Taiwanese President Tsai Ing-wen said monetary and fiscal policy have limited impact and that structural reforms were the best way to fix Taiwan’s slowing economy.
“If there were only conventional monetary and fiscal policies, that would have very limited impact on improving the economy, and may even further worsen the structural problem,” Tsai said at a financial forum on Wednesday in Taipei organized by Bloomberg LP, the parent company of Bloomberg News. She said financial and industrial reforms must “go hand in hand for a fundamental change in the domestic economic structure.”
The former law professor and trade negotiator cited excessive savings, falling corporate investment and decreasing interest rates on time deposits among the indicators of the current state of the economy. Tsai said Taiwan needed to improve the function of capital markets and increase domestic investment. She reaffirmed her effort to boost innovation in five key industries: defense, green energy, biotechnology, smart machinery and the Internet of Things.
Tsai, 59, who assumed leadership of the export-dependent island in May, faces the task of reversing three consecutive quarters of economic contraction while following through on pledges to cap debt and balance the budget. Her challenges include a slower iPhone sales, weak petrochemical prices and strained ties with China, which has cut off communications over her refusal to accept both sides are part of “one China.”
While the government projects Taiwan’s economy to expand 1.06 percent this year, a state-funded research institution warned last month that growth could slow to less than half that pace. After cutting rates for the fourth straight meeting, the central bank cautioned that reductions in government spending risked “serious consequences” for the already weak economy.
Tsai said she supported Taiwan’s development of its financial technology, or fin-tech, industry, but said the government must give the sector close oversight. “We can’t refrain from reform because we’re afraid of risk,” Tsai said. “We should do all the preparation, so as to minimize the risk brought by the reform.”
At the forum, Tsai reaffirmed Taiwan’s desire to join multilateral trade deals, such as the Regional Comprehensive Economic Partnership (RCEP) and the US-led Trans-Pacific Partnership (TPP). She must contend with China’s diplomatic and economic clout as she seeks to expand ties elsewhere, including the 10-member Association of Southeast Asian Nations.
Although China still considers Taiwan a province and remains a military rival, the two saw ties improve under former President Ma Ying-jeou. Tsai, whose Democratic Progressive Party officially supports independence, has pledged to uphold relations, but angered the Communist Party by not accepting its one-China negotiating framework.
“Taiwan has to actively link-up with international society,” Tsai said. “Apart from signing bilateral free-trade agreements and fighting to join TPP and RCEP, the government will also initiate the New Southbound policy, deepening Taiwan’s economic connection with Asean and South Asian countries.”
Taiwan Stock Exchange (TWSE) Chairman Shih Jun-ji said at the forum the bourse operator planned to ease rules on listings and trading to expand its market and help local companies. Shih also said TWSE planned to strengthen ties with exchanges across the region, including those in Singapore, Japan and Korea.