Thu, 02 Oct 2003

Taking economic challenges in stride

Wu Rong-i President of Taiwan Institute of Economic Research

Thanks to its having undertaken one of the world's most successful land reform programs and instituting other economic reforms, in the decades immediately following World War II Taiwan underwent a dramatic, fast-paced metamorphosis from an agricultural country to an emerging industrial power and major exporting country.

Since entering the ranks of the world's developing nations, Taiwan has continuously striven to upgrade its technological capabilities, evolving from a labor-intensive to a primarily high-tech, automated economy with steadily growing competitive power and national wealth. By 1993, per capita income had exceeded US$10,000, and it is estimated that this figure will increase to more than US$13,000 for the year 2003.

As an open economy, Taiwan's foreign trade has always played a decisive role in its economic development. With stable trade and economic development policies, together with relatively low inflation, the standard of living has steadily improved. And thanks to a nearly unbroken chain of yearly trade surpluses, as of the end of August 2003 Taiwan's foreign currency reserve had reached US$180 billion, contributing greatly to the New Taiwan dollar's currency market stability. As a consequence, Taiwan has transformed itself from a capital importing country into a capital exporting country, opening a new chapter of history wherein Taiwan has become a major investor in other countries.

With gradual improvements in cross-strait economic relations and an incremental loosening of investment-related restrictions on both sides of the Taiwan Strait, China has now become the primary destination for outward-bound Taiwanese investment, while at the same time having become Taiwan's largest export market. Moreover, China is the number one destination for outward-bound Taiwanese travelers.

In this connection, a key matter of concern for Taiwan's future development is that, while economic development on either side of the strait is becoming ever more closely knit and interdependent, the establishment of a solid framework for coordinating policies is proceeding too slowly. For the advantage of both Taiwan and China, and in order to decrease tensions, it is hoped that breakthroughs can soon be made regarding agreements on a broad range of trade and other economic issues of mutual importance.

In recent years, Taiwan's economic development has faced quite a few additional, domestic challenges. One topic of key importance is the need for financial sector reform and restructuring. Taiwanese banks' excessive level of outstanding accounts, for example, has resulted in increasingly stringent lending requirements, thus somewhat cramping businesses' access to capital. Fortunately, this situation has begun to show a definite turn for the better as a consequence of the government's commitment to help the financial sector resolve its bad loan problems and prevent them from recurring.

A second major challenge in recent years has been mounting unemployment. Over the past two or three years, Taiwan has experienced a rarely seen period of economic decline, primarily the result of the global economic downturn which began in 2001.

This has resulted in what for Taiwan counts as a high unemployment rate of over 5 percent. Beginning last year, however, Taiwan's ailing economy began to show signs of slow recovery. In order to encourage that trend and further stimulate the economy, the government of Taiwan has striven energetically this year to promote new public works projects and to provide generous funding for employment programs.

With the accelerated pace of economic recovery experienced in the last half of this year, Taiwan should be able to resume its accustomed growth performance and, in the process, steadily bring down its unemployment rate.

Despite the uncertainties posed by the hectic pace of technological developments and the globalization process, Taiwan is well positioned to meet whatever challenges may come its way. For one thing, they government is taking steps to facilitate the creation of more knowledge-intensive enterprises and lessen the dependence upon original-equipment manufacturing.

Recent examples of this are the establishment of biotech research, chip-design and software-design centers, and the provision of assistance to enterprises and educational institutions that can help the country evolve toward a knowledge- based economy.

Another step being taken to promote this goal is the plans being made for the liberalization of labor and immigration regulations, with the aim of attracting and keeping outstanding talent from other countries.