Global rating agencies and banks have ruled out another Asian crisis or a repeat of the economic crisis that India witnessed in 1991 even as the market turbulence intensified across emerging markets, especially India and Indonesia.
“The road may be rocky in the near term, particularly for the largest deficit countries —India and Indonesia — but we don’t think this is the Asian crisis all over again,” said S&P Asia-Pacific chief economist Paul Gruenwald. Standard Chartered Bank said India’s external situation “is not as precarious as in 1991”.
“The market turbulence is driven largely by uncertainties around the timing of “tapering” by the US Federal Reserve, coincided with recent cuts in Asian GDP growth forecasts, most notably for China,” Gruenwald said in a report on South and SouthEast Asia.
S&P said the financial markets appear to be in the midst of pricing in a different path for US monetary policy. “During that process, we are likely to see bouts of volatility in emerging Asian economies, along with weaker currencies, lower asset prices, and subdued sentiment and growth. But, in our view, this is not a repeat of the 1997 Asian financial crisis,” S&P said.
“The external positions for the emerging Asian economies are much stronger. The central banks are also not defending their exchange rates. In addition, the increase in leverage over the past five years has been moderate in the economies with high external risks,” Gruenwald said.
“While a sharp widening of the current account deficit, high short-term debt, increased political uncertainty and wide fiscal deficit might be reminiscent of the precursors to the 1991 BoP crisis, we believe the situation today is not the same. Still-adequate forex reserves, an eventual correction in the CAD, rupee depreciation, lower public debt and structurally a more robust and open economy should help India to overcome the current challenges,” Stanchart said.