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Asia Business: The Week Ahead - 2002-10-28

Standard and Poor's rating agency cuts Hong Kong's local currency outlook to negative from stable. Regional airlines suspend a number of services to the Indonesian island of Bali in the aftermath of the October 12 terror attack that left hundreds dead. Standard and Poor's cited Hong Kong's widening budget deficit as the reason behind the decision to revise the local currency rating outlook from stable to negative. The global ratings agency says the territory's fiscal deficit for the current financial year could reach more than $8 billion.

Standard and Poor's also warned of further downgrades should Hong Kong's budget deficit worsen. But Dick Li, an economist with Goldman Sachs Asia, says he is not too concerned about the budget deficit being financed because the government still has massive reserves and no external debt. "The fiscal position in Hong Kong, on a relative basis, has actually weakened and it is an important issue," he says. "But at the same time I think people also need to think about the absolute status of Hong Kong. It means there is time for the government to handle the fiscal deficit." He warns, however, that corporations in the territory could face higher taxes if the government does not manage to cut public spending.

Responding to Standard and Poor's move, Hong Kong's financial secretary says the most important government measures taken to solve the fiscal deficit problem will lie in its efforts to boost the economy.

Australian Airlines, a subsidiary of Australia's flag carrier Qantas, took off on its maiden flight this weekend, from Cairns a popular tourist spot, to Nagoya, Japan. While the new airline hopes to capitalize on the growing tourist industry in Asia, its launch coincides with a downturn in Australian travel following the October 12 terror attack on the Indonesian island of Bali. At least 191 people were killed, many of them Australians.

Major regional airlines are already beginning to scale back services to Bali, after demand for flights to the island slumped in the past two weeks. Hong Kong's main carrier Cathay Pacific Airways suspended three of its 10 weekly flights to the Indonesian resort island. Singapore Airlines took similar measures.

Chartered Semiconductor, a Singapore contract chipmaker, announced a net loss of some $89 million in the third quarter. The firm also says its outlook for the fourth quarter is considerably weaker than earlier projections, warning of a 20 percent revenue fall and plans to cut about 300 jobs.