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Fitch Ratings-Hong Kong/Singapore-25 March 2008: Fitch Ratings today said that Taiwan's presidential election result could help to improve cross-Strait relations and spur economic and financial reforms. President-elect Ma Ying-jeou, of the Kuomintang (KMT) won a decisive victory on 22 March, with 58.4% of the vote. Ma's KMT, in coalition with the Non-Partisan Solidarity Union, People First Party and New Party, dominates the legislature following elections in January. This marks the first time the legislative and executive branches of government have been controlled by one of Taiwan's major coalition groupings since 2000.
"The combination of the legislative and presidential results could help address some of Taiwan's major rating constraints, such as tense cross-Strait relations and slow reforms related to the banking system and public finances," said Vincent Ho, Associate Director in Fitch's Asia Sovereign Ratings group. "The expected increase in infrastructure investment and various tax measures, however, could have negative impacts on public finances, which remain one of the major rating constraints for Taiwan," Mr. Ho added.
Fitch indicated that a change in cross-Strait economic policies and the development of Taiwan into a regional asset management centre could further strengthen Taiwan's external financial position. Mr. Ma proposes to improve economic cooperation between China and Taiwan, for example, by allowing Chinese investors access to Taiwan's capital and property markets, and liberalising the exchange services of China's renminbi. Policies on establishing direct air and sea transport links and relaxing the 40% ceiling on outbound investment to China are also expected to be implemented.
To revive economic growth to pre-2000 levels, Mr. Ma proposes to launch the "i-Taiwan 12 infrastructure projects", valued at TWD4 trillion (29% of 2008 GDP), over the next eight years. Public investment will account for 66% of this, which will be equivalent to about 2% of GDP per fiscal year, assuming an average nominal GDP growth rate of 8%. This, together with the dual impact of tax reductions and a minimum defence spending of 3% of GDP per year, bodes uncertainty for ongoing improvements in Taiwan's public finances. Additionally, although the fiscal goal of balancing the central government's general budget was achieved in 2006, much earlier than the target of 2011, it is unclear whether the incoming government will maintain this objective.
A comment entitled "Taiwan: Election Outcome" will shortly be available at www.fitchratings.com.
Fitch will also be hosting a teleconference later today, 25 March 2008, at 11:00 a.m. Taiwan/Hong Kong/Singapore, to discuss the Taiwan presidential election result and its effects. To register for this event, please contact Sharon Hsiao by calling + 886 2 8175 7616 or via
email at
sharon.hsiao@fitchratings.com.
Contacts: Vincent Ho, Hong Kong, +852 2263 9921/
vincent.ho@fitchratings.com.
Media Relations: Lisa Lim, Singapore, Tel: +65 6796 7214.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
