Bangkok--Apr 29--Aziam Burson Marsteller
Thailand's risk of financial crisis is remote, the lowest in Asia
Lehman Brothers, the global investment bank,issued its first quarter 2004 update to its
Damocles Financial Crisis Index a proprietary early warning system that helps identify the
risk of a financial crisis in emerging market economies.
The Lehman Brothers report measures levels of crisis risk in 17 countries: Argentina,
Brazil, China, Hong Kong, Hungary, Indonesia, South Korea, Malaysia, Mexico, Philippines,
Poland, Russia, Singapore, South Africa, Taiwan, Thailand, and Turkey. A score of 75 or more warns
that a country's economy is vulnerable to crisis; a reading above 100 signals that a crisis could
erupt at any time. For March 2004, the most recent month measured, Damocles assigned ratings
ranging from zero (Thailand, Mexico, and Poland)
to 50 (the Philippines). Damocles shows that Asia remains the least vulnerable part of the
emerging market world.
While the emerging market macroeconomic and financial environment is currently
relatively benign, it is important not to become complacent, the report cautioned. All countries
retain at least one area of concern, and
Damocles does not take into account geopolitical risks, nor uncertainties surrounding
domestic politics.
Thailand achieves best Damocles rating in Asia In March 2004, Thailand's economy achieved
a Damocles rating of zero, the most favorable rating in Asia. The country's large current account
surplus, record high foreign exchange reserves, reduction in external debt-to-GDP, low inflation,
and vastly improved public finances mean that the chances of financial crisis are remote.
"Thailand's economic expansion has been broad based," said Rob Subbaraman, Lehman Brothers'
senior economist for Asia. "With GDP growth of almost 8 percent year-on-year in the fourth quarter
of last year, Thailand recorded the fastest growth in Asia after China." Lehman Brothers this
month upgraded its 2004 GDP growth forecast for Thailand to 7.2 percent from 7.0 percent, which
again ranks Thailand as the second-fastest growing economy in Asia, after China. Subbaraman
warned, however, that "The focus in
Thailand needs to shift from rapid growth to maintaining high-quality growth."
According to the Damocles index, Asia remains the least vulnerable part of the world's emerging
markets. In the first quarter of 2004 emerging markets globally saw a notable surge in capital inflows,
with Asia being by far the most favored destination. The region experienced a sharp increase in
portfolio equity investment, a return of commercial bank lending to its economies, and expanded
corporate and sovereign issuance. Coupled with improved structural policies, strong economic
recoveries and the low level
of global interest rates, the simple average Damocles index for Asia remains a mere 17.
"However, investors should not treat the region as a homogenous entity," said Subbaraman.
"There are pockets of risk, most notably in the Philippines." He noted that continued
accumulation of foreign exchange reserves and robust growth have kept Asia's index readings at
comfortably low levels, but suggested that the buildup of these forex reserves is now becoming
excessive. Subbaraman warned, "In Asia, the costs associated with accumulating more foreign exchange
reserves are starting to outweigh the
benefits."
Lehman Brothers' economists warned that rapid accumulation of foreign exchange reserves
in non-Japan Asia is leading to monetary excesses which, together with diminishing spare economic
capacity, suggests that higher inflation could be just around the corner. "Pressure from the
developed world for greater exchange rate flexibility in Asia is bound to build and will ultimately
prove irresistible," the report noted. "This conclusion extends to China."
Damocles Update: Asian Economies Following is a summary of Damocles' most recent ratings in
Asia, together with key concerns that could impact future measurements.
|-----------+------+--------+------+------------------------------|
| Country | March| Decembe| 1 | Key Concern(s) |
| | 2004 | r 2003 | Year | |
| | Score| Score | Trend| |
|-----------+------+--------+------+------------------------------|
| China | 10 | 24 | Lower| Rapid domestic credit |
| | | | | |
| | | | | growth/overinvestment |
|-----------+------+--------+------+------------------------------|
| Hong Kong | 10 | 10 | Lower| Budget deficit/politics |
|-----------+------+--------+------+------------------------------|
| Indonesia | 11 | 11 | Lower| Budget/judicial |
| | | | | |
| | | | | system/politics |
|-----------+------+--------+------+------------------------------|
| South | 24 | 10 | Lower| Short-term external |
| | | | | |
| Korea | | | | debt/politics/North Korea |
|-----------+------+--------+------+------------------------------|
| Malaysia | 10 | 10 | Flat | Budget deficit |
|-----------+------+--------+------+------------------------------|
| Philippine| 50 | 50 | Highe| Public debt/financial |
| | | | | |
| s | | | r | sector/low foreign exchange |
| | | | | |
| | | | | reserves/politics |
|-----------+------+--------+------+------------------------------|
| Singapore | 10 | 10 | Lower| Contagion from |
| | | | | |
| | | | | Philippines/Indonesia |
|-----------+------+--------+------+------------------------------|
| Taiwan | 24 | 24 | Highe| Domestic |
| | | | | |
| | | | r | politics/Taipei-Beijing |
| | | | | |
| | | | | relations |
|-----------+------+--------+------+------------------------------|
| Thailand | 0 | 0 | Flat | Private debt |
|-----------+------+--------+------+------------------------------|
Copies of the full report, 'Damocles: Do Not Drop Your Guard' by Rob Subbaraman, Russell
Jones and Hiroshi Shiraishi, are available to the media by contacting Aziam Burson Marsteller at
02-252-9871 or by email at james_best@th.bm.com.
Notes to Editors:
Damocles is based on ten carefully selected macroeconomic and financial indicators that
comprehensive stress-testing have confirmed to be exceptionally accurate in forecasting crises ?
either banking or currency related. Based on a thorough sample of past crises in Asia, Europe, and
Latin America, Damocles assigns points and weightings to the various indicators. If the ten
variables collectively total 75 points or more, Damocles warns that a country's balance of
payments is vulnerable to crisis. A reading above 100 signals that a crisis could erupt at any time.
Damocles specifically measures: (1) foreign reserves/imports; (2) foreign reserves/short-term
external debt; (3) external debt as a percentage of GDP; (4) short-term external debt as a
percentage of exports; (5) current account as a percentage of GDP; (6) broad money/foreign
reserves; (7) domestic private credit as a percentage of GDP; (8) real short-term interest
rate; (9) stock market index; and (10) real trade-weighted exchange rate.
Lehman Brothers (ticker symbol: LEH), an innovator in global finance, serves the financial
needs of corporations, governments and municipalities, institutional clients, and high-net-worth
individuals worldwide. Founded in 1850, Lehman Brothers maintains leadership positions in equity and
fixed income sales, trading and research, investment banking, private equity, asset management and
private client services. The Firm is headquartered in New York, London, and Tokyo and operates in a
network of offices around the
world. For further information about Lehman Brothers' services, products, and recruitment
opportunities, visit our Web site at www.lehman.com.
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For Immediate Release James Best/Steve Vincent
Aziam Burson Marsteller
Tel: 02 252 9871End.
-NT-