A US$250 billion credit guarantee the government has agreed to in a tariff deal with the US is expected to help enterprises raise funds to facilitate their investments in the US, experts said.
Cathay United Bank Co (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said that big companies such as chipmaking giant Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which has previously pledged US$165 billion investments in the US, might not need any credit guarantee.
However, smaller-sized companies might need such government support to boost banks’ willingness to extend loans, Lin said.
Photo: CNA
On Friday, the Executive Yuan announced that Taipei and Washington had reached an agreement to lower tariffs on Taiwanese goods from 20 percent to 15 percent, without stacking them on existing most-favored-nation rates.
As part of the deal, Taiwanese semiconductor, electronics manufacturing service, artificial intelligence and energy companies would invest US$250 billion directly in the US.
The government has pledged to provide up to US$250 billion in credit guarantees to financial institutions to support US-bound investments by companies in the semiconductor and information and communication technology sectors.
Through a credit guarantee mechanism, it is possible that smaller companies would enjoy lower borrowing costs, making it easier for TSMC and other Taiwanese tech firms, including server makers, to build overseas industrial clusters, Fubon Financial Holding Co’s (富邦金控) chief economist Lo Wei (羅瑋) said.
The government’s credit guarantee is feasible, as Taiwan already operates similar mechanisms to support domestic small and medium-sized enterprises, Lo said.
To illustrate how the system works, Lin said that if a company borrows from a bank and the government agrees to guarantee 70 percent of the loan, the government would cover that portion if the borrower defaults, while the bank would absorb the remaining 30 percent.
Executive Yuan spokesperson Michelle Lee (李慧芝) on Friday wrote on social media that the credit guarantee aims to help enterprises extend their reach globally and does not mean the government would carelessly throw the money around.
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