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Editorial: Stimulus package isn't enough

As the benchmark TAIEX lost 1.75 percent last week -- falling to its lowest point in nearly four months -- and the index has fallen 3.5 percent so far this year, the Cabinet has said it is planning to present a new economic stimulus package to boost the stock market.

The Cabinet could make a formal announcement of the package later this week, after Premier Frank Hsieh (謝長廷) has a chance to meet with President Chen Shui-bian (陳水扁) after the president returns from his tour of Taiwan's diplomatic allies in Central America.

Theoretically, rises and falls in the stock market are normal in a free-market economy and should be no cause for concern. But since the performance of the stock market is a reflection of the nation's economic health, the net sale of NT$12.42 billion (US$374 million) of Taiwan's stocks by foreign investors on Thursday -- the eighth-largest daily net sale on record -- as well as the net sale of NT$16.26 billion last week suggests unease among overseas investors about the political and economic future of Taiwan.

Still, why does Taiwan need another economic stimulus package? How many such packages has the government offered in the past few years? The government seems to have grown into the habit of presenting one economic policy after another, whenever consumers become unhappy about the economy and investors appear in a critical mood. But have the government's announcements and the launching of its various economic task forces actually increased its capacity to deal with economic problems?

Of course, there have been some good proposals, like the effort to deal with the nation's fragile banking sector and the bad loan problem. There have been policy proposals calling for a "structural transformation" of the economy to deal with China's growing economic clout. There have been proposals aimed at improving the government's fiscal flexibility, and others working to attract capital to promote growth drivers in the service industry. Unfortunately, not all of these results have been achieved, because implementation of public policy is still inadequate and because of the lack of effective institutions and mechanisms for policy implementation.

The failures have not always been the government's fault, as some proposals depend on support from the opposition camp, and the persistent political bickering among the major parties has only resulted in missed opportunities. These lost chances simply make economic planning more urgent than ever. After Taiwan's accession to the WTO in 2002, the country is now in the economic major league in terms of competition with other countries. But its political system still has a minor-league mentality.

So what can the government do to buoy the local bourse, which many market watchers said has been marred by weak confidence across the board? Some proposals have been made, but will they be effective? For example, despite all the good intentions and flowery rhetoric about dealing with capital outflows, some US$77 billion in capital flew out of the country in the past five-and-a-half years. Morgan Stanley noted that this almost offset foreign investors' net US$79.2 billion purchases of Taiwan's stocks over the same period.

Many people attribute a slew of external factors to pressures on the local bourse, but neither the increase in oil prices nor the economic prospects of the US is something over which Taiwan can have much say. In contrast, improving the industrial structure and investment environment are within Taiwan's reach. But it will take more than presenting another economic stimulus package to address those problems.

Effective policy implementation is the key, and that requires strong political will, as well as a political consensus between the ruling and opposition camps.
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