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Moody's-record US c/a gap poses no ratings danger

NEW YORK: Moody's Investors Service said on Wednesday its rating for American debt issued in foreign currencies remains rock solid despite the ballooning US current account deficit.

"It is very unlikely the US could possibly have a problem in servicing its external obligations or that US issuers would have a problem in accessing foreign currencies," said Steven Hess, Moody's lead analyst for the United States, citing the dollar's special role in world financial markets.

Moody's issued its special report about the triple A foreign currency country ceiling, the premier classification enjoyed by most industrialised nations, after the Commerce Department last week reported that the current account deficit grew to $338.92 billion last year.

The rating applies to foreign currency obligations of any US issuer, including banks and corporations. The US government, however, which only borrows in dollars, has no foreign currency debt.

While Hess said that America's huge current account deficit could pose a problem for the economy if investors' begin to favour investing in the growing European market, this still would not jeopardise any US rating.

"There is absolutely no threat to the ratings," he said, partly because of the dollar's key role in global markets.

Global central banks hold more than two thirds of their reserves in dollars and about 40 percent of all international bank loans and debt securities are denominated in dollars.

Moody's has also awarded its premier AAA-rating to the United States for its sovereign debt. The agency will issue its annual review on that rating this summer.

The only time the United States faced any threat to its ratings was in 1995 during the fiscal standoff that led to a government shutdown. The credit agency Standard and Poor's also has awarded the US its top rating.

Moody's wrote the latest special report after the Commerce Department last week said the current account deficit in the fourth quarter of 1999 rose to $99.78 billion, a new record that topped the $89.09 billion gap for the three prior months.

For the year, the current account gap was 50 percent wider than it was in 1998.

"The demand for US dollar assets remains very strong and the current account deficit is a reflection of the demand for US assets. There has been a huge capital inflow and therefore we have a current account deficit," Hess said explaining the rise.

At the moment both the United States and the 11-nation euro zone enjoys AAA foreign currency country ceilings.

Japan however is rated only AA1, having seen its foreign currency country ceiling downgraded last year.-Reuters