Taiwan's Central Bank governor said yesterday that if domestic demand can expand to a certain level, then this will offset the impact of severe acute respiratory syndrome (SARS) on Taiwan's economy.
Perng Fai-nan (彭淮南) made the remarks when giving a report on the formulation of foreign exchange policy and the management of foreign reserves to the Finance Committee in the Legislature.
Fielding questions on the impact of SARS on Taiwan's gross domestic product (GDP) as well as on whether the killer pneumonia will put pressure on for a devaluation of the New Taiwan dollar, Perng cited figures by the Council for Economic Planning and Development (CEPD) in which it estimated the impact of SARS on the domestic economy.
The CEPD estimated that if the SARS outbreak continues for one quarter, this will cut the nation's GDP by 0.25 percent, and if the outbreak is protracted, then the impact on Taiwan's GDP in the second quarter will be less than in the first quarter, Perng said.
Noting that the disease would affect every Asian country to some degree, Perng said that the negative impact on Taiwan will be to cut the number of foreign visits to Taiwan due to SARS-related fears about taking flights, which he said will also reduce the desire for domestic travel.
On the other hand, he said, if SARS dampens local people's desire to travel overseas, this will help increase Taiwan's savings, and if Taiwan people then turn to domestic travel instead, this will help the expansion of domestic needs and cushion the impact of SARS on Taiwan.
On whether the outbreak of SARS has caused pressure for a devaluation of the New Taiwan dollar, Perng said that the reduction in the number of foreign visits to Taiwan will be offset by the drop in the number of Taiwan people making overseas trips, with the result being no pressure on Taiwan's currency.
Legislators also asked about whether the CBC has paid a price in trying to maintain a stable Taiwan dollar.
Pointing out that government bonds account for a major part of Taiwan's foreign currency reserves, Perng said that the CBC would intervene only when there is a dramatic fluctuation in the value of the New Taiwan dollar and stressed that the CBC had not "paid a price" to stabilize the currency.
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