Pundits yesterday said that the government should take preemptive measures to address deflationary pressures.
"Like Singapore and China, Taiwan is under deflationary pressures although signs are not clear yet," said Hsu Jan-yau (許璋瑤), deputy director-general of the Directorate General of Budget, Accounting, and Statistics, at a seminar.
But Lee Kao-chao (李高朝), an advisor to the Council for Econo-mic Planning and Development, was not so sure.
"Signs are not clear, but [deflationary] pressure is stepping up," Lee said.
Citing an IMF report, Hsu said that deflation poses a threat when a nation's consumer price index (CPI) drops for two consecutive years in line with a market oversupply, declining asset prices as well as liquidity and credit crunches in banks.
The CPI in Taiwan, however, has dropped for three consecutive years -- by 0.01 percent in 2001, 0.2 percent last year and 0.3 percent in the first half of this year -- a clear indicator of deflation.
But Hsu said the nation's asset prices are rising and the banking sector is not facing much liquidity pressure, which may suggest deflationary pressure is mitigating.
Both Lee and Hsu, however, agreed that the government should address the problem before it actually arrives.
Hsu said that government spending on public works should be expanded to create domestic demand and boost the economy while encouraging private investments.
"It is worth raising debts [for the government] to reinforce the na-tion's infrastructure development," Hsu said.
Lee urged the government to come up with effective fiscal
instruments to improve the investment environment while battling rising unemployment.
In particular, Lee said that the government should pay attention to senior citizens, who make up 10 percent of the population, since their consumption has dropped dramatically as a result of interest rate cuts.
Another panelist, Chang Chun (張鈞), former chairman and chief executive officer of the Bank of Overseas Chinese (華僑銀行), said that the deflationary pressure, if worsening, may further lead to a credit crunch, which refrains banks from granting loans to businesses, in particular, small and medium-sized enterprises (SMEs).
Chang urged the government to help SMEs obtain loans to pursue a balanced economy. He also said that the government should find ways to narrow the wealth gap between the rich and the poor.
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