The nation’s economy has slumped while unemployment soared to a record high during President Ma Ying-jeou’s (馬英九) first year in office, though his administration managed to avert a confidence crisis thanks to a mix of interest rate cuts, tax reform and stimulus efforts.
Ma won the presidency by a wide margin after a campaign in which he made his “6-3-3 pledge” to raise GDP growth to 6 percent, trim unemployment to 3 percent and boost national per capita income to US$30,000 a year.
After Ma’s inauguration, Minister of Economic Affairs Yiin Chii-ming (尹啟銘) boasted that the TAIEX would rally to 20,000 points, from 9,068.89 on May 20 last year. The TAIEX yesterday stood at 6,655.59, a drop of 26.6 percent from a year ago.
GDP contracted 1.05 percent in the third quarter of last year and another 8.36 percent in the fourth quarter, in stark contrast with 5.4 percent growth in the first half of last year. The decline persists into this year, with analysts predicting a 10 percent contraction for the first quarter. The official figure is due out tomorrow.
The unemployment rate rose to a historic high of 5.81 percent last month, from 3.84 percent last May. Unemployment is expected to keep rising for months even once the economy has started to recover — analysts expect this to happen no sooner than the fourth quarter of this year.
Polaris Research Institute president Liang Kuo-yuan (梁國源) says that, as the global financial crisis began, the Ma administration underestimated its severity as well as its eventual impact on the nation’s export-dependent economy.
“Not until exports had suffered a two-digit decline did the government realize the seriousness of the economic dilemma,” Liang said. “That would account for its inaction and slow response last year.”
In November, the Directorate-General of Budget, Accounting and Statistics was still predicting that GDP would expand 2.12 percent this year, sustained by fiscal stimulus measures and warming trade relations with China. The optimism proved misplaced in February, when the statistics agency eventually revised its GDP growth forecast to minus 2.97 percent for this year.
The government seemed to wake up to the need for a more aggressive response after exports plunged 41.9 percent in December, when manufacturers complained that orders were drying up.
In January, the government distributed NT$3,600 consumer vouchers in the nation in the hope of stimulating private consumption. It also introduced a NT$500 billion (US$15.2 billion) spending program to improve infrastructure and create jobs over the next four years.
Liang said the measures might help mitigate the pain of the downturn.
The government has since moved to reduce dependence on the US, the epicenter of the economic turmoil, and has sought to promote trade with China, whose massive domestic market supposedly improves its ability to weather the global slump.
To that end, the Ma administration has raised the ceiling on China-bound investment to 60 percent of a company’s net worth, lifted bans on direct cross-strait flights and allowed investments from China.
Yang Chia-yen (楊家彥), a researcher at the Taiwan Institute of Economic Research, expressed concern about the tilt to China.
Yang said the recession exposed the need to revamp the nation’s industrial policy, which has long placed too much emphasis on a few electronic products sold to a few markets by a few industries.
“The increasing dependence on China — already our largest trade partner — will make Taiwan more vulnerable to external shocks,” Yang said.
Yang said the nation should rely more on domestic demand and bolster the service sector.
“That would entail mass legal reforms and construction,” Yang said. “It takes politicians with grand vision to embark on a venture that may not bear fruit for a long time.”
Norman Yin (殷乃平), a money and banking professor at National Chengchih University, said the government could have been more prudent in allocating funds, adding that its NT$58.3 billion budget for minor public works smacked more of pork-barrel spending than a true attempt to provide an economic stimulus.
Private sector players seemed to be less critical of the administration after the TAIEX recently regained some momentum.
Roscher Lin (林秉彬), president of the National Association of Small and Medium Enterprises, says the government averted a systematic liquidity strain by asking banks not to tighten credit and providing a blanket guarantee of saving deposits.
Lin also lauded the reduction of inheritance tax, which he said lured more than US$20 billion in capital home and invigorated the equity market despite poor economic fundamentals.
“The prospects remain uncertain but appear less dismal now,” Lin said.
Stanley Su (蘇啟榮), a senior researcher at Sinyi Realty Co, Taiwan’s only listed property broker, agreed.
Su said slumping property transactions stabilized in March, thanks to a series of rate cuts and recent rallies in the equity market.
“Owing to the easy monetary policy and preferential interest rates on mortgage loans, the property market contracted less than the market expectation,” Su said.
GRAPHIC: TAIPEI TIMES
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