Fri, Nov 16, 2007 - Page 12 News List

S&P retains negative outlook on Taiwan's economy

By Joyce Huang  /  STAFF REPORTER

Standard & Poor's Ratings Services (S&P) yesterday retained its negative outlook on Taiwan's overall economic rating, citing the nation's inadequate response to structural and policy challenges.

The nation's deteriorating investment climate was the result of its poor relations with China, S&P said in a press statement.

"An increasingly uneasy cross-strait relationship has been a key reason for the poor investment climate," the statement said.

Moreover, weak private spending, averaging just 2.4 percent between 2005 and this year, has held back the nation's economic growth potential, S&P said.

The agency reiterated its concern that the government has not done enough to ensure short-term fiscal stability and that its financial reform remains stalled despite an overcrowded and unprofitable banking sector.

"In a post-boom recession scenario, contingent liabilities from a troubled financial system could double the government's debt burden," S&P said.

In its latest update of ratings for Asia-Pacific economies, the agency maintained the "AA-" long-term and "A-1+" short-term credit ratings it has had for Taiwan since late 2004.

Of the agency's 15 rated sovereigns in Asia, only two -- Taiwan and Pakistan -- continued to have negative outlooks, the statement said.

China, Hong Kong, Malaysia and Mongolia all have a "positive" outlook rating while the other nine countries have a "stable" outlook.

S&P credit analyst Tan Kim-eng (陳錦榮) said that Taiwan has to do more than improve its fiscal performance to boost its rating.

"The outlook could revert to stable on ? reduction of currently heightened short-term political risk with the 2008 election passing without triggering a significant deterioration in cross-straits [sic] relationships," Tan said in yesterday's statement.

Tan said Taiwan's strong external asset position has supported its creditworthiness and mitigated weakness elsewhere.

Another source of strength has been Taiwan's information technology companies, which he said have played an important role in driving economic growth at close to 4.5 percent in the past three years, in spite of weakening business conditions.

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