Wed, May 28, 2003 - Page 10 News List

Raising debt could hurt ratings

RELIEF OR RUIN?Economists are giving mixed reviews to President Chen Shui-bian's plan to allocate NT$300 billion over three years on public construction projects

By Joyce Huang  /  STAFF REPORTER

President Chen Shui-bian's (陳水扁) plan to increase public spending to boost the economy earned initial endorsement from economists yesterday, although some expressed concerns over rising government debt.

"There is still room for the government to raise the debt ceiling from 15 percent to 20 or even 25 percent," said Hsu Sung-ken (許松根), an industry economist at Academia Sinica.

"But declining tax revenues due to preferential tax-cut policies over the past few years will push the central government further into the red," Hsu said.

His comments echoed those made on Monday by Wu Rong-i (吳榮義), president of the Taiwan Institute of Economic Research.

Wu said that the government's debt only accounts for 30 percent of the nation's GDP, which is relatively low compared with Singapore's 95 percent and Japan's 104 percent.

With next year's presidential elections drawing closer, neither Chen nor any KMT politicians are likely to propose increasing taxes to resolve the government's financial difficulties, Hsu added.

On Monday, Chen instructed the Executive Yuan to allocate NT$300 billion for three-year spending on public construction projects in order to help the economy in the face of the SARS crisis and deflationary pressures.

The order followed Chen's announcement last week that the government will spend approximately NT$120 billion to construct a rail link between Taipei and CKS International Airport, abandoning its earlier plan to have private contractors manage the project.

Chen Chung-hsing (陳松興), president and chief executive officer of Taiwan Ratings Corp (中華信評) -- the local arm of Standard & Poor's -- yesterday said that the government's "expansionary fiscal policies" will only boost the economy if its public work projects are well planned, executed effectively and succeed in stimulating private investments.

Chen Chung-hsing said that the government's public work projects usually end up going over budget.

"If the projects stumble, the burden will be put on government coffers and the public," he said.

According to the Directorate General of Budget, Accounting and Statistics's figures, the governmental debt amounted to NT$3 trillion as of last year.

Tino Chang (張庭榕), an analyst with UK-based Fitch Ratings, yesterday said that increasing government debt may affect the nation's overall sovereign rating and outlook "to some extent" since its goal of having a balanced budget appears increasingly difficult to achieve.

Hong Kong's sovereign rating was lowered after it was hard hit from SARS.

Fitch is expected to come up with its annual draft review of Taiwan's sovereign rating and outlook later this week.

"Whether Taiwan's sovereign rating will be lowered needs careful calculations," she said.

Chen Chung-hsing also said that Taiwan Ratings will finalize the nation's sovereign rating in September when the SARS impact becomes clearer.

But he also warned that the outlook for the nation may not be good since economic indicators such as cross-strait relations, GDP growth, the rising unemployment rate and a potential credit crunch following the staggered attempts at financial reforms may spell bad news.

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