The legislative election results are out, and some are toasting their victories as others rue defeat. But many questions remain.
Pundits said the powerful majority awarded to the Chinese Nationalist Party (KMT) reflected a vote of no-confidence in the ruling Democratic Progressive Party (DPP). But does it offer an opportunity for the nation to create a legislature that can focus on jobs, the price of consumer goods and strengthening the economy?
To improve legislative efficiency, the elections adopted a single-member district, two-vote system that halved the number of legislators and allows only one legislator to represent a district.
The result has shifted Taiwan toward a genuine two-party political system. The KMT secured 81 seats in the new 113-seat legislature, compared with just 27 for the DPP, while smaller parties the Taiwan Solidarity Union and the New Party gained nothing in the new legislature.
The changes to the new legislature are likely to facilitate a more rational environment for debate on major economic policies as small and radical parties and ill-equipped individual lawmakers lose influence over policymaking.
If the new KMT and DPP lawmakers can conduct themselves in a less ideological manner, a less polarized environment would allow economic issues to be dealt with in a more careful and effective way.
These issues include tax incentives for local manufacturers, proposed cuts to the inheritance and gift tax, corporate income tax reform, banking reform measures (such as allowing poorly performing banks to exit the market, thus encouraging industry consolidation), as well as several China-related investment policies on banking, semiconductor manufacturing and transportation.
Before the elections, Standard & Poor's Ratings Services published a report titled "Elections in 2008 offer Taiwan a way out of policy quagmire," suggesting that the contest would allow the nation a chance to "[shake] off its label as among the region's least productive governments in 2008."
But there is also a real possibility that both major parties may continue with confrontation in the new legislature, or between the legislature and the executive if the DPP retains the presidency in March.
The KMT will dominate the new legislature. Based on hard experience, it is not clear that it will not abuse its power and further damage the legislature's credibility.
Some economists have said that the government's economic performance was key to the KMT's landslide victory. They say prospects for better cross-strait relations would improve if the KMT secures the presidency, and that this would boost the economy.
But the KMT's victory on Saturday does not in itself demonstrate an ability to prevent domestic capital from leaving the country or to lure more foreign capital inflow.
It is also not clear that the KMT's pro-China policies will improve the economy. Poorly designed policy that misjudges or ignores the domestic economic environment could simply encourage more businesses to relocate to China.
The DPP and the KMT should reflect on the election result and respond to voters with credible economic initiatives. Both parties will need to realize that Taiwanese -- most of whom prefer the "status quo" and favor better relations with China -- are tired of this political stalemate and are demanding cooperation on major economic bills.
Investment risks will remain throughout the run-up to the March poll, however, and even after the presidential election -- especially if the two main parties cannot reach a compromise on their approaches to key economic issues.
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