As the U.S. heads into a now-guaranteed recession, several global markets, though saddened and awestruck by the terrorist attacks on America, are fearful of yet another severe blow to their economies.

Although emerging markets have been experiencing a decline in creditworthiness over the past few years, Fitch said that its sovereign credit index has fallen sharply this year, as downgrades have outweighed upgrades by nearly 29 notches on the rating scale, mainly caused by Argentina, Turkey and Lebanon.

The recent events in the U.S. seem to be another hurdle for these struggling economies. Analysts agree that one of the hardest hit areas will be countries with external debt financing.

In a teleconference last week, Fitch noted that as trade balances have been deteriorating, emerging markets, known for heavy external borrowing, have increased financing needs of up to $260 billion in 2002, up from $180 billion in 2000.

Together, Turkey and Argentina make up a quarter of the total emerging market debt. However, with a rate if 220%, Latin America has the highest external borrowing region in the world. Of the above-mentioned $260 billion, $150 billion derives from south of the border. Brazil is the heaviest hitter in the external financing ring maintaining between $55 and $60 billion of external debt. Nearly 46% of the general government debt in Brazil is linked to the American dollar. And, the country's current GDP is expected to rise to at least 67% next year, from 61% at the year-end 2000.

As for the state of structured finance deals in emerging markets, Standard and Poor's has said deals backed by existing assets, which include mortgages, consumer loans, and equipment leases, are less vulnerable. According to S&P, the credit enhancement present in many ABS and MBS deals provides a significant cushion against a deteriorating economic environment. However, delinquencies and defaults could increase on such transactions as a result of a global economic slowdown.

According to S&P, future flow transactions including tourist-dependent deals backed by airline ticket receivables and credit card merchant vouchers will likely experience a negative impact. Therefore, S&P has said it will be closely monitoring the Varig Airline's RG Receivables deal as well as Aerolineas Argentinas' transaction, though the impact may not be as severe as a result of the over collateralization levels.

S&P will also be monitoring the various credit card receivable deals out of Mexico, Turkey, Peru, Jamaica and South Africa, as a result of the expected drop in tourism. The rating agency also said Turkish transactions will also be under a close eye as a result of possible hostile outbreaks in the region, which could negatively impact the volume of future receivables.

Future-flow transactions backed by oil, copper, steel, iron-ore, gold, silver, soy and aluminum, may also be hit negatively since a global economic slowdown may cause overcollateralization levels to decline. What will come of remittance deals remains to be seen, according to S&P. Telephone remittance transactions may be negatively impacted even though telephone calls from the U.S. may increase modestly in the short run, there has been a trend of declining call rates from the U.S. to other countries that may negatively affect transactions.

Additionally, while personal remittances have historically risen in times of stress on a country, since residents of a country residing abroad tend to send more money to families in the home country to offset the effects of harder economic conditions there, the economic slowdown may cause a reduction in the ability of foreign workers in the U.S. and Europe to generate needed financial resources.

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