Now, what does all this mean?
<February 20, 1999
Stimulus Efforts Lift Taiwan Stocks,
But Fail to Address Key Problems
By KIRBY CHIEN
Dow Jones Newswires
TAIPEI, Taiwan -- Several aggressive government measures to stimulate the
economy and revitalize flagging investor confidence succeeded Saturday in
fueling the largest jump on the stock market in eight months.
But economists said the measures lack the steps needed to address the
fundamental problems weighing on Taiwan's economy.
The measures, announced late Friday, sent the
stock market soaring 4.7% Saturday, the first
trading day after the week-long Lunar New
Year holidays, to 6072.33 points in the largest
one-day surge since June.
The announcement included steps to boost bank profits, allow them to write
off bad loans quicker, raise limits on foreign equity investment and eliminate
the transaction tax on bond trading.
The measures are "aimed at boosting investor confidence in the short term and
have obviously been very effective, but the fundamental weaknesses in the
domestic economy have not yet been addressed by the government," said Kuo
Wen-jeng, a research fellow at the Chung-Hua Institution for Economic
Research, a state-supported think tank.
Any radical measures to tackle the systemic problems in Taiwan's economy
will probably have to wait until the "financial markets are more stable and
better able to withstand the shock these measures would necessarily involve,"
said Wu Chung-shu, a fellow at Academia Sinica, a state research institute.
The moves will help attract more foreign investment into Taiwan in the long
run, but the chief factor in diverting capital flows to Taiwan would be a
rebound in the island's economic fundamentals, said Andy Wei, an analyst at
Masterlink Securities Corp.
Many of the problems facing Taiwan are extraneous to the island and out of
the government's control, economists said. The government is trying to
encourage more domestic investment and consumption with a looser monetary
policy and to attract more foreign investment, but the main problems with the
local economy are sluggish global economic growth and the volatility in the
yen, economists said.
If the yen continues to fall against the U.S. dollar, the New Taiwan dollar is
expected to follow, which will make imported raw materials and components
more expensive and add to the risk of capital flight from Taiwan, Mr. Kuo
said.
The U.S. dollar rose to a four-and-a-half-month high against the New Taiwan
dollar Saturday to close at NT$33.437, up from NT$32.507 late Friday in
New York. Interest rates were expected to continue falling in the wake of the
central bank's cut in commercial bank reserve ratios Friday.
The Central Bank of China, Taiwan's central bank, cut the reserve
requirement ratio on deposits late Friday to 6.41% from 7.65%, effective
Saturday.
While the measures taken by the government Friday were welcomed as a
builder for short-term investor confidence, most economists said more
specific measures to correct the economy's fundamental ills would have to
wait for a more stable environment.
The government is aware of the problems concerning the lack of transparency
in listed companies' financial statements, the unhealthy link between the
boards of banks and affiliated companies, and the ties between politicians and
companies, but must wait for more stable financial markets before acting, Mr.
Kuo said.
Any attempts to make the relationships between politicians, banks and
companies more transparent would lead to a massive selling of shares and
major disruption in financial markets, Mr Kuo said.>
All this chip sector macro economic stuff makes my head spin. It seems guardedly good. ?
Comments, please?
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