Philippine finance secretary warns of impact of U.S. ratings downgrade on financial markets
Manila, Metro Manila, Philippines (AHN) – Philippine Finance Secretary Cesar Purisima warned that the Standard & Poor’s downgrade of the U.S. credit rating would have an impact on the country’s financial markets.
Purisima said the cut would likely result in dampening of overall appetite of fund owners to invest in the U.S., which would still affect developing nations.
The tentativeness of investors may slow down the global economy, he said.
Purisima added that unless Washington addresses the U.S.’s fundamental issues, the international community may have entered a period of less predictable and less stable global financial markets.
He said another impact of the S&P downgrade is on the Philippines’ foreign exchange reserves which are denominated in the American greenback and invested mostly in U.S. Treasuries.
Philippine Central Bank Governor Amando Tetangco Jr. said the one-notch downgrade may not lead to a sell-off of U.S. treasuries because the new rating of AA plus is still investment grade. Tetangco said that while it is a prudent investment strategy to diversify, the greenback and U.S. Treasuries are still the most liquid assets.
In preparation for a nervous opening of the financial markets on Monday after the S&P downgrade, European Central Bank President Jean-Clause Trichet convened a late Sunday afternoon call with the heads of the continent’s national central banks.
New French Finance Minister Francois Baroin questioned the rating cut, citing Washington’s dispute of the judgment because the rating agency allegedly overstated the U.S. federal debt by $2 trillion.
Chiefs of state are also discussing the downgrade, particularly between French President Nicolas Sarkozy and British Prime Minister David Cameron, and Italian Prime Minister Silvio Berluconi and U.S. President Barack Obama, who also discussed the downgrade on Friday with German Chancellor Angela Merkel.
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