The nation’s financial account, which includes direct and portfolio investments, registered a net outflow of US$12.64 billion in the second quarter of the year — for the 32nd consecutive quarter — bringing the aggregate net outflow to US$380.42 billion at the end of June.
The phenomenon is not unusual, because capital outflows are common in countries with trade surpluses and where financial institutions, especially life insurance companies, seek investment opportunities abroad, the central bank said.
As long as Taiwan lacks the necessary investment tools and local companies must acquire critical technology or strategic resources abroad, capital outflows would persist, the bank said.
However, outflows are not bad, because their absence would place appreciation pressure on the New Taiwan dollar, while overseas investments help ease excess savings in Taiwan and boost the nation’s economy, central bank Governor Yang Chin-long (楊金龍) said at a rare news conference on Wednesday last week.
There is nothing new about having financial account deficits in Taiwan. Each time the central bank releases its quarterly balance-of-payments report, along with current account, financial account and reserve asset statistics, the problem of capital outflows is something that hits the headlines on an otherwise boring day.
However, Wednesday’s unscheduled and unprecedented news conference was streamed live on the central bank Web site, raising speculation about the move.
Yang’s comments came days after an Aug. 21 article in the Chinese-language China Times reported that Taiwan’s financial account deficit had totaled US$124.91 billion for the two years after President Tsai Ing-wen (蔡英文) took office.
The amount was considerably higher than during former presidents Ma Ying-jeou’s (馬英九) and Chen Shui-bian’s (陳水扁) first two years in office, the newspaper said, suggesting that the domestic investment environment under Tsai’s administration is rapidly worsening and approaching collapse.
In the run-up to the November elections, the China Times article has naturally become a hot topic of discussion on TV talk shows.
The article rightly pointed out the issue of persistent capital outflows in Taiwan, but failed to say that the net outflow of US$12.64 billion in its financial account last quarter was the lowest since Tsai took office.
The article did not say that the financial account surplus of US$18.53 billion during Ma’s first two years in office was mainly due to his cutting the estate and gift tax rates from a maximum of 50 percent to a flat 10 percent. That move produced years of net outflows and the total financial account deficit for Ma’s eight years in office was US$254.49 billion.
The China Times did not shed any light on why Ma’s total was substantially higher than Chen’s total deficit of US$34.42 billion for his two terms in office.
Yang told reporters that he was not under political pressure to hold the news conference, but that he had wanted to clear up myths about outflows.
Excess savings — gross domestic savings minus gross domestic investment — are one contributor to higher capital outflows, and underline the problem of effective demand in the economy, he said.
Even though the government has tried to improve the domestic investment environment, wealthy Taiwanese and life insurance companies still prefer to invest abroad, and Taiwan has difficulty increasing domestic investment and attracting foreign direct investment.
From the central bank’s perspective, financial account deficits and current account surpluses are just figures in its quarterly balance-of-payments report, but from the economy’s perspective, weak domestic demand and investment have caused Taiwan to underperform its regional peers over the past few years.
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