Conference must take heed of meltdown fears

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.

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 (勞基法) sets a high standard for labor pensions. As a matter of fact, currently only 13 percent of local companies have paid their pension payments [to the Labor Pension Fund] in full. Therefore, as many as 87 percent of local companies have not paid up their labor pensions for years. We should amend the law and make it more practical in relation to the needs of local companies and workers.

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.