last year and a half. But they have been hurt more often by political strains than by economic troubles. Like Greece, Pakistan and Sri Lanka have relied heavily over the years on overseas borrowing.
  • Thailand and the Fiji Islands both had ratings downgrades last year because of civil unrest as well, although neither required I.M.F. assistance.

Disclaimer: The opinions listed on this blog are for educational purpose only. You should do your own research before making any decisions.
This blog, its affiliates, partners or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.

Copyright @2012