DPP performance must not be overestimated: experts
　

TSAI PREVAILS: Yilan, where both parties’ leaders spent a lot of time and energy stomping for their candidates, was a big win for the green camp and its chairperson
　

By Jenny W. hsu
STAFF REPORTER
Sunday, Dec 06, 2009, Page 2

“People still have fresh memories of the government’s shoddy response to Typhoon Morakot and subsequent rainstorms in Yilan. People are seriously questioning whether the KMT is capable of delivering on its promises of a better life ... It is clear that Ma has failed in this midterm election, while Tsai passed with a satisfactory grade.”— Chen Chao-chien, assistant professor of public affairs at Ming Chuan University

The leaders of the Democratic Progressive Party (DPP) had a good night’s sleep last night after meeting expectations that the party would prevail in four counties up for grabs in local elections. Political observers, however, said that yesterday’s outcome was insufficient to pave the way for a pan-green comeback in the 2012 presidential election.

The combined results of yesterday’s elections and next year’s special municipality races will provide a more accurate forecast on the DPP’s chances of re-­entering the Presidential Office, the analysts said.

After the party comfortably secured the three counties of Yunlin, Pingtung and Chiayi, where it held power, Lin Tsong-shyan (林聰賢) did the party extremely proud by snatching Yilan County.

Yilan, a DPP stronghold for more than two decades, suffered a surprise loss to the Chinese Nationalist Party (KMT) in 2005. Lin beat incumbent KMT Commissioner Lu Guo-hua (呂國華) by more than 20,000 votes yesterday, with a 8.52 percent margin.

The eastern county was considered the most important battleground, with both party leaders — the DPP’s Tsai Ing-wen (蔡英文) and President Ma Ying-jeou (馬英九) of the KMT — devoting a lot of time and energy in the past two weeks stumping for their candidates. Both parties said that real victory in the elections hinged on how they fared in Yilan.

The DPP victory in Yilan highlighted the public’s negative perception of outgoing KMT Commissioner Lu Kuo-hua (呂國華) and the KMT, but it was not necessarily a sign of voters’ fondness for Lin, said Chen Chao-chien (陳朝建), an assistant professor of public affairs at Ming Chuan University.

The result shows that Ma is no longer a “ballot guarantor” and confirms that his popularity is fading fast as public distrust in him and his party continues to rise, Chen said.

“People still have fresh memories of the government’s shoddy response to Typhoon Morakot and subsequent rainstorms in Yilan. People are seriously questioning whether the KMT is capable of delivering on its promises of a better life,” he said. “It is clear that Ma has failed in this midterm election, while Tsai passed with a satisfactory grade.”

One caveat for the DPP, however, is that its taking back Yilan does not necessarily mean that voters are eager for a return to pan-green governance, he said.

“Voting against the KMT was voters’ way of preventing the KMT bad apple from becoming more rotten. It does not mean that they like the DPP. In spite of their dislike for the DPP, however, voters still don’t want to see the pan-blue camp have absolute power,” he said.

Lin Chi-wen (林繼文), a professor of political science at National Chengchi University, was reluctant to use yesterday’s outcome as a gauge for the 2012 presidential election because the local elections involved less than half of the country’s population.

The real clincher will be next year’s special municipality elections, which will involve 13 million voters, he said.

“[Yesterday’s] elections should not be interpreted as the country’s collective view on the Ma administration because they were based on local issues, not national policies,” he said.

He nevertheless agreed that the results in Yilan had elevated Tsai’s status within the DPP.

Michael You (游盈隆), a professor at Soochow University and former vice chairman of the Strait Exchange Foundation, said the county chief election was comparable to the gubernatorial race in the US — a litmus test for the administration’s performance in the run-up to the battle for the presidency.

Winning four of the 17 counties and cities yesterday was a “small win,” though not significant enough to secure Tsai’s place in the 2012 election or the DPP’s chance to regain power, he said.

“The DPP should not be overjoyed. Taking four of the 17 seat is not a major breakthrough. It does, however, mean that Tsai’s status in the party will not be shaken,” he said.

The results will boost morale within the DPP, but the party will have to work hard in preparation for next year’s races and hold on to that momentum all the way to 2012, Yu said.

You attributed some DPP losses to vote-buying by the KMT and lamented the fact that Taiwan had yet to rid itself of this tactic.

