The current economic realities, unlike in the past, have left the government with little room to boost the economy with artificial means such as cutting interest rates and slashing taxes, said Christina Liu (
"Taiwan's fiscal situation is not as strong [as the US]," Liu said yesterday during a speech on Taiwan's economy at the European Council for Commerce and Trade (歐僑商會). "The government does not have enough tools to boost the economy."
Meanwhile, Liu believes that the weak demand for money is highly "worrying," as it underscores a crisis of confidence in the future of the Taiwanese economy.
Taiwan's broader money supply, as measured by M2, grew by only 8 percent last year, while the figure fell to only 6 percent in October, she said, adding that the figure is far lower than the government's annual growth target range of between 6 to 11 percent. Worse still, the narrower measure of the money supply, such as M1A and M1B, only grew by 4 percent and 2.9 percent respectively last October.
"This means the central bank either did not print enough money over the past 20 months, or the demand for money is really weak," said Liu, who also teaches finance at National Taiwan University. "Contracting demand for money shows that there is no confidence in investing."
Liu also thinks Taiwan's record high level of bad loans is highly alarming as it will impinge upon the health of Taiwan's financial sector going forward. She did not predict how long it will take for the government to sort out the problem. But some "pessimists believe that it could take up to 10 years as it has in Japan," Liu said.
Lack of a quick solution to the Japanese debacle, she said, is a consequence of indecision at the political front there.
"Lack of a coherent policy in Taiwan" is a rising concern, said Liu, who earned her doctorate in finance and economics from the University of Chicago.
Ironically, however, she believes that politics has replaced economics as the national obsession in Taiwan, while the opposite is true in China. "This is perhaps reflected in the lingering weakness in Taiwan's stock market."
The good news, however, is that she believes Taiwan's high tech sector is still strong. The current slowdown in the technology sector is related to the global high-tech slowdown -- mainly in the US -- rather than inherent problems in the domestic economy.
On China, she said cross-strait ties are a double-edged sword. Handled properly, Taiwan could leverage its economy to the increasing growth in China, if not, Taiwan could pay dearly.
Liu also attributed Taiwan's escape from the Asian financial crisis of 1997 and 1998 to such factors as Taiwan's high surplus, high foreign exchange reserves and a flexible exchange rate. But has Taiwan's economy completely escaped the Asian crisis? Perhaps not, she says.
Out of all of Asia's stock markets which suffered major losses during the financial crisis, the stock markets in only two countries -- Taiwan and Japan -- continue to trade below crisis levels.
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