Mon, Mar 29, 2004 page11

• Perng props up markets amid election row

  STEADY HAND As the blues continue to question the presidential election, central bank Governor Perng Fai-nan seems willing to bail out the NT dollar

  • BLOOMBERG
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  Central bank Governor Perng Fai-nan (彭淮南), 65, says averting currency swings is one of his most important tasks.

  "When the foreign exchange market is disturbed by irregular factors, the central bank is required to enter the market and make appropriate adjustments," he told lawmakers on Wednesday, four days after President Chen Shui-bian's (陳水扁) narrow victory in a presidential election spurred mass public protests and opposition calls for a recount.

  

  Central bank Governor Perng Fai-nan has stepped in to stop the NT dollar slide in the past and is proving to be willing again as the election fallout continues to trouble the market.

  TAIPEI TIMES FILE PHOTO

  Perng said the central bank bought New Taiwan dollars on Monday, helping hold the currency steady since the election. He's not working alone to limit damage to markets: Minister of Finance Lin Chuan (林全), 52, tapped a NT$500 billion (US$15 billion) government fund to support share prices on Tuesday for the first time since 2000. That halted the benchmark index's 9.4 percent slide on Monday and Tuesday, the biggest two-day loss in two-and-a half years.

  Perng's control of the currency explains why the NT dollar has fluctuated just 17 percent against the US dollar since he took office in February 1998, compared with a 43 percent swing in the Japanese yen, a 55 percent range for the Korean won and a 43 percent variation in the Thai baht.

  "They are very interventionist by nature," said James Malcolm, a regional currency analyst at J.P. Morgan Chase & Co in Singapore.

  "During the events over the past few days, they came in very quickly to provide support for the currency," he said.

  Taiwan's stocks and currency fell after the election as protesters faced off with riot police in Taipei demanding a recount of votes.

  The NT dollar was up NT$0.004 to close at NT$33.274 against the US dollar on Friday. The currency declined 0.1 percent for the week.

  The government's decision to use the stock-support fund helped Taiwan's benchmark stock index rise 0.7 percent Wednesday. On Friday, TAIEX was down 0.4 percent to 6,132.62.

  "In times of crisis, it's often best to have a fund to strengthen the markets and dampen the impact," said Michael Preiss, chief investment strategist at CFC Securities Ltd in Hong Kong.

  Even so, the government and central bank won't be able to release money into Taiwan's markets for long enough to avert eventual declines, according to investors including Jacky Choi, who helps manage US$2.2 billion at Value Partners Ltd, including Taiwanese stocks.

  "It has helped support the market, but there's really very little they can do to sustain it," Choi said. "The government needs to move quickly to regain political stability. Investors are more concerned about that."

  Perng told lawmakers on Wednesday the central bank has "unlimited" funds to defend the NT dollar and pledged to keep the currency stable. Taiwan's record US$224.8 billion in foreign-currency reserves at the end of last month was the world's third-largest.

  Taiwan's markets may continue to need government support as the political impasse between the Democratic Progressive Party and Chinese Nationalist Party (KMT) Chairman Lien Chan (連戰) deepens.

  Perng, a 33-year central bank veteran with a master's degree in economics from the University of Minnesota, was named governor in February 1998 after his predecessor died in a plane crash.

  Before that, Perng was chairman of the International Commercial Bank of China (中國商銀) and Central Trust of Chin (中央信託局).

  Perng has kept Taiwan's interest-rate policy in line with that of the US, cutting the benchmark interest rate to a record 1.375 percent in 15 reductions between December 2000 and June last year. That leaves buying and selling the currency as his main policy tool.

  On Friday, the central bank left its key interest rate unchanged at a record low. The bank kept its rediscount rate, charged to commercial lenders for 10-day loans, at 1.375 percent at its quarterly policy meeting.

  The governor made his first public pledge to bolster the currency in August 1998, saying the bank would "step in to restore market order whenever the currency fails to reflect economic fundamentals."

  The NT dollar had slid 19 percent in the previous 12 months amid Asia's financial crisis. The South Korean won fell 38 percent in the same period as the country sought a US$60 billion international bailout, and the Thai baht fell 29 percent before interest rates were raised to as much as 25 percent.

  In March 2000, Perng said the bank was prepared to buy NT dollars after Chen won the last presidential election, stoking concerns among investors about a potential military standoff with China.

  On Sept. 12, 2001, the day after terrorist attacks on the US, the central bank again said it was ready to defend the currency. The NT dollar strengthened against its US counterpart in the two days following the attacks.

  The central bank has also used less direct tactics to curb currency swings.

  Perng's deputy, Hsu Yi-hsiung (徐義雄), said in July 2001 that the bank objects to currency analysts releasing their currency forecasts to the media.

  "Banks are free to advise clients about their predictions of the New Taiwan dollar," Hsu said in an interview at the time. "But we object to expressing views to the press to create a trend."
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