Premier Liu Chao-shiuan (劉兆玄) last week told a group of industry heavyweights that the economy would enjoy an upturn in the fourth quarter thanks to his government’s economic stimulus package.
He must be joking.
It doesn’t take a genius to appreciate the severity of the current global financial crisis and the implications it may have for Taiwan’s economy.
If Liu’s remark had been made on his appointment as premier in May and had been designed to boost investor confidence, then that would have been fine. Electoral honeymoon politics are like that.
At this point in the proceedings, however, his bold prediction was absurd and laughable, especially in light of a series of unprecedented changes in the US financial landscape over the past two weeks.
Last week, Lehman Brothers filed for bankruptcy, Merrill Lynch sold nearly 80 percent of its shares to the Bank of America, and the US Federal Reserve agreed to bail out American International Group as the US credit crisis widens.
These developments came only one week after the nationalization of Fannie Mae and Freddie Mac in the US, and the bad news shows little sign of abating.
Concerted actions last week by the world’s major central banks — injecting US$600 billion into global money markets to ensure liquidity — and the US government’s massive rescue plans for financial institutions announced on Friday suggest that the situation remains fluid and that the effectiveness of these efforts cannot be taken for granted.
Taiwan is facing a worrying situation. The worldwide credit crisis will result in enormously adversarial consequences for the domestic economy — from slowing demand for Taiwanese products to weak economic growth to a slump in spending.
Adding more uncertainty to the market, Taiwan’s central bank unexpectedly announced on Tuesday that it would lower its reserve requirement ratios for local lenders to inject liquidity into the capital market, and this was a day after its Chinese counterpart cut interest rates for the first time in nearly six years to boost its economy.
Liu’s Cabinet attempted to deal with the slowdown by unveiling a NT$180.9 billion (US$5.63 billion) stimulus package on Sept. 11. The package aims to boost the rate of economic growth to 4.52 percent this year, according to the Council for Economic Planning and Development’s forecast on Friday.
So far, so good. But the problem is that the government is overly optimistic about the impact of the measures, failing to understand or admit that it will take time for the process to bear fruit, especially as the economy is likely to be hit again.
For the four months it has been in office, this government has repeated the line over and over again that the nation’s economic fundamentals are sound and that people should have faith.
The truth is that it may take several quarters or even years to see the economy turn around. The appointment of Vice President Vincent Siew (蕭萬長) by President Ma Ying-jeou (馬英九) on Thursday to head an economic advisory task force only served to weaken public trust in Liu’s ability to lead.
The government finally activated the National Stabilization Fund on Thursday, and the stock market appeared to stabilize, following the benchmark TAIEX’s fall of almost 30 percent this year.
All well and good. But the Cabinet still needs to convince observers that it can respond promptly and effectively with strategies that buffer the economy. Unfortunately, given what Liu said last week and what his Cabinet has done to date, the jury is still out, and there is no indication of when it will return.
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