Wed, Oct 20, 1999 page18

• Plan to ax debt cap for reconstruction opposed

  • By Shirley Sun / STAFF REPORTER
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  The estimated NT$40 billion needed for quake reconstruction has put pressure on the government to modify or remove a cap that limits the amount of bonds the government may issue in a fiscal year.

  But economists and financial analysts said that any modification or wholesale elimination of the cap is unnecessary. A better idea, they said, would be to treat the quake expenditure as a one-time event.

  According to the Council of Economic Planning and Development (經濟建設委員會), the 921 earthquake may drive up Taiwan's budget deficit next year by a record high of NT$73 billion. If the government decides to finance the deficit though bonds, the issue would account for 17.7 percent of the budget and violate debt law, which sets a cap of 15 percent.

  

  An aerial view of Wufeng, in the central county of Taichung, shows a hotel building which toppled over after Taiwan's strongest earthquake this century. The government, faced with an NT$40 billion reconstruction price tag, has proposed scrapping a law that caps its ability to borrow funds through bond issues.

  PHOTO: AFP

  And the situation is expected to grow worse over the next five years as reconstruction gets underway.

  Huang Yophy (黃耀輝), researcher at the Chung Hua Institution for Economic Research (中華經濟研究院), said he was opposed to raising the 15 percent cap.

  "The government can establish a one-time special budget, instead of changing the law permanently," he said. "The law is designed to prevent the government from making too many political promises at the expense of future generations."

  Wu Tsong-Min (吳聰敏), an economist at National Taiwan University, also said he opposed the removal of the cap.

  Wu said the government's outstanding debt level, which has reached 28.4 percent of GNP, is too high, even when compared to welfare countries. Wu said that it is understandable for the government to want to issue bonds in case of an emergency, such as a war or earthquake.

  "And I wouldn't object to such measures if the government had paid back [what it had borrowed] in the 1990s when there was no emergency," he said.

  As to the issue of whether issuing NT$80 billion in government bonds would spark inflation, Chen Po-Chih (陳博志), also an economist at National Taiwan University, said it wouldn't.

  "Even if the government issues NT$100 billion worth of government bonds, it only translates to about a 1 percent increase" in the nation's demand for goods and services, or GDP, Chen said.

  Taiwan currently has an excess savings rate of 2 percent of GDP, meaning it could add up to 2 percent more to the GDP in the form of new goods and services without contributing to inflationary pressure.

  Therefore, Chen said, the 1 percent increase would not have an effect on inflation.

  He also noted that prices for imported goods, such as oil, do not show signs of increasing either, he said.

  However, if the government uses the bond funds to buy certain types of goods and services, then "the price of those individual products may go up," Chen said.
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