As financial turmoil has swept across Southeast Asia, countries throughout the region have come to grief one after another. At this crucial time, what can Taiwan do to help?
On 16 February, as people in Taiwan were eating their evening meal, the television news announced the breaking story that a China Airlines Airbus returning to Taiwan from the Indonesian island of Bali had crashed, tragically killing all the almost 200 people on board. People were also shocked to learn that among the dead were Sheu Yuan-dong, governor of the Central Bank of China, his wife, and four of the bank's leading officials. They had boarded the doomed plane to return to Taiwan after attending a meeting of Southeast Asian central bankers on Bali.
One grief-stricken CBC official said: "The last thing Governor Sheu did before he got on the plane was to phone back to Taiwan and give instructions that the central bank should immediately gather the opinions of banks in the ROC about the financial situation of Taiwanese businesses in Southeast Asia."
Joining forces against Asia's "contagion"
The economic crisis has been under way for more than six months, and the East Asian tiger economies, which were formerly so buoyant, have without exception suffered setbacks large and small. Chiang Ping-kun, chairman of the ROC's Council for Economic Planning and Development (CEPD), says that although Taiwan has come off relatively unscathed so far, "the currency crisis is a question of confidence, and it is infectious"-as long as the crisis continues, Taiwan cannot rest easy.
Furthermore, since the early 1980s, a "regional economy" has gradually taken shape, and today Taiwan's intra-regional trade with the various countries of East Asia (including mainland China, Japan, South Korea, Southeast Asia, Australia and New Zealand-11 countries in all) accounts for more than half its total external trade. In other words, although to some extent Taiwan's industries compete with those of neighboring countries in overseas markets (North America and the European Union), within the region the countries' economic interdependence and common interests bind them closely together.
Ever since the financial turmoil began, the ROC has tried to overcome the diplomatic obstacles facing it to let the countries affected by the crisis know that it is willing to offer them a helping hand. Early this year, CEPD Chairman Chiang Ping-kun led an "Investment and Trade Delegation to Southeast Asia," composed of 80 officials, academics and business people, on a tour which clearly attracted tremendous attention.
"The welcome we received and the expectations placed on us really were moving," says Chiang. He comments that the decision to make the trip was only made in late December of last year, just two weeks before the group set out. Despite going at such short notice, the delegation was able to meet four national leaders, 16 ministerial-level finance officials and the president of the Asian Development Bank-this was unprecedented. Of the leaders seen, the new Thai prime minister Chuan Leekpai even praised the visit with the words "true friendship shows itself in times of trouble." However, Chiang Ping-kun takes issue with the description of the trip in some parts of the media as "financial aid diplomacy."
"During our tour, none of the four national leaders we met said a word about 'financial assistance.'" Chiang explains that this is because everyone knows that governments' financial resources are limited, and the only ample source of funds is the private sector. Thus the greatest concern of the various governments was whether Taiwanese companies would continue their investments in their countries, or even expand them.
The private sector is the key
Chiang Ping-kun sums up the importance of private-sector investment in a few words: "Investment is not simply an injection of money-more importantly, it can boost public confidence, create employment, and strengthen the industrial base. In particular, exporting industries can earn foreign exchange for the host country, which is what they most need."
Furthermore, although in the wake of the financial crisis the International Monetary Fund (IMF) has provided emergency loans totaling US$100 billion, these loans have come with harsh conditions attached, which force the countries receiving them to curb government spending, raise interest rates, rein in the money supply, allow unprofitable companies to go under, and reduce rates of economic growth.
Of course, it was these countries' overhasty economic expansion and their economies' resulting nosedive which was the main reason for the financial meltdown in the first place, so the IMF's prescription is quite in line with the malady. But all this retrenchment results in a large increase in unemployment, and whole nations are forced to tighten their belts and live in austerity.
By contrast, investment from Taiwan's private sector companies can inject economic vitality, thus adding a moderating, tonic element to the IMF's "purgative" treatment; hence it is especially welcomed by host countries. Thai prime minister Chuan Leekpai, in a recent interview with Taiwan's media, stressed the fact that Taiwan is one of Thailand's main sources of foreign investment, and that the capital Taiwanese companies put into the economy can help Thai firms weather the storm.
Looking at the countries that have been less hard hit by the financial turmoil, the economies of Singapore and Hong Kong depend mainly on service industries such as financial services, shipping and transshipment, and their manufacturing sectors are of limited size. But because Singapore and Hong Kong are nearer the center of the storm they have been more severely affected than the ROC, and at present can only look to protecting their own interests.
