Japan's power problems raise fiscal uncertainty: Moody's

HANOI Tue May 3, 2011 7:16am EDT

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HANOI (Reuters) - Japan's power supply disruptions after the Fukushima nuclear crisis and possible government assistance for the plant operator are big sources of uncertainty for the nation's fiscal health, a senior official of Moody's Investors Service said on Tuesday.

While economic costs for disaster relief and reconstruction following the March 11 earthquake and tsunami are likely to be about 3 to 5 percent of Japan's gross domestic product (GDP), "there is uncertainty attached to that," Senior Vice-President Tom Byrne said on Tuesday.

"A big source of uncertainty is from the power supply situation and that has not stabilized. There could be further costs," he told Reuters in an interview in Hanoi.

"The unstable situation about radiation coming from the nuclear power plant is a big wild card for economic costs as well as fiscal costs."

He added the government has not been explicit on its likely assistance for Tokyo Electric Power (9501.T), the operator of the crippled Fukushima Daiichi plant, and said the company's liability "could migrate to the government balance sheet and be reflected in budget deficits or government debts."

Moody's warned in February it might cut Japan's Aa2 rating -- its third highest rating-- if the government fell short of crafting a comprehensive tax reform as public debts reach twice the size of the $5 trillion economy.

The government, which estimates material damaged caused by the 9.0 magnitude quake and subsequent tsunami could top $300 billion, passed a $50 billion first emergency budget this week for disaster relief and is likely to follow up with more spending packages.

Byrne said the quake relief has not undermined market confidence in government finances, as the nation's reliance on external creditors is negligible and there is a large pool of domestic savings.

"The second and third supplementary budgets won't necessarily be credit negative. What would affect confidence is when the government cannot articulate a fiscal consolidation program," he said, reiterating the rating agency is closely watching the government's tax reform program due next month.

NO QUICK FIX

Byrne, who overseas sovereign credits for Asia and the Middle East, also said Moody's expects China to maintain a high rate of growth and avoid a hard landing of its economy.

"China's policy tightening supports our rating stance. But more transparency is needed on local government finances," he said, adding policy tightening will have to be in place for an "extended period of time."

Moody's upgraded China's government bond ratings last year, citing its resilient economic performance and sound balance of payments, and maintained a positive outlook.

On South Korea, a recent buildup of short-term debt did not affect Moody's stable outlook for its credit rating, Byrne said, citing the current account surplus, foreign exchange reserves and flexible foreign exchange policy as its "defenses."

Its short-term debts "have not reached a threatening level yet," he said.

Byrne said for Vietnam, there was no quick fix to contain accelerating inflation, an overheating economy and stop a weakening of its currency.

"The build-up of credit has been so large in the last couple of years the authorities have to be resolute in shifting their strategic goals to accepting slightly slower rates of economic growth for economic stability," he said, noting current tightening measures need to kept for a long period of time.

All three major ratings agencies -- Fitch, Moody's and Standard & Poor's -- cut Vietnam's credit ratings in 2010, highlighting economic risks and underscoring the problems in the Southeast Asian country's economy, once a favored frontier investment ($1 = 81.225 Japanese Yen)

(Editing by John Mair)

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