Thu, Mar 17, 2016 - Page 8 News List

Central bank out of stimulus tricks

By Guo Yung-hsing 郭永興

On Thursday last week, central bank Governor Perng Fai-nan (彭淮南) said in a frank statement at a meeting of the legislature’s Finance Committee in Taipei that this would not be a good year, and that it would be difficult to reach the 1.47 percent economic growth target that the Directorate-General of Budget, Accounting and Statistics has forecast.

He also admitted that as there are few restraints on capital and interest rates are low, there is not much room to stimulate the economy using monetary policy.

In other words, unless the central bank copies the European Central Bank, casts all caution to the wind and moves to zero — or even negative — interest rates, Perng has no more tricks up his sleeve and the incoming government will have to save the economy on its own.

According to economics textbooks, the government has three policy tools at hand to stimulate the economy: monetary, fiscal and industrial policy.

Perng has said that monetary policy is unlikely to have any effect, which means that he is hoping that the incoming government can employ policies aimed at speeding up regional economic integration to save the economy.

Objectively speaking, the central bank has done well at the important job of helping to improve the economic situation during the past six months.

In May and June last year, the machine tool industry was stagnating due to the impact of the yen’s slide, with the result that many people in central Taiwan were forced to take unpaid leave. At the time, the yen had fallen to its lowest point in more than a decade, and the New Taiwan dollar was worth ¥4. As the central bank saw the industrial difficulties, the NT dollar slowly depreciated and from having fluctuated between NT$30 and NT$31 per US dollar, it fell to the current level at which it hovers at about NT$33 per US dollar.

Due to international pressures, domestic consumer price stability and other factors, the NT dollar might still depreciate greatly, which is why Perng suggested that exports cannot be improved simply by relying only on depreciation: The focus must be shifted to speeding up participation in regional economic integration.

Speeding up participation in regional economic integration could also help solve another economic crisis facing Taiwan — excessive savings, which currently are at unprecedented levels. Savings is what remains when gross domestic investment is deducted from gross domestic savings. Gross domestic savings have increased in recent years, while gross domestic investment has decreased, leaving mountains of idle money in the banks.

The best way to resolve the problem with excessive savings is to increase investment. However, if businesses feel that there are no opportunities, they will refrain from making investments. If Taiwan speeds up participation in regional economic integration and signs more unilateral or bilateral free-trade agreements, the increase in business opportunities that would follow a drop in customs taxes would help encourage business investment.

One key problem to speeding up Taiwan’s participation in regional economic integration is that there is a lack of talented trade negotiators. Both the China-led Regional Comprehensive Economic Partnership (RCEP), which is being promoted by China, and the multilateral US-led Trans-Pacific Partnership (TPP) are important to Taiwan’s economic development, so the problem is not which of the two trade blocs Taiwan should join, but whether it has enough talented trade negotiators that are capable of conducting several negotiations simultaneously.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top