A recent article in The Economist has pointed out that the total value of Taiwan's stock market has plummeted 30 percent while the average value of real estate has dropped 50 percent since the DPP government took office in May. Since Taiwanese companies usually have a greater capital need before the Chinese New Year, the magazine predicted that a financial crisis might occur as early as next January's Lunar New Year holiday if banks and companies lack sufficient capital.
After the article was published, finance officials in Taiwan immediately rebutted the prediction. According to Minister of Finance Yen Ching-chang (顏慶章), the possibility of a financial crisis is slight. Both Minister of Economic Affairs Lin Hsin-yi (林信義) and chairman of the Council for Economic Planning and Development, Chen Po-chih (陳博志) called the article "absolutely inaccurate." Will the public, however, really believe their words? Do they really have the situation under control? Is the article in The Economist really "absolutely inaccurate?"
In fact, these finance officials are viewing the situation from a financial or economic perspective. Since Taiwan's economic fundamentals are fairly sound, they believe, a major financial crisis is not likely in the near future. The Economist, however, was viewing the situation from a political perspective, saying that political disputes as well as crony capitalism
Experts have identified three major factors behind the East Asian economic crisis of 1997. First, the problem of crony capitalism. Many US scholars, as well as the World Bank and the IMF, believe that the crisis was due to inappropriate government-enterprise relations. Former Indonesian President Suharto and his family's corruption, for example, seriously harmed that nation's economy.
Second, the collusion of poorly operated enterprises with bureaucrats. When the Bangkok Bank of Commerce was facing a financial crisis, for example, Thailand's Ministry of Finance, along with some other local banks, did nothing to help the bank to improve its management system. Instead, they injected large amounts of money in order to save the bank because of its excellent connections, ultimately prompting Thailand's financial crisis in 1997.
Third, inappropriate development plans. When promoting Western capitalism, Asian countries are often threatened by the accompanying social problems and environmental problems as well.
I believe a clearer picture emerges if we examine Taiwan's economy by the above three factors. First of all, inappropriate government-enterprise relations are quite common in Taiwan. The large amount of political loans (政治性貸款) has raised the overdue loan ratio. Local financial institutions are also greatly influenced by local political factions.
Next, when Taiwan's large enterprises are threatened by financial crisis, the Ministry of Finance usually chooses to help these companies through private channels. Consequently, the ministry is sometimes suspected of favoring certain companies, and this is damaging to the overall financial and economic system. Former finance minster Paul Chiu
Finally, since coming to power, the DPP government has failed to propose a complete economic development plan. Instead, the government frequently intervenes in the stock market in order to create an image of prosperity. Such actions, however, will seriously shake investors' confidence and push foreign capital out of the local stock market, eventually causing a crucial financial and economic crisis.
Despite the financial and economic factors, I believe political problems are the key factor that risk causing Taiwan's financial crisis. When examining Thailand's financial crisis in 1997, distinguished scholar Andrew MacIntyre pointed out that the fragile parliamentary and multi-party system, as well as the electoral system at the time, were some of the major causes of Thailand's crisis. Also, due to the government's indecisiveness, and the vested interests of politicians (mostly congressmen), it was difficult to promote economic reform in Thailand.
Taiwan and Thailand share the same electoral system -- the SNTV (Single Non-Transferable Vote, 單一記名不可讓渡投票制) system. Politics and the governmental system in Taiwan, how-ever, are deteriorating amid a political situation that is chaotic and full of uncertainties. In fact, Taiwan's current situation is perhaps even worse than that of Thailand in 1997. Who can be so sure that a financial crisis is really not going to happen in Taiwan under such circumstances?
Chen Shang-mao is an associate research fellow at the Foundation for National Development Research.
Translated by Eddy Chang
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