Taiwan's sovereignty rating is likely to be upgraded to "stable" from "negative" should there be a smooth election with stable relations with China, ratings firm Standard and Poor's (S&P) said yesterday.
"A smooth completion of the presidential election in March, in which no major cross-strait tension arises, could result in the outlook reverting to stable," S&P analyst Tan Kim-eng (陳錦榮) told a teleconference after being asked whether there was a chance for an upgrade in Taiwan's rating after the March poll.
In an e-mail to the Taipei Times, Tan said the key worry was cross-strait uncertainties during the election period.
"This particular risk we are concerned with will be resolved one way or another after March and a conclusion is likely to be made very soon after that," he wrote.
"The risks of Taiwanese politicians stirring up cross-strait tensions could ease after the March 2008 presidential elections -- even if the leading pan-Green party, the Democratic Progressive Party (DPP), continues to control the executive arm," S&P said in an report titled Politics and Policy Environment: Credit Constraint for Many, Support for A Selected Few in Asia-Pacific.
The report said that as people were disenchanted with politicians' inability to reinvigorate the economy, the election was closely tied to economic growth and the nation's ability to generate employment.
"However, should domestic politics once again threaten to destabilize cross-strait relations, risks to the credit ratings will rise," the report said.
Taiwan's very strong net external asset position and the government's effort to improve its fiscal health and restrain budget spending has supported its creditworthiness and mitigates weaknesses elsewhere in its credit quality, Tan said during yesterday's teleconference.
However, the rating will remain unchanged at "AA-/A-1+", he said.
In a separate report on the dilemmas central banks are facing between easing monetary policy to support economic activity and tightening money supply to combat inflation, Tan favored prudence rather than stimulation now and suffering later.
"Despite the short-term costs, central banks that respond with prudent monetary policy changes will help to bring about the important benefit of anchoring inflation expectations," he wrote.
He said cautious monetary measures would help stimulate financial and economic development, which would benefit sovereign credit rating fundamentals.
"These benefits include more financing options for the government, accelerated development of domestic capital markets and improvements to economic growth potential," Tan said.
"The determination of central banks to fight inflation will preserve or strengthen the credit ratings of their respective governments," he said.
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