Asia Times: Oceania


	June 1, 2002	atimes.com

Oceania

Ratings agency bullish on Aussie growth

SYDNEY - Australia's growth prospects suggest it will outperform its peer countries in Europe and Asia, according to international ratings agency Standard & Poor's (S&P).

"Australia remains a resilient, competitive and flexible economy and one whose growth prospects continue to outperform many of its peers," said David Beers, S&P managing director of sovereigns and international public finance ratings.

Beers said the federal budget released in May showed that despite expectations of a deficit in the current fiscal year, the outlook for surpluses remained and that this boded well for Australia's sovereign ratings.

"From our perspective, what is more important is that the underlying story of credit surpluses, on a structural basis, are likely to persist," he said at S&P's 2002 financial markets conference. "What that means is that the general government debt burden and the overall public external debt burden in Australia should continue to decline."

He said Australia's AA-plus foreign-currency credit rating was constrained by the private sector's heavy external indebtedness. Beers said this dependency exposed the national economy and the federal government to shifts in foreign investor sentiment.

"The concerning factor here continues to be the private sector's high external leverage," he said. "We think that is important from a sovereign perspective because it means the balance of payments remains vulnerable to shifts in investor sentiment, and that is a slight negative from the government's credit story, in our view."

Australia's net external debt is projected to account for more than 210 percent of current account receipts in 2002, S&P said. This is more than two and a half times the median of about 80 percent for sovereigns rated in the AA category.

Nevertheless, Australia's credit quality is very strong, S&P said. The country's AA-plus foreign-currency rating is the second-highest rating assigned by Standard & Poor's globally, and only 13 governments are rated at the highest level of AAA.

"The government enjoys significant fiscal flexibility as a result of policies that have reduced government debt to levels which are low even for countries rated AAA," Beers said.

He noted that the continued focus for Australia's ratings would be fiscal prudence by both the federal government and the states, but he also said a decline in the private external debt could lead to an upgrade of the foreign-currency rating in the future.

"If at some point in the future external private-sector leverage is declining, then there could be an upgrade in Australia," Beers said. "It is just not something we are anticipating any time soon."

Economy no longer needs fiscal policy boost
The Australian economy no longer needs the boost it received from fiscal policy, says Reserve Bank of Australia (RBA) governor Ian Macfarlane.

"It doesn't need a boost with a move towards more expansionary fiscal policy," Macfarlane told the House of Representatives Economics Committee. "Literally, what is happening on the fiscal-policy front is that between the year we're in and next year, the [federal] budget envisages fiscal policy moving in a slightly contractionary direction from a small deficit to a small surplus."

Macfarlane said fiscal policy has a negligible impact on the RBA's thinking on interest rates.

"The movements in the fiscal position these days are so small compared with what they used to be ... in the '70s and '80s. Fiscal policy has had a negligible impact on our decisions about monetary policy, and in fact some of the movements that have occurred, probably more through good fortune than good management, have probably been counter-cyclical anyhow."

(Asia Pulse)