Bangkok--Apr 29--Aziam Burson Marsteller Thailand's risk of financial crisis is remote, the lowest in Asia Lehman Brothers, the global investment bank,issued its first quarter 2004 update to its Damocles Financial Crisis Index a proprietary early warning system that helps identify the risk of a financial crisis in emerging market economies. The Lehman Brothers report measures levels of crisis risk in 17 countries: Argentina, Brazil, China, Hong Kong, Hungary, Indonesia, South Korea, Malaysia, Mexico, Philippines, Poland, Russia, Singapore, South Africa, Taiwan, Thailand, and Turkey. A score of 75 or more warns that a country's economy is vulnerable to crisis; a reading above 100 signals that a crisis could erupt at any time. For March 2004, the most recent month measured, Damocles assigned ratings ranging from zero (Thailand, Mexico, and Poland)to 50 (the Philippines). Damocles shows that Asia remains the least vulnerable part of the emerging market world. While the emerging market macroeconomic and financial environment is currently relatively benign, it is important not to become complacent, the report cautioned. All countries retain at least one area of concern, and Damocles does not take into account geopolitical risks, nor uncertainties surrounding domestic politics. Thailand achieves best Damocles rating in Asia In March 2004, Thailand's economy achieved a Damocles rating of zero, the most favorable rating in Asia. The country's large current account surplus, record high foreign exchange reserves, reduction in external debt-to-GDP, low inflation, and vastly improved public finances mean that the chances of financial crisis are remote. "Thailand's economic expansion has been broad based," said Rob Subbaraman, Lehman Brothers' senior economist for Asia. "With GDP growth of almost 8 percent year-on-year in the fourth quarter of last year, Thailand recorded the fastest growth in Asia after China." Lehman Brothers this month upgraded its 2004 GDP growth forecast for Thailand to 7.2 percent from 7.0 percent, which again ranks Thailand as the second-fastest growing economy in Asia, after China. Subbaraman warned, however, that "The focus inThailand needs to shift from rapid growth to maintaining high-quality growth." According to the Damocles index, Asia remains the least vulnerable part of the world's emerging markets. In the first quarter of 2004 emerging markets globally saw a notable surge in capital inflows, with Asia being by far the most favored destination. The region experienced a sharp increase in portfolio equity investment, a return of commercial bank lending to its economies, and expanded corporate and sovereign issuance. Coupled with improved structural policies, strong economic recoveries and the low levelof global interest rates, the simple average Damocles index for Asia remains a mere 17. "However, investors should not treat the region as a homogenous entity," said Subbaraman. "There are pockets of risk, most notably in the Philippines." He noted that continued accumulation of foreign exchange reserves and robust growth have kept Asia's index readings at comfortably low levels, but suggested that the buildup of these forex reserves is now becoming excessive. Subbaraman warned, "In Asia, the costs associated with accumulating more foreign exchange reserves are starting to outweigh thebenefits." Lehman Brothers' economists warned that rapid accumulation of foreign exchange reserves in non-Japan Asia is leading to monetary excesses which, together with diminishing spare economic capacity, suggests that higher inflation could be just around the corner. "Pressure from the developed world for greater exchange rate flexibility in Asia is bound to build and will ultimately prove irresistible," the report noted. "This conclusion extends to China." Damocles Update: Asian Economies Following is a summary of Damocles' most recent ratings in Asia, together with key concerns that could impact future measurements.|-----------+------+--------+------+------------------------------|| Country | March| Decembe| 1 | Key Concern(s) || | 2004 | r 2003 | Year | || | Score| Score | Trend| ||-----------+------+--------+------+------------------------------|| China | 10 | 24 | Lower| Rapid domestic credit || | | | | || | | | | growth/overinvestment ||-----------+------+--------+------+------------------------------|| Hong Kong | 10 | 10 | Lower| Budget deficit/politics ||-----------+------+--------+------+------------------------------|| Indonesia | 11 | 11 | Lower| Budget/judicial || | | | | || | | | | system/politics ||-----------+------+--------+------+------------------------------|| South | 24 | 10 | Lower| Short-term external || | | | | || Korea | | | | debt/politics/North Korea ||-----------+------+--------+------+------------------------------|| Malaysia | 10 | 10 | Flat | Budget deficit ||-----------+------+--------+------+------------------------------|| Philippine| 50 | 50 | Highe| Public debt/financial || | | | | || s | | | r | sector/low foreign exchange || | | | | || | | | | reserves/politics ||-----------+------+--------+------+------------------------------|| Singapore | 10 | 10 | Lower| Contagion from || | | | | || | | | | Philippines/Indonesia ||-----------+------+--------+------+------------------------------|| Taiwan | 24 | 24 | Highe| Domestic || | | | | || | | | r | politics/Taipei-Beijing || | | | | || | | | | relations ||-----------+------+--------+------+------------------------------|| Thailand | 0 | 0 | Flat | Private debt ||-----------+------+--------+------+------------------------------| Copies of the full report, 'Damocles: Do Not Drop Your Guard' by Rob Subbaraman, Russell Jones and Hiroshi Shiraishi, are available to the media by contacting Aziam Burson Marsteller at 02-252-9871 or by email at [email protected]. Notes to Editors: Damocles is based on ten carefully selected macroeconomic and financial indicators that comprehensive stress-testing have confirmed to be exceptionally accurate in forecasting crises ? either banking or currency related. Based on a thorough sample of past crises in Asia, Europe, andLatin America, Damocles assigns points and weightings to the various indicators. If the ten variables collectively total 75 points or more, Damocles warns that a country's balance of payments is vulnerable to crisis. A reading above 100 signals that a crisis could erupt at any time. Damocles specifically measures: (1) foreign reserves/imports; (2) foreign reserves/short-term external debt; (3) external debt as a percentage of GDP; (4) short-term external debt as a percentage of exports; (5) current account as a percentage of GDP; (6) broad money/foreign reserves; (7) domestic private credit as a percentage of GDP; (8) real short-term interest rate; (9) stock market index; and (10) real trade-weighted exchange rate. Lehman Brothers (ticker symbol: LEH), an innovator in global finance, serves the financial needs of corporations, governments and municipalities, institutional clients, and high-net-worth individuals worldwide. Founded in 1850, Lehman Brothers maintains leadership positions in equity and fixed income sales, trading and research, investment banking, private equity, asset management and private client services. The Firm is headquartered in New York, London, and Tokyo and operates in a network of offices around theworld. For further information about Lehman Brothers' services, products, and recruitment opportunities, visit our Web site at www.lehman.com. This transmission is confidential and intended solely for the person or organization to whom it is addressed. It may contain privileged and confidential information. If you are not the intended recipient, you should not copy, distribute or take any action in reliance on it. If you have received this transmission in error, please notify the sender at the e-mail address above. (Embedded image moved to file: pic30059.pcx) For Immediate Release James Best/Steve Vincent Aziam Burson Marsteller Tel: 02 252 9871End.-NT-