The nation’s persistent financial account deficit reflects a continuous search by Taiwanese life insurance companies for recurring income to match their debt obligations, a move that is common in nations with current account surpluses, central bank Governor Yang Chin-long (楊金龍) told reporters in Taipei yesterday.
Yang called the unscheduled news conference after Taiwan in the second quarter recorded a net outflow in its financial account for the 32nd consecutive quarter, with a total outflow of US$380.42 billion.
“The phenomenon is neither unique nor problematic, as seen in 20 of 37 advanced economies [that had current account surpluses] last year,” Yang said.
Photo: Wu Chia-jung, Taipei Times
Domestic life insurers have to seek fixed-income assets overseas due to a lack of investment tools in Taiwan, he said, adding that the financial health of the central and local governments have rendered bond issuances unnecessary.
The absence of capital outflows would cause foreign exchange reserves to swell and place the New Taiwan dollar under sharp appreciation pressure, Yang said.
This happened to Switzerland in the past and its central bank had to cut interest rates and fix foreign exchange values against the euro to help stabilize its economy, he said.
Overseas investments help ease excess savings in Taiwan and increase net external debt claims, which can serve as a buffer when local financial markets take a hit from rapid global capital movements, Yang said, adding that they allow local investors to gain better yields.
Capital outflows also happen when local firms acquire critical technology or strategic resources abroad through mergers and acquisitions to stay competitive in the global marketplace, he said.
Taiwan can opt to curb capital outflows by developing an economy with greater reliance on domestic demand, Yang said.
Since the 2008 global financial crisis, Singapore, South Korea and Hong Kong have cut dependence on exports through a series of economic and industrial reforms, he said.
Similarly, the government could also increase public construction spending and direct private funds to infrastructure projects, he added.
Fiscal stimulus measures can help encourage private investment, bolster capital formation and create new jobs, Yang said.
“That would make Taiwan’s small but open economy less susceptible to external blows,” he said.
Yang stood by his monetary policy, saying that it is not the cause of financial account deficits.
Firms assign equal importance to interest spread and foreign exchange rates when they plan moves, he added.
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