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09 May, 1998
The Moody's international credit rating agency confirmed Thursday night that it will maintain Greece's ceiling of long-term currency debt at the current level of Baa1, while drachma-denominated Greek state securities also retained their A 2 rating.
The recent devaluation of the drachma, in tandem with its incorporation to the European Exchange Rate Mechanism (ERM), is accompanied by a stronger commitment on the part of Athens to pursue the course of convergence with other European economies, the agency said in a press release.
The practical result has been the creation of a climate of confidence among stock investors, leading to a massive inflow of foreign capital in the Greek bond and securities market, Moody's notes.
Shortly before the devaluation of the drachma, which had repeatedly come under pressure, the agency had said it planned to reconsider the country's credit rating on the grounds that the risk for international investors had risen.
Notwithstanding the fact that the inflows of large amounts of foreign funds will certainly reduce the country's borrowing requirement, as Moody's points out, maintenance of the current ratings increases the Greek government's bargaining clout for borrowing abroad, as their downgrading would have meant higher interest rates.
Such inflows, together with Greece's very high currency reserves, blunt concerns regarding its ability to meet short-term currency obligations, it says.
The agency also notes that recent developments rekindle expectations that the country will participate on equal terms in Economic and Monetary Union in three year's time.
The agency also expresses concern, however, that the climate of euphoria prevailing in stock and money markets due to the inflows of foreign capital in various sectors, may blunt the drive towards the essential structural reforms. It does, nevertheless , foresee an acceleration of privatization's and a restructuring of the public sector and labor relations compared to the previous two years.
Moody's confirms it will not downgrade, but maintain at the current Baa1 standing the risk for the country's five largest commercial banks, namely, National, Commercial, Alpha Credit, Ergobank and Agricultural.
"If inflation is kept under control and the Greek economy's entry into a recession phase is averted, it can be forecast that the banking sector will not sustain large capital losses due to the devaluation," it says.
Source: Athens News Agency