Taiwan's 'Go South' policy questioned

Taiwan's 'Go South' policy questioned

TAIPEI (Dow Jones): Recent outrage over anti-Chinese atrocities in Indonesia has reinforced the criticism of the Taiwan government's longstanding policy of pushing local companies to invest more in Southeast Asia.

Though officials right up to President Lee Teng-hui maintain companies should continue to invest in countries like Indonesia -- the so-called "Go South" campaign -- private companies say that policy only exposed them to unnecessary risks and should be abolished.

"We'll probably stop new investments in Indonesia until the politics and conditions there get better," Andrew Cho, manager of investor relations at food giant President Enterprises Corp. said. "We may have to wait two, three years" before the company can go back into the market.

President, which owns a 40 percent stake in a US$10 million noodle-making factory, says it's still racking up losses in Indonesia as a result of the rupiah's rapid depreciation. Losses totaled about Rp 33 billion in the first half of this year, Cho said.

For their part, government officials say the "Go South" campaign was always a suggestion rather than a directive. They emphasize that it's ultimately up to company executives to decide whether to invest in the region.

Indeed, there has been widespread speculation that the government may even impose economic sanctions on Indonesia to protest the rapes of scores of Chinese women during the May riots. The government has so far said it won't impose sanctions, though many officials have publicly questioned whether it's still a good idea to maintain investments in Indonesia.

The rising public criticism of the "Go South" campaign is the latest in a string of seemingly awkward, potentially hurtful policy fumbles that have cost the Taiwanese government much- needed credibility, analysts and executives said.

In attempts to protect the New Taiwan dollar, for instance, the Central Bank of China implemented policies that reversed the trend of liberalization such as closing down the non-deliverable forward market and halting the foreign issuance of NT dollar bonds.

Urged by the central bank, lead manager Grand Cathay Securities Corp. withdrew the NT dollar bond of Inter-American Development Bank Tuesday. For years, central authorities said they welcomed supranationals into Taiwan to develop the nascent domestic capital markets.

"Credibility in the government is pretty low," Stephen Wang, senior economist at HSBC James Capel Taiwan Ltd. said. "With this Go South policy, the government didn't do a lot of things to help these companies to develop financial or technical support."

"What we've seen so far this year is an actual decline in investment in Southeast Asia. For Taiwanese businessmen, they still believe that the investment risk is very high," he added.

Taiwan is one of Indonesia's largest investors having spent US$13.3 billion there last year.

Investment in Southeast Asia is now likely to fall off as a result of the crisis.

But this coincides with a rise in money invested in China, a trend contrary to another existing yet seeming ineffectual Taiwanese policy titled "Go Slow, Be Patient." Authorities fear too much investment in its long-time enemy China may foster unnecessary economic dependence on the mainland.

Investment in China surged 29 percent in the first half of this year to US$894 million.

"Some foreign investors are growing concerned about government policies, about how they're either too slow or that they may change," Wang said. "Taiwan still has a lot of skilled people and can still attract investment. However, in general investor sentiment has been hurt."

The "Go South" campaign was an outgrowth of a well-played visit President Lee made to Southeast Asia in 1994, which opened the region to Taiwanese investors.

The campaign encouraged companies to find cheap labor and manufacturing costs in the region, a move that effectively warmed political relations between the island and Southeast Asian nations.

On that trip, bitterly opposed by China, Lee met with top officials from the Philippines, Indonesia and Thailand, promising to help the region develop agricultural and oil resources. The highlight of Lee's trip was the five days spent in Indonesia where he met, among others, President Soeharto and then Research and Technology Minister B.J. Habibie.

Despite the high-level contacts, Lee's visit was still officially described as a "vacation." Taiwan, still considered a renegade province by mainland China, has no diplomatic ties with Southeast Asian countries and senior officials often plan "unofficial" trips or "golfing holidays" to each countries.

Despite the criticism, few companies will pull out of Indonesia. However, officials at companies such as Tatung Corp. and Nan Ya Plastics Corp. say they will most likely block out Indonesia from future investment lists.

Even the quasi-government Southeast Asian Investment Company, created specifically to invest and encourage Taiwanese companies in the region, will halt all investment plans in Indonesia.

The company, led by China Development Corp., will be established by the end of August and capitalized at NT$20 billion.