Taiwan's political instability in the wake of the March 20 presidential election may fuel capital flight out of the country if the present situation cannot be resolved in the short term, sources from the banking industry said yesterday.
Should the current turmoil over the election's result not be settled quickly and peacefully, a larger amount of domestic and foreign capital will be remitted out of Taiwan, the sources warned.
A historic second-largest transaction level of US$2.99 billion was registered on Monday -- the first trading day after the presidential election -- in the Taipei foreign exchange market as a result of heavy selling pressure of the New Taiwan dollar in exchange for the US dollar, the sources said.
Although the central bank intervened by selling US dollars to prevent a fall of the local currency that day, the NT dollar still depreciated by NT$0.032 to finish at NT$33.285 against the greenback.
The sources attributed the surge in transaction levels to robust demand for US dollars, including that from import businesses and foreign exchange departments of banks and individual customers. There are no signs currently of large outflows of foreign capital from Taiwan, they added.
A bank executive in charge of foreign exchange operations said that selling pressure of the local currency during this period has been stronger compared to the same period following the presidential election four years ago, when Taiwan's first transfer of power was crystallized.
The current atmosphere is similar to that of 1995 when China fired test missiles to the waters near Taiwan, evident in that the public demand for the US dollar has markedly increased amid political uncertainties, the bank executive observed.
He also expressed his concern that foreign capital that has remained in the domestic market is very likely to leave Taiwan if the country's democratic image and law and order are eroded.
Should the political situation stabilize, the market is expected to return to normal quickly, he said.
A large number of the opposition "pan-blue alliance" supporters have been demonstrating in a marathon protest in the square in front of the Presidential Office in Taipei over the result of the presidential poll.
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