As for Japan, which in recent years has been Southeast Asian countries' biggest source of foreign investment, and which has made an enormous contribution to their economic take-off, its own situation is currently little better than Hong Kong's or Singapore's. It is true that after the financial crisis struck there was no massive fall in the value of the Yen, but the combination of external pressures and internal difficulties-in the form of an overall default rate on bank lending of 14%, the collapse of several financial institutions, and the economic sluggishness which has dogged Japan for the last seven years-has been enough to leave the Japanese government bruised and battered.
"Japan already has enough invested in Southeast Asia. What we have to worry about now is how to deal with the massive amount of bad debt there, and how to revive the Japanese domestic economy. We certainly don't have the strength to expand our investment!" With a wry smile, Matsuda Ryoji, president of the Taipei branch of leading Japanese financial services company Nomura Securities, gave this reply when asked whether Japanese companies would seize this opportunity for southward investment.
The CBC to the rescue
For Taiwanese firms, the concept of "southward investment" is nothing new. Their investments in Thailand, Malaysia, the Philippines and Indonesia number over 4200 individual ventures, with a total invested sum of over US$30 billion. Simply securing their existing investments is an enormous challenge.
"The biggest difficulty for Taiwanese firms is not the enormous depreciations in local currencies, but the availability of credit," said Chiang Ping-kun following his delegation's tour and his many discussions with Taiwanese business people in Southeast Asia.
In the wake of the financial crisis, many ethnic-Chinese-owned banks in Southeast Asia with which Taiwanese firms had worked closely have failed or suspended operations, and the surviving banks have scaled down their activities and even withdrawn customers' credit facilities. With the banks barely able to keep their own heads above water, Taiwanese firms not only find themselves unable to get loans-they can't squeeze US dollars out of the banks at all. When companies go to the banks for letters of credit to settle import or export orders, or to borrow US dollars to assist cash flow, or even when they try to withdraw money from their own US dollar accounts, they are refused at every turn.
But a solution to this cashflow problem is at hand: "If overseas branches of Taiwanese banks so need, they can apply to the Central Bank of China for credit. The CBC will deposit money from its foreign currency reserves with each of the banks' branches, up to a limit of US$20 million per branch, to assist Taiwanese firms in obtaining loans," says Chiang Ping-kun.
"Wherever Taiwanese companies have credit problems, if it is a shortage of liquidity, we will do our best to help," says Chen Chi-chu, executive vice-president of the International Commercial Bank of China (ICBC), which has branches in both Thailand and the Philippines, explaining his bank's loans policy. Chen, who was a member of Chiang Ping-kun's delegation, says he understands Taiwanese firms' difficult position, but inadequate credit enquiries and excessive, reckless lending were among the reasons behind the region's financial turmoil. Hence, although the ICBC will do its best to help, normal verification procedures cannot be dispensed with.
"If a firm is too heavily indebted, or even has liabilities exceeding its assets due to stock market and real estate speculation, then it is beyond redemption and even a magician couldn't save it," says Chen Chi-chu. But he reveals that fortunately only a tiny number of Taiwanese companies are in this position, and most should be able to obtain adequate funds.
The number of Taiwanese banks with locations in Southeast Asia is currently very small. In the Philippines, where the financial sector is relatively open to foreign investment, Taiwanese banks have almost ten branches. But the only one in Indonesia is Chinatrust Tamara Bank, a subsidiary of Chinatrust Commercial Bank, and in Thailand there is only ICBC. In Malaysia, which has not thus far opened its domestic banking sector to foreign investors, there are no Taiwanese banks at all.
"For the CBC to assist Taiwanese firms it is not enough to have money-it is no use if there is no location from which to issue loans." Yeh Ming-feng, director-general of the CEPD's economic research department, says that to address the credit problem the delegation specially pleaded the case of Taiwanese banks in Malaysia, and has already gained a favorable response from Prime Minister Mahathir Mohamad; in Thailand, Taiwan's First Commercial Bank and Chinatrust Commercial Bank, both of which have for many years been vigorously seeking permission to upgrade their representative offices to full branches, have now finally received the go-ahead. This is no doubt an unexpected bonus arising out of the delegation's trip.
As well as trying to ease the cashflow problems of Taiwanese firms and expressing the hope that they will not pull out their investments, Chiang Ping-kun also encourages them to consider looking for new opportunities for investments and acquisitions there now that the Southeast Asian economic bubble has burst and the cost of investing has greatly decreased. This would benefit both themselves and the host countries, creating a win-win situation.
Helping out, or taking advantage?
