Concluding their summit in London last week, leaders of the G20 member states pledged to provide US$5 trillion in fiscal resources to counter the global economic crisis between now and the end of next year. They also promised to take action to eliminate tax havens and to curb excessive pay and compensation for company executives. They further pledged to provide US$1.1 trillion through the IMF and other global financial institutions to help countries with deeply troubled economies to weather the storm.
It is too early to say whether the measures will get the world out of the current economic crisis. Still, national leaders have expressed their sincere determination to overcome differences and take joint action. Hopefully this will boost lending, investment and consumer confidence. The summit statement is an important milestone on the road that may lead out of this recession. What remains to be seen is whether the actual steps taken by countries around the world can deliver on the pledges.
The G20 agreed to a US$1.1 trillion program of support to restore credit, growth and jobs in the world economy, including US$500 billion in concessional finance, a new allocation of US$250 billion for IMF special drawing rights (SDR) and US$250 billion in support of trade finance. How these astronomical sums will be amassed is not entirely clear, especially now that the financial crisis has swept across the world.
Taiwan is a significant economy, with foreign currency reserves of more than US$300 billion, fourth in the world behind China, Japan and Russia. Although Taiwan has felt the impact of the international financial storm, its finances remain fairly healthy when compared with many other countries. Taiwan is, therefore, in a position to provide financial assistance to other countries.
Some foreign commentators have complained that Taiwan, with its strong economy, should have been invited to join the G20. Taiwan did not take part in the summit and international actors would soon ask Taiwan to take a role in international efforts to counter the financial crisis or ask it to contribute funds to the IMF.
However, Taiwan’s economy is export-oriented and as such, it is closely linked to the international economy. That means that helping revive the global economy is in Taiwan’s own interest as much as it is in the interest of the rest of the world.
Because Taiwan’s particular international status precludes participation in many international organizations, the government should consider ways of taking part before the question arises.
The worst idea would be for Taiwan to simply provide funds through China, which would only reinforce the impression that Taiwan is part of China. The result would be a substantial loss to Taiwan. The government must avoid this scenario at all costs.
A better option would be for Taiwan to provide funds through the US. Although this might look peculiar from a diplomatic perspective, it would build mutual trust and strengthen Taiwan’s relationship with Washington.
A final option, though, is the Asian Development Bank (ADB), which is one of the few international organizations of which Taiwan is a member. The ADB also has a close working relationship with the IMF. Channeling aid through the ADB would allow Taiwan to exercise its rights as an independent member of the bank, reducing diplomatic entanglements. It would also strengthen Taiwan’s position within the ADB and demonstrate its commitment to the global effort. This is the best option for Taiwan to participate in international efforts to counter the financial crisis.