Premier Lin Chuan (林全) was sworn in on Friday, the same day that President Tsai Ing-wen (蔡英文) formally took over the presidency, four months after the Democratic Progressive Party (DPP) won a landslide victory over the Chinese Nationalist Party (KMT) in January’s presidential and legislative elections. However, the timing for the DPP is almost as bad as it was for its predecessor, with the new government facing an uphill battle maneuvering Taiwan through a tough environment, both domestically and globally.
Following Friday’s oath-taking ceremony at the Executive Yuan, Lin gave a short speech to members of the new Cabinet, instructing individual ministries to seek ways to activate government funds — as much as NT$90 billion (US$2.75 billion) that over the past three years had been frozen in the budget — to revitalize the nation’s economy.
Lin said his strategy to invigorate the economy involved encouraging investment and creating demand. He also reiterated Tsai’s campaign promise to kick-start the lagging economy by developing “green” energy, national defense, biotechnology, smart machinery and “Asian Silicon Valley” initiatives.
However, the new premier’s challenge is the same as his predecessors’: How can the government promote industrial upgrades and innovation, create more domestic jobs and improve income distribution, while also keeping public debt stable? The central bank’s monetary policy is already expansionary and interest rates are low, but the government’s fiscal situation is rapidly deteriorating, meaning that there is little room for policymakers to consider infrastructure investment, an expansion of fiscal policy or an increase in budget deficit.
Taiwan’s economy might sink deeper into recession this quarter and is struggling to register GDP growth of more than 1 percent this year, as exports continue to fall, private consumption slowed and the performance of corporate earnings remains lackluster. While the stock market on Friday closed 0.44 percent higher, market turnover fell to its lowest level this year, indicating investor confidence remains fragile.
Lin might have the support of the DPP-majority legislature to bring about some politically painful changes and impose cuts to discretionary spending in order to keep the government’s budget book closer to balance, but he still needs to address the issues of sufficient and stable funding sources for the development of social housing and long-term care for older people.
A priority for the new government is rationalizing Taiwan’s generous pensions for military personnel, civil servants and public-school teachers, given the nation’s changing demographics and the public’s calls for fairness and sustainability in the pension system. If conducted in a transparent process, such a move is expected to help workers in the private sector and rearrange pension funds for different labor sectors.
Rejuvenating momentum in the local capital markets is also an option for a nation where the stock market has seen its daily turnover plunge substantially over the past eight years under KMT rule. The latest central bank statistics released on Friday showed a net outflow of US$18.92 billion in its financial account in the first quarter, indicating a net outflow for the 23rd consecutive quarter and meaning that Taiwanese investors were more interested in financial investments abroad than participating in the domestic market.
There are many things Lin’s Cabinet can do to improve Taiwan’s investment environment. Nevertheless, none of them would be easy. It remains to be seen whether detailed economic policies will be unveiled soon and whether external conditions make a turn for the better to raise hopes of a stable recovery in the nation’s economy.
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