However, although it is more than a month since the delegation returned to Taiwan, the "Southeast Asia holding company" which Taiwanese firms hoped to see set up has still not begun operations, and there appear to be few projects for which negotiations are near completion.
"In fact, that's because companies have deliberately maintained a low profile, either to protect their commercial secrets or for fear of someone putting a spanner in the works," says Chen Chi-chu, who is well versed in the rules of the commercial game. He adds: "After this period of strenuous activity comes to an end, new investment, collaboration and acquisition projects should gradually emerge."
However, Yeh Ming-feng reminds us that although it is a longstanding policy of the ROC government to encourage southward investment, at this sensitive time it is something that "doesn't need to be trumpeted too loudly": it would be equally undesirable either to give a false impression of "selfless generosity without regard for profit or loss," or one of calculatingly hurrying to profit from other countries' misfortune.
But although the financial crisis seems to be almost over, the aftermath in terms of economic recession, inflation and unemployment will need to be watched closely. European and American business circles are generally maintaining a rather cautious attitude, so is Taiwan not being overly hasty if it encourages southward investment at this time? One Taiwanese business person, who did not wish to be named, says that when a "storm" comes everyone tries to get out of the way as fast as they can-who is going to deliberately run right into the eye of the hurricane?
But CEPD vice-chairman Li Kao-chao does not agree with this view. He says: "The storm has already hit, and Taiwan is too closely involved to be able to stand aloof. Europe and America are far away, so they are not affected to the same degree."
Furthermore, in Chiang Ping-kun's words, "whether or not to invest is a matter entirely for companies' own judgement-the government will certainly not put pressure on them!" He says that "nobody is in business to lose money," and only those investments which earn a return for companies are long-term propositions. The government merely acts as a catalyst and a provider of information; it will not step outside its proper sphere of activity to interfere in enterprises' business operations.
However, after the delegation's impressive visits, some foreign news media ribbed Taiwan with comments such as: "for all the dashing around. . . very little money has changed hands," or "paying lip service." When asked his opinion of such descriptions, Chiang Ping-kun says frankly: "Taiwan really doesn't have any right to talk about 'financial aid.'"
A poor showing
Chiang Ping-kun comments that many advanced countries give 1% or more of their annual gross domestic product in overseas aid. On this basis, Taiwan should be budgeting over US$2 billion, or more than NT$70-80 billion, for foreign aid each year. But to date, the government has only given the ROC's International Cooperation and Development Fund one payment of around US$400 million, and all of this has been paid out in loans, so at present the fund's coffers are empty.
Comparing this with the IMF's list of donor countries supporting the Asian rescue package, Japan has pledged over US$10 billion, and even Singapore, which has a smaller economy than Taiwan's, has pledged US$5-6 billion. Chiang Ping-kun stresses: "Looking at our poor showing, we really can't talk about giving 'financial aid!'"
Although Taiwan's resources are limited, Chiang Ping-kun notes that giving money is not the only way to help. The government could come up with ideas for others to build on, and put forward plans for regional financial cooperation for other countries' consideration.
In December 1997, the Asia-Pacific Economic Cooperation's Business Advisory Council (ABAC) agreed to set up a Financial Crisis Task Force, chaired by Chinese Taipei delegate Jeffrey Koo (chairman and CEO of Taiwan's Chinatrust Commercial Bank), in which delegates from member countries would discuss how to make best use of the resources of the private sector to help governments weather the storm.
In late January this year, the task force held a small meeting in Taipei at which three resolutions were passed. The most important of them was that the governments of the countries most seriously affected by the crisis should issue bonds, which would be jointly guaranteed by the Asian Development Bank and by the US, Japanese, Singaporean, Hong Kong, ROC and other governments, and offered for sale to private investors in order to raise money from the private sector. This resolution is to be discussed at an ABAC meeting in Mexico in late February, and appears very likely to be adopted.
Regrettably, although the ROC has the will to contribute its efforts towards resolving the economic crisis, our awkward diplomatic status often prevents it from doing so. There are many international organizations, such as the IMF, the World Bank, and EMEAP (Executives' Meeting of East Asian and Pacific Central Banks and Monetary Authorities), in which the ROC is not a member. In particular, in November of last year Asia-Pacific countries held a meeting in Manila, at which they formulated their whole general strategy for managing the financial crisis (the "Manila Framework"). This important conference was attended by almost all the countries of the Asia-Pacific Region, but as usual Taiwan found the doors closed in its face!
