Government loans will not be enough to revitalize economy, observers say

The government’s latest economic stimulus packages including an additional NT$200 billion bank loans to local small-and-medium firms are not sufficient to bolster Taiwan’s slowing economy, economists said yesterday.

The governmetn's announcemnt of new measures yesterday came one day after the government trimmed the forecast for Taiwan’s economic growth for 2005 to 3.63 percent from 4.21 percent projected earlier, blaming weakening exports and firm oil price.

"I think the effect will be minimal, as a limited capital injection will not spur investment from small and medium-sized businesses," said Cheng Cheng-mount (鄭貞茂), a senior economist of Citigroup in Taipei.

The bank loans will merely finance companies that are on the brink of bankruptcy when the economy is on a downswing, Cheng said.

He added that the nation's private investments comes primarily from local conglomerates, rather than from small and medium-sized businesses.

But Cheng emphasized that the state of Taiwan's economy is not as bad as some people have said.

"As long as domestic consumption and private investment remain strong, I'm not too worried about it," Cheng said.

Taiwan's private investment is expected to climb another 8.5 percent this year after an exuberant 28 percent last year, helped by investments from makers of liquid-crystal-display panels and semiconductor companies, according to the government's latest statistics.

Cheng said the country is gradually changing from a trade-oriented economy to an economy that is more reliant on private consumption for economic expansion, as is the case in the US.

Last week, Cheng slashed his projection for Taiwan's GDP growth for this year to 3.6 percent from 4.1 percent, citing the lower-than-expected trade surplus.

Wu Chung-shu (吳中書), an economist at Academia Sinica, said the institute's research team will also cut its economic outlook for Taiwan from its current prediction of 4.05 percent expansion annually when the latest figures are released in July.

Wu yesterday expressed support for the government's economic stimulus efforts, but agreed that the impact of these measures would be limited.

"It is the right decision for the government to make quick adjustments to prop up the declining economy. I believe those measures will have a positive effect on Taiwan's economy, if they materialize," Wu said.

The government yesterday also announced that it would inject another NT$300 billion into the fund to subsidize Taiwanese home buyers.

This demonstrates the government's mild approach to sustaining the growth momentum of Taiwan's real-estate market, Wu said.

"The fresh dose of cash will only maintain the market sentiment," Evertrust Rehouse Co (永慶房屋), one of Taiwan's largest real-estate agencies, said in a report released yesterday.

Evertrust Rehouse said the new fund will boost home sales by only 3 percent to 5 percent this year, as most home buyers already snatched up apartments before the previous subsidies ran out.

The property agency estimates that around 160,000 home-buyers will benefit from the measure.