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TAIPEI : Taiwan's presidential election result could help improve the island's relations with China and spur Taiwan's economic and financial reforms, Fitch Ratings said Tuesday.
Ma Ying-jeou of the Kuomintang (KMT) defeated the ruling Democratic Progressive Party (DPP) in Saturday's presidential vote and will take office on May 20 from President Chen Shui-bian.
Ma's KMT and its ally dominate the legislature following elections in January, marking the first time the legislative and executive branches of government have been controlled by one of Taiwan's major coalition groupings since 2000, according to a Fitch statement.
"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," Vincent Ho, Associate Director in Fitch's Asia Sovereign Ratings group, said.
"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," Ho added.
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 has proposed to improve economic cooperation between China and Taiwan, for example, by allowing Chinese investors access to Taiwan's capital and property markets, and liberalizing the exchange services of China's yuan.
Policies on establishing direct air and sea transport links and relaxing the 40 percent ceiling on China-bound investments are also expected to be implemented, it said.
To revive economic growth, Ma has proposed 12 infrastructure projects valued at 4 trillion Taiwan dollars (132.5 billion US) over the next eight years.
Public investment will account for 66 percent of this, which will be equivalent to about 2.0 percent of GDP per fiscal year, assuming an average nominal GDP growth rate of 8.0 percent.
"This, together with the dual impact of tax reductions and a minimum defence spending of 3.0 percent 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, Fitch added.
- AFP/ms
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