TT: How should the government alleviate rising inflationary pressures?
Liu: In theory, there are only two options: a tight fiscal or currency policy. That is, the government should refrain from massive spending while raising interest rates and tightening money supply. In reality, however, a tight fiscal policy could incur criticism on the government’s failure to lift economic growth.
There are excess problems in Taiwan and all over Asia that only tight policies can address. However, our new government is doing the opposite by funding many infrastructure projects.
That leaves only one option, which is to allow local interest rates and the currency to rise. Take Vietnam as an example. Vietnamese shares have dropped 60 percent since early this year with interest rates standing at a high 14 percent. A high interest rate will further contain its economic growth. So, Vietnam is in a critical period, a real dilemma. And any wrong step could hurt the economy.
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