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Pundits urge companies to tighten belts, hold cash

With the credit crisis spreading from the US and Europe to emerging economies, pundits have warned the nation to brace for a tough, long winter that will witness more capital outflow and declines in exports.

They advise companies to tighten their belts, cut costs and maintain sufficient liquidity to better weather the global financial storm.

The IMF forecast Taiwan’s GDP would reach 2.5 percent next year, but Du Ying-tsong (杜英宗), chairman of Citigroup Global Markets Taiwan Ltd, said it would be difficult for the country to achieve the benchmark.

Tu said in a recent forum that foreign funds, which control about 30 percent of the local equities markets, will continue to pull out to meet redemption demand back home or take shelter in US currency.

Tu said the capital outflow would peak in the fourth quarter of this year, further weakening the local equities markets.

The TAIEX has dropped 20 percent so far this month, even though the daily drop limit has been halved, while the New Taiwan dollar depreciated 4.3 percent.

Tu said the credit crunch would cause the world’s economy to sink through the first half of next year and Taiwan’s stock, currency and exports would also suffer.

However, Tu said the country was not in danger of bankruptcy like South Korea or Iceland, even if foreign capital all opted out, because the nation possesses huge foreign exchange reserves.

Kung Ming-hsin (龔明鑫), vice president of the Taiwan Institute of Economic Research (台經院), shared the pessimistic sentiment and predicted domestic economic indicators would head further down if oil prices and the US currency remain high while Wall Street continues to shake.

In terms of inflationary pressures, Kung said the nation may breathe a sigh of relief as fuel costs have dropped significantly in the last few months. But the economist remained skeptical that the US stock market would stabilize anytime soon.

“It will be difficult for the TAIEX to return to the 5,500-point level unless the Dow Jones Industrial Average recovers the 11,000 threshold,” Kung said.

Norman Yin (殷乃平), a money and banking professor at National Chengchih University, said Taiwan’s heavy dependence on exports rendered it vulnerable to external financial blows.

Yin said that the magnitude and severity of the financial storm was still often underestimated and companies must consolidate their capital sources and axe unnecessary expenses to survive.

He advised against purchasing corporate stocks, saying it was better to have cash on hand.
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