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Wed, Nov 21, 2001 - Page 18 News List

Taiwan gets `A+' sovereign debt rating from Fitch

FOREIGN CURRENCY A British rating agency says large reserves help make Taiwan a good risk, even though its economy is in the midst of a recession

BLOOMBERG , TAIPEI

Taiwan's long-term credit was given an "A+" rating by Fitch Inc, which said the nation's high foreign reserves and low debt shield it from a potential cash shortage even as growth stalls.

The rating agency, which began coverage of Taiwan's sovereign debt today, gave the nation its fifth-highest rating, putting it on par with Kuwait.

Fitch said the outlook for the rating is "stable" as US$116 billion in reserves and foreign debt worth just 9 percent of GDP minimize the risk of a default.

Still, Taiwan's economy fell into recession in the third quarter, shrinking 4.2 percent from a year earlier, as exports tumbled. That has "exposed domestic weaknesses that constrain the island's creditworthiness," Fitch said.

Stalled world growth and shrinking demand for computers have slashed orders for Taiwan-made chips and other goods, causing exports -- which make up about half the economy -- to fall 29 percent in the third quarter from a year earlier. Domestic spending and investment aren't pulling their weight.

Non-performing loans could rise to as high as 15 percent of the total by the end of this year from about 11 percent at the end of September, Fitch said, making banks reluctant to lend and delaying an economic rebound.

Eleven interest-rate cuts since last December haven't been enough to get companies spending -- corporate investment tumbled 36.8 percent in the third quarter, the government said last week. In July, Standard & Poor's cut Taiwan's long-term credit rating one notch to "AA."

Fitch's "A+" rating on Taiwan's long-term foreign-currency debt is higher than the agency's ratings for South Korea, the Philippines, Thailand and Indonesia.

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