"The turmoil in the financial markets evolved in October from a crisis that was initially largely confined to sophisticated western financial systems, to a crisis that can be characterised as a global 'sudden stop' - a term that refers to a sudden halt in international funding, reminiscent of the emerging market crises of the 1990s," Pierre Cailleteau, Team Managing Director of Moody's Global Sovereign Risk Group, said in a statement.
For sovereign analysts, this interruption in international financing brings back to balance-of-payment basics, the statement added.
The agency said that banking systems in many emerging market economies have been facing limited access to a level of foreign currency funding that was once assumed to be the natural counterparty of global trade and financial integration.
" [...] International financial integration is not unraveling - rather, the current shortage of foreign currency funding in the world economy, in its current extreme form, is temporary," Cailleteau said. That being said, the dearth of international bank lending and the panic-driven capital outflows - if they were to persist during the first quarter of 2009, would call for a broad reassessment of Moody's core assumptions, and probably sovereign ratings, the statement added.
Consequently, Moody's concludes that the majority of emerging market economies are not likely to experience rating pressures over the short term, because they have accumulated sufficient reserve buffers, or they have access to a level of non-market funding (bilateral, regional or multilateral assistance) which the rating agency expects will remain on their balance sheet only temporarily or, of course, they have not attained a sufficient level of integration within the world economy to be affected.
Moody's said that some countries have faced and will continue to face rating pressures. In October the rating agency changed the outlook or the ratings of Latvia, Bulgaria, Ukraine, Pakistan and Iceland. Moody's believes that this will continue to be the case in countries where the current crisis magnifies underlying vulnerabilities and alters relative creditworthiness in a durable way; or where the governments' interposition of their own balance sheets to help fund the private sector is significant and unlikely to be reversed soon.
