Perhaps September 13...
Taiwan: Beijing Raises the Ante On the "One China" Issue - Will Taipei Fold?
China has made September 13 the deadline for Taiwan to withdraw its statement that the "One China" policy does not
apply to cross-strait relations, or else Beijing will move "to teach (President) Lee a lesson." In so many words, this
implies a military recourse, and gives Taipei - and the world - something to think about. However, such an aggressive
statement from the mainland could easily backfire if it is forced by its own words to take action against the "renegade
province," since a military clash would trigger a call on US promises to maintain peace and stability in the South China
Sea. Beijing has indeed painted itself into a corner. However, there are a number of scenarios that could play out within
the four weeks before the deadline, some of which could save face for all involved.
First and foremost, there is the possibility that President Lee could back down altogether. This is doubtful, but there is a
good possibility that he may try to narrow the scope of the "One Nation, Two States" idea so that it does not encompass
anything other than cross-strait negotiations. This would give the Taiwanese leader the appearance of taking a
conciliatory approach, even though such talk would still not appease Beijing, which is playing this out as an all-or-nothing
gamble. International sympathies could then result in diplomatic support for the island's cause, and, if anything, the
deadline could be postponed, perhaps indefinitely.
There is also the consideration that US President Clinton is meeting with Jiang Zemin on that very day, and one topic will
undoubtedly be World Trade Organization discussions. This is a sore spot in Sino-US relations, and the Taiwan card
may just be a ploy to get the US to quickly conclude negotiations before things got messy. Such an agreement would be
in Beijing's favor, but it is unclear how it could then withdraw its threat against Taiwan without its actions seeming
insincere, and damaging to the mainland's credibility in future negotiations. Withdrawal is an option, however, and any
actions on the US side in the meantime might be indicative in how it will respond on September 13.
If the island province calls the mainland's bluff, and the military option is invoked by Beijing, the result will not be missiles
lobbed into Taipei or troop landings by Kaoshiung. The likely scenario will be the storming of some of Taiwan's fishing
islands close to the mainland, which will give the Politburo some great photos for the newspapers but not involve actual
combat, while still technically invading the province's territory. The only caveat is that Lee might decide to protect those
interests, knowing full well that a battle would open the door to a wealth of domestic political support for his moderate
policies, and that, if Taiwanese repelled such an "invasion", Taipei's moral victory would be as great as the humiliation
would be for the mainland. This would definitely put cross-strait relations on ice, but the major powers would be obliged
to enter and attempt to broker some sort of deal. And probably just in time for Taiwan's year 2000 elections.
Brazil: No Rest for the Weary
Political tremors that threaten the government's fiscal reforms have pushed the real past 1.90/US$, forcing the Brazilian
Central Bank (BCB) to intervene yesterday in support of the currency. President Fernando Henrique Cardoso's waning
popularity has emboldened Congress to push for the passage of a bill, approved by the Chamber of Deputies'
Agriculture Committee last week, that would cut individual farm debts, totaling 23 billion real (US$12 billion), by as
much as 40% and refinance the remainder for 20 years at 3.0% interest. President Cardoso has already said that if the
bill is passed in its current form, he would veto it, but it is unclear if he has the political strength to afford to do so. Earlier
this week, the government submitted its own bill, which would offer reductions of up to 30%, but only for small debt
holders, and stretch out payments for only two years with more modest reductions in interest rates. Farmers, who hold
considerable weight with many members of congress, have camped outside the chamber in Brasilia to pressure congress
to approve the bill passed by the Agriculture Committee last week and yesterday won a victory when the Chamber of
Deputies voted to put the farm bill at the top of its calendar for a full floor vote, possibly next week.
The other political challenge to the government's fiscal plans comes from the numerous judicial challenges to the CPMF
financial transactions tax. This 0.38% tax affects all transactions from stocks to checking accounts, and opponents claim
that proper legislative channels were not followed when it was first introduced earlier this year. The legal challenges have
been given short shrift in the press, even after a judge in Sao Paulo state, the nation's industrial center, granted an
injunction against the collection of the tax last week. As of today, the injunction was lifted by a federal appellate court
(applied retroactively to cover the time of the injunction), and a similar ruling in the state of Minas Gerais was overturned
earlier this week. In Brazil it seemed a sure thing that the injunctions would be lifted, but if they were not, then the
government's plan to collect an estimated 1 billion real (over $500 million) a month from the tax would have been put in
jeopardy. Combined with the current challenge on the farm aid front, the government's ability to meet the IMF-agreed
fiscal targets agreement would have been compromised.
Smelling blood, traders this week have been testing the central bank by pressuring the real's exchange rate. The currency
closed yesterday at 1.905 to the dollar, weaker than the psychologically significant threshold of 1.90, and a level not
seen since March when BCB President Arminio Fraga had yet to firmly take the central bank reins. The central bank
admitted it had sold dollars yesterday to slow the currency's fall, and the BCB again intervened this morning when the
real approached the 1.92 level. While the Brazilian economy has surprised most analysts by not tanking as originally
expected after the January devaluation, recent events prove that sentiment is fickle, and having the economy not sink is
not enough to maintain confidence.
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