Indian Markets, Rupee Falter
Jun. 22, 1998
NEW DELHI, India (AP) _ Anti-nuclear sanctions took a further toll on India today, when the value of stocks, bonds and the rupee fell to a record low following last week's downgrading of the country's credit rating.
Local politicians say India can withstand the U.S. sanctions that went into effect last week, but business leaders are less certain. The rupee closed today at a record low of 42.74 to the dollar, down from 42.20 Friday, as banks and importers rushed to buy dollars.
Prices of most major shares on the Bombay Stock Exchange also fell, as did Indian government securities. The sharp rise in the dollar against the rupee prompted bankers to buy dollars rather than invest.
It was the first day of trading since Friday, when Moody's Investors Service Inc., which rates the ability of countries to repay debts, lowered its rating for India.
Moody's said the downgrade reflected its concern that the ``fractious political environment'' would make it difficult for Indian officials to get their economy back on track.
India's economic growth faltered to 5 percent in the fiscal year 1997-98, the lowest rate in the last five years. Its deficit for that same period was 6.1 percent of gross domestic product, exceeding the target of 4.5 percent.
Moody's lowering of India's credit rating to BA2 from BAA3 is likely to mean Indian companies will be charged higher interests when borrowing from foreign banks and reduce the amount of foreign funds being invested in Indian shares and bonds.
Pakistan, which responded to the nuclear tests of its neighbor and longtime rival with its own tests, was hit with the same sanctions.
Today, Harry Dhaul, director general of the Independent Power Producers Association of India, told Dow Jones News Wires that entrepreneurs in the Indian power sector would likely be hard hit by U.S. sanctions.
Among other steps, the Export-Import Bank of the United States is banned from issuing loans and other financing help to Indian and Pakistani companies who want to buy from U.S. exporters.
U.S. exports make up 70 to 80 percent of all the equipment being used in Indian power plants, and much of the sales are financed by the Export-Import Bank, Dhaul said.
Meanwhile, Indian Prime Minister Atal Bihari Vajpayee today dismissed Pakistani charges he had moved missiles close to their shared border, and renewed calls for one-on-one talks between the nuclear neighbors.
Pakistan was making ``unnecessary noise'' about the missiles, the United News of India quoted Vajpayee as saying.