Taipei Times: As a representative of the PFP in the economic advisory conference (經發會), what issues are on top of the party's agenda?
Norman Yin (殷乃平): The unemployment problem is the most urgent issue that needs to be resolved, especially in the central and southern counties. We plan to propose rescue measures for the unemployed. Other issues that need to be addressed are the traditional industries moving out of Taiwan and changes in the economic structure.
PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES
Also deregulating tourism from China would help the current situation. However, tackling the changes in the economic structure require a comprehensive set of solutions covering many areas -- [no one solution like] deregulating China trade links alone could solve the current problem.
For example, the Labor Standards Law (
Another infrastructure issue is there are many current regulations described by foreign investors as unfriendly to the market, which required amending.
From many indicators, there are signs of a possible economic or financial crisis in the near future.
TT: Could you elaborate more on the possibility of Taiwan ending up in a crisis ?
Yin: According to the International Monetary Fund, many countries that have encountered a financial crisis had a significant decline in their imports six months before the crisis. Recently, Taiwan has encountered the same situation.
Meanwhile, according to the Nomura Research Institute, a liquidity crunch of industries and companies and huge bad loans from the banking industry may pose the risk of a financial crisis. Taiwan is currently in a similar situation.
Also money outflow by local residents has left Taiwan's Offshore Banking Units with an accumulated US$30 billion, of which approximately US$10 billion was added very recently.
[Consider that] total [portfolio] investment by qualified foreign institutional investors (QFIIs) has reached US$35 billion and is expected to reach US$48 billion in the near term.
If the concurrent decline in both the New Taiwan dollar and the local stock market triggered QFIIs to pull out of Taiwan, it would pose the threat of a financial crisis.
The central bank has let the NT dollar slowly depreciate to NT$35 against the US dollar in order to reflect the current economic situation. This poses a foreign exchange risk warning to foreign investors. Some people have proposed that the central bank should allow the trading of NT dollar options -- in order to provide a hedging tool for foreign investors. However, the central bank is unlikely to accept this proposal. The current non-deliverable forward contracts on the NT dollar are simply not enough to cover foreign investors' risk.
TT: What should the administration do to prevent such a crisis?
Yin: On the whole, the administration should face up to the problems and try to solve them without further hesitation.
First, concerning conglomerates with severe financial difficulties, the administration should let them collapse or find someone to take them over or find a new management team to restructure them. The administration should revise the outdated bankruptcy regulations and make them more practical in dealing with the closure of large conglomerates.
Second, the banking market mechanism should be made accessible [because many local companies cannot get loans since banks are afraid of getting more bad loans.] The administration should also stop protecting bank depositors. Were a bank to go bankrupt, its depositors should also accept their loss.
Simply speaking, the administration should stop subsidizing problematic conglomerates or banks, in order to avoid duplicating the disastrous experience we have seen in Japan over the last decade.
TT: The administration has recently set up a bank bail-out fund similar to US' Resolution Trust Corp. Do you think it could tackle the problems of grassroots financial institutions?
Yin: The total budget for the resolution trust company is NT$140 billion which is only enough to solve the 36 farmer and fisherman associations' credit cooperatives who operate with negative net worth. If any other financial institution fails, there are not enough funds to conduct a rescue.
Another strategy that the administration is using now is for good banks to take over bad banks -- a bad bank being defined as one with a high overdue loan ratio. But this plan will not work either, since the asset quality of good banks will be compromised. Meanwhile, the recent asset management company idea proposed by the administration could only [eliminate] part of the collateral held by the banking sector. With the current situation in the real estate market, the amount of non-performing loans that can be successfully removed is still a big question.
Furthermore, the sluggish stock market hardly allows the banking industry any real opportunity to recapitalize.
With the economy under pressure from conglomerates on the edge of bankruptcy and the [massive number of non-performing loans] in the banking sector, there is a possibility that a chain reaction of [several simultaneous] company bankruptcies could trigger a financial crisis for Taiwan.
The Japanese economy has been burdened by a huge number of bad loans in its banking industry over the past 10 years.
What happened [next] was the takeover of many of its large corporations by foreigners, for example in the auto industry. Other than Toyota and Honda, every other large Japanese automobile maker has been taken over by foreigners. Taiwan could see a repeat of the same experience if things get worse.
Therefore the administration should let companies close down if they ought to be closed. Any more subsidies to those conglomerates would only endanger Taiwan's economy.
TT: With Taiwan expected to enter the World Trade Organization (WTO) in the near term, do you think this will improve the cross strait trade relationship?
Yin: I expect that cross-strait links will be deregulated right before Taiwan's entry into the WTO. The DPP does not want to deregulate the three direct links with China. Nevertheless, pressure from industry is likely to force the DPP to accept that there is no other alternative for Taiwan after entering the WTO.
TT: Do you think the economic advisory conference could reach the goals set by the administration?
Yin: The conference itself has a political purpose. The DPP wants to use it as an election tool for the year-end general elections. Solving economic problems is only one goal of the multi-purpose conference. Some speculate that the conference will be a shield for President Chen Shui-bian (
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