Taipei, March 28, 2008 (CENS)--Fitch Ratings, one of the world`s leading rating agencies, recently noted 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 (Nationalist Party, or KMT) won a decisive victory on March 22, 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 are controlled by a major coalition in Taiwan since 2000.

"The combination of the legislative and presidential election 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 increases in infrastructure investment and various tax measures, however, could have negative impact on public finances, which remain one of the major rating constraints for Taiwan."

Fitch indicated that a change in cross-strait economic policies and the development of Taiwan into a regional asset management center could further strengthen Taiwan`s external financial position. Ma proposes to improve economic cooperation between mainland China and Taiwan, for instance, by allowing Chinese investors access to Taiwan`s capital and property markets, liberalizing exchange policies related to China`s renminbi, establishing direct air and sea links, and relaxing the 40% ceiling on outbound investment to mainland China.

To revive economic growth to pre-2000 levels, Ma proposes to launch the "Love-Taiwan 12 infrastructure projects", valued at NT$4 trillion equivalent to 29% of 2008 GDP (gross domestic product), 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 defense spending of 3% of GDP per year, spells 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 yet unclear if the new administration will achieve such objectives.

(by Ben Shen)