A senior finance ministry official dismissed yesterday the possibility of financial crisis due to corporate bond defaults later this year.
The statement was made after a credit ratings agency warned Tuesday that corporate defaults on bonds due mid-year could result in a financial crisis.
"There were more corporate bonds due in 1999 [than due this year] and no financial crisis occurred then, so a financial crisis will not occur this year," said Sean Chen (
On Tuesday, Chen Chung-hsing (
"After these bonds are due, the solvency of corporations and channels of fund-borrowing could pose a threat to the survival to these corporations. We do not want to see these corporations washed away, like victims of the Pachang Creek (八掌溪) incident," the ratings agency chief said.
But Sean Chen questioned the premise of Chen Chung-hsing's argument, noting that "corporate bonds come due every year."
"As far as I know, there were quite a few three-year and five-year corporate bonds issued in 1996 that came due in 1999, and [corporate borrowings then] were much higher than this year. Since we did not have a financial crisis in 1999, why would we have a problem now?" Sean Chen said yesterday.
"The economic situation was no better that year, since it was not long after the Asian financial crisis," the vice finance minister said. "The reason that some are pessimistic about the economic prospects for this year could have something to do with the heavy drop in the stock market last year. But what I see is a decline in interest rates and the stock market behaving normally.
"Therefore, it's unnecessary to speculate about [the risk of financial crisis] simply on the volume of corporate bonds."
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