Fri, Jan 14, 2005 - Page 10 News List

S&P rating to remain unchanged

SOVEREIGN OUTLOOK The current `negative' rating is unlikely to change in the short term, unless cross-strait tensions ease, the ratings agency said


Standard & Poor's Rating Services may not raise Taiwan's sovereign outlook in the near term as there are no clear signs pointing to an easing of cross-strait tensions, officials at the international rating agency said yesterday.

S&P lowered its outlook on Taiwan's AA- foreign currency debt rating to negative from stable on Nov. 30 last year, citing escalating political tensions with China and a deteriorating fiscal situation.

In a report released yesterday, S&P said Taiwan faces less of a credit risk from China, than South Korea does from North Korea.

Korean comparison

"The prospect of reunification on the Korean Peninsula and the associated fiscal costs pose a larger credit constraint to South Korea than the risk of military conflict with China to Taiwan," S&P credit analyst Philippe Sachs said in a statement.

Despite this view, it does not appear to provide sufficient grounds for Taiwan to recoup the firm's stable rating on sovereign outlook.

"That [upgrading Taiwan's sovereign outlook] will occur when there are any changes to those two factors," said Chew Ping (周彬), director of S&P's Sovereign & International Public Finance Ratings Group, in a phone interview with the Taipei Times.

S&P believes that tensions between Taiwan and China are rising, due to increasing Chinese nationalism and trends toward independence in Taiwan, the company said in the statement.

The negative outlook on Taiwan partly reflects these concerns, as a rise in tensions, even in scenarios falling short of armed conflict, can cause sufficient economic and fiscal disruptions to warrant a rating downgrade, the agency said.

no improvement

"We haven't seen any signs of improvement in cross-strait relations yet," Chew said.

Chew's remarks come amid ongoing talks on charter flights between Taiwan and China for the Lunar New Year, which have re-ignited hopes of a political thaw in cross-strait relations.

But, progress in temporary charter flights would not indicate a significant improvement in tensions between Taiwan and China, S&P credit analysts suggested.

"The charter flights, if they materialize, will only represent a small step along the rocky path between China and Taiwan." S&P credit analyst Takahira Ogawa said.

The chartered flights will not solve the problem of direct transportation between Taiwan and China, which would bring greater economic benefits, Ogawa said.

Sachs further said he felt that charter flights over the Lunar New Year would be a symbolic step, and a possible precursor to direct transportation links.

Sachs said that Taiwan would regain its stable outlook only if the government unveils more efficient financing measures to reduce its deficit, offers substantial reforms elsewhere in the financial sector or implements measures to raise GDP.

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