Taiwan's monetary and economic policies are likely to remain unchanged in the short-term despite the country's landmark political shift, according to government officials and economists. Further financial liberalization and a leveling of the playing field are likely to be seen in the longer term, experts say.
While threats of war from China are likely to continue to shake equities and foreign exchange markets given the victory of pro-independence DPP candidate Chen Shui-bian (陳水扁), stabilization measures and a continuity of policy should keep markets moving forward.
One of the key problems for the new leadership in the short-term will be policy coordination, said Wu Chung-shu (吳中書), a macro-economist at Academia Sinica.
Because the ruling KMT will be in opposition for the first time since 1949, both the incoming and outgoing parties will have to undergo a period of transition.
According to Wu, Chen Shui-bian, who was Taipei mayor from 1994 to 1998, has no experience in running the central government. That, coupled with the fact that the DPP is a minority party in the Legislative Yuan, means that the development and implementation of new financial policies will require more intense and drawn-out negotation than has so far been the case in Taiwan.
Chen's win will also lead to a more level playing field for parties, Wu said.
"KMT enterprises will lose their privileged link with the government," he said. "That means, for example, construction projects will not be given to KMT-invested companies exclusively."
Chen will also talk extensively with economists and financial experts for he himself lacks a strong financial background, Wu said.
While Taiwan now finds itself with a new leadership, its monetary policy is likely to remain on the same path.
"The Central Bank governorship is a five-year post (the current term ends in February 2003), which doesn't change along with the presidential election," said Wu, therefore monetary policy, aimed at stabilizing the exchange rate, is likely to remain unchanged.
Within the next two or three months, Wu said, monetary and financial policies would remain consistent. But he conceded that the stock and foreign exchange markets may experience some turbulence.
Wu predicted that the New Taiwan dollar will depreciate in the short-term. "Chen has been labeled as pro-independence, and those who are worried would presumably transfer their money overseas, therefore the demand for foreign currencies would increase," Wu said.
Finance Minister Paul Chiu (邱政雄) said yesterday that policies and instruments such as the national stabilization fund, which is designed to help calm the stock market, would be used in case of emergency.
Economics minister Wang Chi-kang (王志剛) said that the economics ministry would continue its effort to push forward Taiwan's entry into the WTO, but "hoped it would not be interfered with by political factors."
Wu said that Chen has demonstrated goodwill for cross-straight talks, however, "if China reacts most strongly to Chen's winning, our efforts to stabilize the exchange rate would be restricted."
One of Chen's China-related economic proposals was that he would allow capital from China to flow into Taiwan on the condition that China played nicely.
Amid all these uncertainties, one thing is for sure. "No matter who wins, Taiwan's capital market is going to be liberalized further due to the anticipated WTO entry," Wu said.
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