International rating agency Standard and Poor has received the outlook on India's sovereign rating from stable to positive while reaffirming the `BB' long-term foreign currency rating and the `B' short-term rating.
However, the rating upgrade depends on the fiscal deficit being contained.
The agency has also reaffirmed the `BBB' and `A3' ratings for long term and short-term local currency credit ratings, respectively, and retained a stable outlook.
ADB cautions against hasty globalisation
The Asian Development Bank (ADB) cautioned China, India, Vietnam and Pakistan on March 17, 2000 that they were vulnerable to a financial crisis of the kind that swept other parts of Asia in 1997 and 1998 if they opened up their economies hastily.
According to ADB these four countries exhibited fundamental macroeconomic weakness or a fragile financial sector or both and needed to be careful about how they liberalised their economies. A lesson for these countries from the East Asian crisis is that capital account liberalisation should strictly follow the proper sequencing of financial and then capital account liberalisation.
"Another lesson is that it would not be wise for these countries to undertake complete financial liberalisation without creating the necessary institutions for prudential regulation and supervision and a desirable price and economic incentive system in the real sector".
Reform efforts should target both the banking sector and capital markets. Economies should also develop domestic bond markets to broaden the investor base and prevent companies from relying on potentially volatile external finance, it said.
This should be accompanied by improvement of corporate governance, reinforcement of capital market supervisory arrangements, improvement of equity market infrastructure and re-evaluation of market volatility controls.
To prevent the recurrence of region-wide currency crises Asian nations must set up regional funding and guarantee mechanisms and move towards a full currency union, the Asian Development Bank report said. It also favoured setting up an Asian Monetary Fund to promote self-help within the region, address regional developmental issues and boost confidence in the affected countries.
(Reproduced from Business Standard dt. 12/13.2.2000)