Credit insurer Coface has issued ratings on various emerging markets.
Mexico: Upgraded from A4 to A3 due to a recovery caused by domestic demand and strong fundamentals, combined with better company creditworthiness levels.

A recovery is expected this year following the downturn observed in 2005 (growth of 3%). The rise in the GDP should be around 3.5%, stimulated by private consumption and investment, mostly as a result of an easing of monetary policy. Demand from the US, on which Mexico is still heavily dependent (over 85% of its exports), should remain sustained.

Mexico enjoys solid financial and economic fundamentals, claims Coface. The strict budgetary policy is currently limiting the deficit of the public finances, which remain dependent on oil revenues. The deficit in the balance of payments should remain under control as a result of the oil exports and the increase in money transfers from migrant workers. The significant financing requirements should easily be covered by foreign direct investments. The country is continuing to take advantage of market confidence in order to further improve its profile and it foreign debt is moderate.

Although the coming presidential and general elections (July 2006) are hardly likely to boost the progress of the planned reforms, there seems to be a consensus with regard to maintaining the macro-economic stability policy among the candidates of the three main parties, ie, the favourite AML Obrador for the left (PRD), his main challenger F Calderon for the centre right (PAN) and R Madrazo for the PRI.

Given this environment, the Coface payment incident index has improved. The restructuring operations and measures implemented to cut costs have enabled numerous companies to maintain and even win back their position in the North American market.

Certain sectors such as the textile market (since quotas were abolished at the beginning of 2005) and certain export sub-contractors (maquiladoras) still face various problems of competitiveness, vis-vis China and several Central American countries. As a result, the payments involved remain affected by extended deadlines.

Bulgaria: Upgraded from B to A4 in view of an improvement in the economic situation and the prospect of joining the European Union.
Stimulated by investments and consumption, growth remained vigorous in 2005 (+5.4%). It should see a slight slowdown this year (+4.3%) as banking credit limitations will put a brake on a rise in domestic demand.
Major progress has been made in numerous areas: the tight budgetary policy has been maintained, the weight of the public debt continues to drop, foreign direct investments remain sustained and the banking sector has grown in strength. The country is likely to join the European Union in 2008 at the latest.

The weaknesses that persist concern the business environment (reform of the legal system and the fight against organised crime) and the sizeable current account deficit (which is half covered by direct investments).
The Coface payment incident index does not show any great cause for concern even if late payments are an issue. Indeed, amicable solutions often are found with regard to the debt collection problem.

Thailand: A2 rating placed under negative watchlist in view of the political crisis, combined with an erosion of company competitiveness amid a less vibrant economic environment.

The country is in the midst of a deep political crisis. The Prime Minister Thaksin Shinawatra, triumphantly re-elected in February 2005, was finally forced to resign at the end of April 2006 after several months of increasing protests. The early elections of April 2, 2006 prevented him from retaining power, even though he considers that his party won 57% of the votes.
The opposition’s refusal to take part in the ballot removed a great deal of legitimacy from the results. Thaksin is accused of authoritarianism in his management of a series of crises (ie, bird flu, increasing violence in the south of the country).

The tip of the iceberg for the anti-Thaksin movement was the sale of Shin Corp (which belongs to the Shinawatra family) to the Singaporean holding Temasek. It is not yet certain whether his resignation will put an end to the protests as, given the results of the elections, there is a strong chance that Thaksin will retain close control of the new government.

This crisis came about amidst a somewhat less optimistic economic environment. The growth rate was one of the lowest posted on the continent as a result of the poor performances seen in the agricultural sector and the slow recovery of the tourist industry after the Tsunami tragedy in December 2004. For the first time since the Asian crisis, the country is showing a current account deficit, partly financed by portfolio investments. The baht is consequently vulnerable to a turnaround in market confidence.

Thai industry faces fierce competition from China in the electronics and textile sectors. Company balance sheets typically show a fall-off in margins and a high level of debt. As a result, levels of competitiveness are falling, and this could eventually have a negative impact on company creditworthiness. Nevertheless, the Coface payment index is not showing any significant deterioration for the time being.

Kenya: Positive watchlist on C rating lifted.

The high activity levels recorded over the last two years risk being impacted by the drought that has hit a third of the country. The decline in agricultural and hydraulic-electricity production has reduced the country’s current growth forecasts from 5.5% to 4.5%. This slowdown could intensify and consequently affect the business environment.

From a political perspective, the division of the majority (which had supported the election of President Kibaki in December 2002) has deepened following the failure of the constitutional referendum held in November 2005.

The government no longer enjoys an undisputed majority for the approval of its legislative texts. Above all, this team, elected on the basis of a program to fight corruption, has been affected by a scandal involving several politicians (the vice-president, certain ministers – some of whom have already resigned – and various high-ranking civil servants).

This situation is further weakening the government’s capacity to have parliament vote in the texts requested by financial backers and the latter have even suspended their disbursements on occasions.

In addition to the World Bank and various western governments, the IMF has just postponed until next May the possible payment of a new portion of the three-yearly programme (FRPC) currently in progress.