Fri, Sep 02, 2005 - Page 10 News List

Taiwan's S&P rating stays negative

By Amber Chung  /  STAFF REPORTER

Reacting to concerns that domestic political risks and geopolitical factors could negatively affect the nation's economic outlook, Standard & Poor's (S&P) has retained a negative sovereign rating on Taiwan in its Asia-Pacific Report Card, the rating service firm said yesterday.

"Domestic political risks and geopolitical factors could cloud the outlook, especially on economic policies for a few jurisdictions, including the Philippines, Japan, Sri Lanka, Thailand, Korea and Taiwan," S&P said in a statement released yesterday.

The outlooks for both Taiwan and the Philippines are negative, the statement said, while the outlooks on China, Indonesia and Papua New Guinea remain positive.

Overall, the positive sovereign rating trend in the Asia-Pacific region has continued into this year with four more upgrades to date on China, Hong Kong, India and South Korea, with only the sovereign rating on the Philippines having been lowered, the report said.

India and China would continue to assume growth leadership in the region, it said.

This is comparable with global sovereign trends, which saw 17 upgrades and 6 downgrades in the 107 jurisdictions that S&P currently rates, which suggests that the future rating trajectory could become balanced, S&P said.

However, there remains some concern about the region because of slowing demand and weakening consumer confidence along with the high oil price.

In Asia, hesitant domestic demand coupled with reduced import demand from China, could test consumer and business confidence across the region, according to the rating service.

Meanwhile, "high oil prices have dented several budgets through heavy fuel subsidies, while others are under pressure to increase development spending to increase their growth potential," S&P's credit analyst Ping Chew (周彬) said in the statement.

"Inflationary pressures, driven by both strong demand and rising oil prices, remain strong in several economies, posing a challenge to monetary authorities," the analyst said.

The recent change in the Chinese exchange rate regime is boosting the region with a new bout of speculative activities and liquidity despite rising interest rates in the US.

"On the monetary front, life is getting more interesting," Chew said. Nevertheless, most governments are likely to remain cautious fiscally, he said.

The pace of reform programs could also be affected by this cautious stance, although most policymakers are still pursuing the ideal, Chew said.

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