Cabinet set to face big challenges

As Taiwan's new Cabinet attempts to cast off its shadow of political wrangling, it must also forge ahead with the implementation of crucial economic reforms, according to observers.

"This signifies the end of a Cabinet which was associated with gridlock and recession," said Jonathan Anderson, a regional analyst at Goldman Sachs in Hong Kong.

The old Cabinet, which resigned yesterday as is customary, wreaked the legislative fury of the opposition by attempting to ax the Fourth Nuclear Power Plant (核四) and was cast as incapable in averting a slip into recession during its stewardship.

However despite early concerns about its ability to rule amid a legislative standoff, the new government eventually came up with a winner in organizing the Economic Development Advisory Conference (EDAC, 經發會) which offered 322 bipartisan proposals on boosting the economy.

"EDAC was a great way of turning the government's attention to the economy -- much to the credit of the government -- and getting away from the politics both domestically and cross-straits and focus on fixing the real problems in Taiwan," said a foreign executive who requested anonymity.

Having done the much of the hard work in formulating policy based on a bipartisan consensus, the reasons for this Cabinet reshuffle appear less motivated by a need for policy change.

"This seems very much a Cabinet change which is motivated by political and relationship issues rather than sea changes on the economic policy front," Anderson said.

What remains for the new Cabinet is to implement the new policy changes in regard to cleaning up the financial sector and broadening economic ties with China.

"Of more importance is the broader liberalization issues vis-a-vis the mainland ... a lot of legislative changes need to be made in terms of taxation, investment policy, ownership we're still not where we have a free flow of capital and resources back and forth," Anderson said.

And while praising positive steps in reforming the financial sector, "Broadly speaking beyond that you still have a lot of work in the nuts and bolts of cleaning up the balance sheet and that's going to take political will and strong aggressive policy," Anderson said.

In smoothly achieving these goals, others see greater hopes for the new Cabinet.

"The strong relationship between President Chen Shui-bian (陳水扁) and Premier Yu Shyi-kun will greatly improve coordination between the presidential office and the executive yuan," said Daniel Hsin (辛日祺), researcher at Capital Securities Corp (群益證券) in Taipei.

The increased presence of the ruling party in the legislature will lessen the legislative wrangling and contribute to the predictability of policymaking, Hsin said.

"It doesn't matter who is chosen as the next head of the legislature, stability and subsequently predictability will return which is positive for the markets," he said.