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Government actions to avert crisis are needed

Opinions differ on Taiwan's recent financial and economic situation. Some believe that Taiwan's economic fundamentals are sound while others say a small economic crisis, or even a major economic storm in Taiwan are not improbable scenarios. Some experts even predict that there might soon be a second economic crisis in the Asia Pacific region.

I believe predictions of a coming economic crisis are not entirely groundless. First of all, in the US -- the engine room of the world economy -- unemployment in the automobile industry started to rise in November. Total industrial production decreased by 0.1 percent in Oct, while retail sales increased by only 0.1 percent. The profitability ratio of the Standard & Poor's 500 for 2001 has also been lowered from 15.6 percent to 11.2 percent. Due to companies' and individuals' large debts as well as the increased cash deficit, Secretary of the Treasury Lawrence Summers has already suggested raising the amount of savings.

Although the US is expected to maintain its economic growth rate this year, the growth rate might drop to 2.5 percent in the second half of next year. Some Wall Street pessimists even predict that a liquidity crisis might occur, and that the US dollar might slide continuously, pushing foreign investors away from both the stock and bond markets.

While the US economy continues to decline, the recent 8th APEC summit in Brunei also decided to lower this year's economic growth rate to 4.3 percent. The growth rate for next year has also been adjusted to only 3.5 percent. In fact, in the year 2000, all stock markets in the Asia-Pacific region have plummeted except China's. The major currencies in Southeast Asian countries, moreover, have been facing devaluation and a lack of sufficient foreign capital. When prospects do not look good in the US, it is difficult to be optimistic about the US market, where 20 percent of exports from Asia Pacific countries go. This means that Asia's temporary economic recovery is not likely to continue, and that Asian countries might have to face the possibility of a second economic crisis.

Of all the Asian countries, South Korea's economic situation is most similar to Taiwan's. Both countries' banking industries suffer from high bad loan ratios. Their high-tech industries suffer the same problem of oversupply and sagging demand. Moreover, major high-tech companies, such as Intel, have now started to move their investment plans to China, intensifying the future competition between these countries. South Korea has therefore lowered its economic growth rate from last year's 10.7 percent and this year's 9.5 percent to only 5.5 percent in 2001.

What makes Taiwan's situation more critical is that the country is now facing serious political crises, which can be divided into an internal political crisis and a confidence crisis caused by the cross-strait confrontation. Threatened by these crises, Taiwanese companies' and people's assets are speedily shrinking, bad loan ratios are still going up and credit has continuously been squeezed. Due to all these financial problems as well as the problems of capital outflow and currency devaluation, a financial and economic storm in Taiwan is indeed not inconceivable. Even if a crisis does not occur this time round, the constant political disputes and confidence crises will deplete Taiwan's national strength eventually.

To prevent this from happening, the DPP government must deeply reflect on itself and immediately improve Taiwan's government structure, cross-strait relations, and future direction. Otherwise, not only will the DPP be buried, but the future of all Taiwanese people will be buried with it.

Nan Fang Shuo is the publisher of The Journalist magazine.

Translated by Eddy Chang
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