When attending his first campaign rally for his re-election bid next year, President Ma Ying-jeou (馬英九) said Taiwan’s per capita GDP would rise sharply to US$20,000 this year. There will probably be a lot of people shouting encouragement and applauding such a development, but the beautiful dream of a US$20,000 per capita GDP could become a curse that will crush Taiwan’s economy.
Since the beginning of this year, the exchange rate for the New Taiwan dollar has repeatedly broken through the central bank’s defense line. Is the government indirectly and directly hinting that it will allow or even induce the NT dollar to appreciate just to achieve its political goal of US$20,000 per capita GDP? On April 8, the exchange rate officially broke through NT$29 to the US dollar to close at NT$28.991, the lowest since October 1997.
Once of the causes of this appreciation may be idle international funds. It is a fact, however, that the NT dollar has appreciated more than any other Asian currency. The yuan for example, is believed to be greatly undervalued. Still, it has only appreciated by 0.82 percent so far this year, from 6.5897 to the US dollar at the end of last year to 6.5354 on April 8.
During the same period, Singapore’s dollar appreciated by 1.93 percent, the Indonesian rupiah by 3.91 percent and the Philippine peso by 1.61 percent, while the Thai baht depreciated 0.05 percent. Such growth was much less than the NT dollar, which appreciated by 4.53 percent.
The South Korean won, which has appreciated 4.56 percent since the beginning of the year, is the only currency that can compete with the NT dollar. However, the won depreciated before it began to appreciate. If we track its performance from the beginning of the financial crisis to the present, it has actually depreciated 15.7 percent, while the NT dollar has appreciated by 10.6 percent over the same period. That means the won has fallen by about 25 percentage points against the NT dollar since the beginning of the financial crisis.
In the short term, the strength of the NT dollar means that Taiwan’s national strength and purchasing power have grown and that Taiwanese can travel abroad at a lower cost. This is, of course, great news. However, it could also have serious consequences from a long-term perspective.
As “China fever” continues to rise, it might accelerate the outflow of Taiwanese industry and exacerbate unemployment, forcing more workers to relocate to China. It could also mean that Taiwan’s flat-panel, DRAM and other high-tech industries could be pushed out of international markets because they can no longer resist China and South Korea.
An annual per capita GDP of US$20,000 is in fact Taiwan’s GDP per capita calculated in US dollars. That means that as long as the NT dollar continues to appreciate, it will be quite easy to achieve that goal. We should of course welcome this goal and hopefully it will soon be achieved. However, if the goal is achieved simply by letting the currency appreciate, it is no different from “drinking poison to quench one’s thirst,” as the Chinese saying goes.
Put differently, it would be an unmitigated disaster.
Huang Tien-lin is a former national policy adviser.
TRANSLATED BY EDDY CHANG
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