Mon, Oct 18, 1999 page17

• Rumors surround quake cost estimate

  BEST GUESSTIMATE A few hours after the Sept. 21 quake leveled Nantou, Liu Tai-ying was on TV saying the total damage was around NT$100 billion. Why did he guess that?

  • By Steve Hands / STAFF REPORTER
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  "What's the damage, mate?" Another way of asking how much a round of drinks costs, in English pub parlance. Similarly, the morning after the Sept. 21 quake shattered central Taiwan, business news editors were frantically calling around to get an estimate of the magnitude of the quake damage. This was no easy task: a public holiday had been declared and all phone links to the quake area were down.

  Business editors were relieved when Liu Tai-ying, billionaire chairman of the KMT business development fund, popped up on TV to announce the quake had caused around NT$100 billion (US$3 billion) in damage.

  The eminently quotable Liu gave no explanation as to how he arrived at his figure, but all the news wires and press carried the story, anyway, as no other figures were available. The only other firm news available on the first day was that the Hsinchu science park was out of action because of a power outage, and that export losses as a result would mount at a rate of US$30 million per day until the power was restored. At that stage, no-one knew the actual extent of any damage to machinery, as without power, workers couldn't enter the "clean-room" production sites to conduct inspections.

  

  Workers build temporary housing. KMT business czar Liu Tai-ying estimated approximately 80,000 homes were destroyed in the recent earthquake.

  PHOTO: GEORGE TSORNG, TAIPEI TIMES

  For investors it was vital to get some ballpark approximation of the losses so they could adjust their projections of GDP growth and decide whether to continue plowing money into Taiwan or to start pulling it out. To some extent, the Taiwan government made the decision for them by suspending stock trading for the rest of the week. However, this didn't stop related stocks abroad, such as Korean electronics, from going haywire and posting rises of over 10 percent in one day, nor did it prevent DRAM prices from tripling within a week.

  A month has now passed since the quake, and sober, considered estimates are available for the damage and loss of production. The government's new official estimate is a shade under NT$300 billion, or about US$9 billion.

  Now, a conspiracy theorist with a knowledge of how the media works might say that Liu's initial US$3 billion figure was the work of a genius. Liu, the reasoning goes, knew the exact total of the quake damage was around US$9 billion, but wanted a figure that would calm international anxieties about the quake's impact on Taiwan's economy, and at the same time would not be so low as to look grossly ridiculous after the true figure became known. US$3 billion was just right. Liu also knew that whatever figure was first quoted by a person of any standing -- Liu is President Lee's right-hand-man economic adviser, after all -- would be taken as the "official" figure for the quake damage, and would no doubt be bandied about by the media for at least a few days, if not a whole week, until more reasoned estimates became available. And at the same time, it could still be denied at a later date, as it was coming from a businessman, not from the government itself. The work of a genius, no less.

  Even if you don't think there was a conspiracy, you have to admit it was a pretty good first guess. How could Liu have known, for example, that most of the damage was restricted to residential properties in the two counties bordering the epicenter? And how could he have known that approximately 80,000 homes had been destroyed during the quake? (One way at arriving at a figure for total damage would be to multiply the number of destroyed homes by their average cost -- 80,000 homes at NT$2 million apiece comes to a round NT$160 billion, or just over half the government's estimate for total damage).

  You could call it genius, or you could say that someone, somewhere, seemed to have a pretty clear idea of what had happened, and within a few hours after the quake had hit, no less. Wouldn't it be nice to know who?

  For your information

  In the know?

  * Liu's estimate of earthquake damage immediately after the quake: NT$100 billion * The government's latest estimate nears NT$300 billion * The question: Was the vast discrepancy an intentional error on the part of the government in an effort calm fears over the financial impact of the quake?
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