Hope in the Taiwan model
While the government has been trying hard to communicate its good intentions to the outside world, there have still been some doubts expressed within the ROC. In the media, allusions have been made to the Titanic, with the hope that the government will not set sail on some rescue mission without a seaworthy economy of its own, for fear of hitting an iceberg and sinking. In particular, although superficially the financial maelstrom seems to have subsided, many powerful currents still run below the surface, including Japan's financial crisis and the devaluation pressure on the Hong Kong dollar and mainland China's Renminbi. If anything goes wrong anywhere it could stir up another storm, and in that event it is very doubtful whether Taiwan could come off unscathed.
In Yeh Ming-feng's view, these worries are exaggerated, for on the one hand he is sure the government will not overreach itself or make promises it cannot keep, while on the other, judging from various financial and economic indicators, at present there are no major dangers in the offing for Taiwan.
He points out that Taiwan has no foreign debt, and its private sector enterprises have an average debt to equity ratio of less than 40%-a very different situation from that in the countries worst affected by the crisis, in which both the public and private sectors have long had a heavy debt burden. In particular, thanks to strict auditing standards, ROC financial institutions' bad debt ratio is only 4%. Also, Taiwan had a trade surplus last year of over US$7 billion, is a highly competitive exporter, and has more than US$80 billion in foreign currency reserves. These factors are enough to maintain the value of the NT dollar. Furthermore a more cautious exchange control regime than those of Southeast Asia has also meant that international financial speculators have been unable to make inroads. "Taiwan is financially stable and sound, and its industries have upgraded well, so it can provide a development model for other countries in East Asia." In Yeh's view, in the long term this is Taiwan's most important and unique contribution.
But Chen Chi-chu speaks of the deepest impression he gained on the delegation's tour of Southeast Asia: "Those countries have indeed been hit very hard, but they can still turn to institutions like the IMF and the World Bank for help. But," he adds in a grave tone, "it is different for Taiwan. If Taiwan goes belly-up, in our situation of diplomatic isolation with a powerful enemy waiting to seize any advantage, I'm afraid the consequences would be too awful to contemplate."
Looking all around, as neighboring countries are busily searching for whatever help they can get, Taiwan alone is worrying about how to stretch out a helping hand. But adversity makes a nation pull together, and at this time surely Taiwan can offer the history of its 50-year fight for survival and its courageous struggle to advance as an encouragement to the countries of Southeast Asia.
p.24
Since the Asian financial crisis began, Taiwan has been actively seeking dialogue with neighboring Southeast Asian countries, to tell them that we are all in the same boat and that Taiwan is willing to lend a helping hand. When APEC's Business Advisory Council met in Taipei in late January, ROC premier Vincent Siew attended in person to address the meeting. (photo by Diago Chiu)
p.26
In January, CEPD chairman Chiang Ping-kun led a delegation on an observation tour of Southeast Asian countries. As well as finding out about the situation of Taiwanese businesses located there, they hoped to expand all kinds of economic cooperation between Taiwan and Southeast Asia. Our picture shows Chiang at a presentation on a planned electronics manufacturing complex in Malaysia. (courtesy of CEPD)
p.29
East Asian Economic Indicators
Trade surplus/deficit (cumulative, 1994-1996; units: US$100M)Foreign debt (June 1997; units: US$100M)Foreign currency reserves (1997; units: US$100M)Overdue loans ratio (1997; %)PRC342.31,186.41,340.7(Sep)20-24Thailand-371.2989.4303.0(Oct)19Malaysia-52.4328.1265.9(Jun)16Indonesia197.8606.3202.8(Sep)9Singapore-173.5---768.3(Aug)4Hong Kong-471.7---791.0(Nov)3Philippines-301.5165.083.4(Jul)13ROC293.81.1831.4(Nov)4South Korea-370.21,168.2200.0(Nov)15Japan2,894.2---2,244.1(Sep)14Source: CEPDGraphics by Tsai Chih-penp.31Facing the threat to its social and economic development posed by Southeast Asia's financial turmoil, Taiwan has discovered a new self-confidence, and the desire to do its bit for regional prosperity. (photo by Pu Hua-chih)
In January, CEPD chairman Chiang Ping-kun led a delegation on an observation tour of Southeast Asian countries. As well as finding out about the situation of Taiwanese businesses located there, they hoped to expand all kinds of economic cooperation between Taiwan and Southeast Asia. Our picture shows Chiang at a presentation on a planned electronics manufacturing complex in Malaysia. （courtesy of CEPD）
Facing the threat to its social and economic development posed by Southeast Asia's financial turmoil, Taiwan has discovered a new self confidence, and the desire to do its bit for regional prosperity. （photo by Pu Hua-chih）
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