Scholars dispute KMT's effect on economic rating

BUSINESS FREEDOM: Scholars agree that Lien Chan's proposal to place party assets in a trust fund would boost Taiwan's international ranking in the future

By William Ide  /  STAFF REPORTER

Wed, Jan 12, 2000 - Page 1

With Taiwan's economic freedom ranking slipping to 51st place among the 123 national economies -- according to a report by two international think tanks released on Monday -- local economists yesterday remained divided over how key a role the KMT's multitude of enterprises has played in the decline.

They did agree, however, that the recent proposal by KMT presidential candidate Lien Chan (連戰) to put his party's billions in assets into a trust fund would, if done thoroughly, improve the island's economic freedom ranking in the future.

"They [the party-enterprises] are an important part of the problem," said Hsu Chen-ming (許振明), a professor of economics at National Taiwan University.

Hsu said he wondered if those who conducted the survey -- which divides economic freedoms into seven different areas, including legal structures, security of private ownership and freedom of exchange in capital markets -- were aware of the role KMT enterprises played in propping up the island's financial markets.

When there are problems, he said, "party-enterprises are in there helping lift the stock market. Being one of the five largest financial groups on the island, they have a lot of weight to throw around."

One of the Lien campaign's spokespersons, lawmaker and economist Chu Li-lun (朱立倫), said the government has intervened in local financial markets, beginning with the Asian financial crisis in 1997, but that KMT party enterprises were not to blame for a decline in the rankings.

"Party enterprises have always been there and have been big," Chu said. "Party-run businesses have helped stabilize the economy."

During that period, the government did use measures perceived by Western economists to be restrictive, such as stepping up controls over financial markets, infusing large sums of money into the currency market and propping up local companies, Chu said.

American Chamber of Commerce President Paul Cassingham also pointed to the Asian financial crisis as a factor that could have influenced Taiwan's rating.

"Taiwan has not backslid on its economic freedom. Its liberalization has not backslid; if it has, it was because of the Asian financial crisis," Cassingham said.

The Economic Freedom of the World: 2000 Annual Report, published by the Cato Institute and Canada's Fraser Institute on Monday, showed that Taiwan's rating declined in the late 1990s.

According to the report, Taiwan slipped from 29th place in 1995 to 51st place, based on economic data from 1997, the last year for which the economists had complete data.

Taiwan scored high in most areas, but significant problems remain in three sectors: heavy use of government-owned enterprises, price controls and conscription.

Widespread government ownership of banks and capital-account restrictions contributed to a low 5.5 rating in the area of "Freedom of Exchange in Capital and Financial Markets."

Both Chu and Hsu agreed that once the KMT's assets are put into a trust fund, Taiwan's economic freedom figures would improve.

But to blame the slide on the activities of KMT enterprises was misguided, Chu said.

"It will be better [after assets are put in a trust fund], but if you say they [the enterprises] caused the numbers to drop, then that's not right," he said.