What to do to invigorate the economy? Cut government expenditure, clean up banks' bad loans, privatize state-owned enterprises, set limits on government debt, balance the budget? All of those ideas were in a draft proposal for economic reforms given to the Japanese government last Thursday by a panel called the Economic and Fiscal Policy Council. This latest prescription for Japan's economic woes is sound advice for Taiwan as well.
Taiwan has closely followed Japan's footsteps in terms of economic development -- and economic woes. Japan's economy has been in the doldrums for a decade now, not because the Japanese do not know how to reform, but because their politicians enjoy a cozy, privileged, money-politics lifestyle so much that none have wanted to rock the boat by favoring painful economic reforms. Prime minister after prime minister promised the moon, but when push came to shove, none could or would try to put those plans into action.
Prime Minister Junichiro Koizumi's administration is the first one to be honest about the country's dire straits, telling the public that they will have to brace for painful reforms before the economy will recover. During last weekend's elections for the Tokyo metropolitan assembly, voters showed their confidence in Koizumi's government by giving it majority support.
Of course, there are also differences between the economies of Taiwan and Japan. First of all, Taiwan faces the threat of a Chinese military attack, so national security is a high priority in formulating economic policy. Japan can develop its economy freely without any such worries. Japan also has a parliamentary government system where the executive and legislative powers are unified. The Koizumi government's public support rating stands at more than 80 percent -- something it can utilize in its push for economic reforms. Taiwan's government is closer to a semi-presidential system and there is a great deal of confusion about the presidential, executive and legislative powers. The Executive Yuan is shackled by the legislature. Political instability is a major hindrance to economic reform efforts.
The people of Taiwan have very high expectations of the consultative economic conference set for this August. But government agencies are already coming up with their own economic and financial reform measures, including six financial reform bills, increased government investments and accelerated privatization of state-owned enterprises, etc. The overall direction of these measures are the same as the Japanese economic reform plan, but the spirit behind them is quite different.
Japan's plan was formulated by the prime minister's economic panel and the cabinet has reached a consensus on the content of the plan. In Taiwan, the reform measures are being proposed by different agencies. There is a lack of coordination that could lead to conflicting objectives and disagreement between agencies. For example, the government has asked the banks not to tighten their credit criteria, but it also wants the banks to quickly clean up their bad loans. The government wants quick privatization of state-owned enterprises, but it is also worried about layoffs and increased unemployment. Interest rates have been lowered again and again, but the government is also worried about inflation. The government wants to cut taxes, yet it wants to spend NT$810 billion on public investment projects -- no surprise, therefore, that financial officials have warned of an increasingly serious budget imbalance.
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