Observers were unanimous in saying that the DPP will have to work tirelessly for next year’s races and present pragmatic social welfare policies, merely opposing the policies of the pan-blue or government would not be sufficient to win the public’s confidence ahead of 2012.

KMT’s lackluster performance seen as warning to Ma
　

By Mo Yan-chih
STAFF REPORTER
Sunday, Dec 06, 2009, Page 2

President Ma Ying-jeou (馬英九), who doubles as Chinese Nationalist Party (KMT) chairman, should adjust his government policies and respond to public frustrations toward his administration after the KMT suffered important setbacks in yesterday’s local elections, with bigger challenges lying ahead in next year’s special municipality elections, political analysts said last night.

The KMT won 12 of the 17 cities and counties in the election, but lost Yilan County to the Democratic Progressive Party (DPP), while failing to secure Hualien County from a pan-blue split. The party managed to keep Hsinchu County, but won several counties including Penghu and Taitung by razor-thin margins.

The KMT’s defeat in Yilan County was a major setback for Ma and the party, as Commissioner Lu Kuo-hua (呂國華) failed to win an re-election despite Ma’s frequent visits to the county during the campaign.

Ma’s heavy campaigning in four other counties — Hualien, Chiayi, Pingtung and Yunlin — also failed to obtain enough votes for its candidates.

For its part, the DPP regained some momentum and obtained better-than-expected results.

Ku Chung-hwa (顧忠華), a political scientist at National Chengchi University, said Ma had failed his “mid-term exam” and that his popularity within the KMT was fading.

The DPP succeeded in energizing its supporters, while the KMT struggled amid public dissatisfaction and party splits, he said.

“Despite the KMT’s best efforts to separate Ma from the elections, this was seen as a ‘mid-term exam’ for Ma and the public used its votes to express its frustration with the Ma administration,” he said.

Although the KMT won more cities and counties than the DPP, it lost representative and symbolic counties like Yilan, he said.

The performance of the central government has become a burden for the KMT, he said.

Wang Kun-yi (王崑義), a professor at National Taiwan Ocean University, said that when the DPP was in power, it faced similar difficulties in the last three-in-one election. At the time, the DPP suffered from then-president Chen Shui-bian’s (陳水扁) poor performance and allegations of corruption, Wang said, adding that this time the trouble came from the Ma administration’s poor handling of the global financial crisis, Typhoon Morakot and a controversy over the import of US beef products. All these affected its performance, Wang said.

“The outcome of the elections is a warning to Ma: If his administration continues to fail the public, the KMT will face more difficulties in winning the special municipality elections next year, which could have a negative impact on Ma’s re-election bid in the 2012 presidential election,” he said.

Taipei County, Kaohsiung County, Taichung County, Taichung City, Tainan City and Tainan County were upgraded to special municipalities or integrated into special municipalities earlier this year.

Elections for those areas will be held with those for the Taipei City and Kaohsiung City special municipalities next December.

That election will be the first battle for the 2012 presidential election, Wang said.

Ma and the KMT may be able to downplay the importance of the local elections this year, but Ma will have to take full responsibility if the party fails in the elections next year, he said.

National Dong Hwa University professor Shih Cheng-feng (施正鋒) said yesterday’s elections also highlighted the long-existing issue of local factions and pan-blue forces in the KMT after the party lost Hualien to independent candidate Fu Kun-chi (傅崑萁).

Yesterday’s results do not necessarily mean that voters would embrace the DPP in the 2012 presidential election, because the KMT defeated itself, Shih said.

“It will be important for Ma to fulfill his promise to reform the KMT and present better government policies,” Shih said.

Letting the public decide
　

By Cheng Li-chiun 鄭麗君
Sunday, Dec 06, 2009, Page 8

Premier Wu Den-yih (吳敦義) recently said in an interview that the government would only sign an economic cooperation framework agreement (ECFA) with China under three conditions: if the nation needs it, if the public supports it and if there is legislative oversight. The three conditions appear to be reasonable, but the government is using them to deprive voters of their right to make decisions.

First, does Taiwan really need an ECFA with China? We must ask whether the “one China” principle is the premise for the government’s negotiations on an ECFA with Beijing: In other words, does the government view Taiwan as part of China? This is something the government must make clear to the public.

If the negotiations are based on the “one China” premise, the government must hold a referendum on whether or not the public supports this premise to ease public worries. It should then allow the public time to thoroughly discuss and gain an understanding of the ECFA before making a decision. This is the only way to handle the issue according to the Constitution, which states that sovereignty rests with the people.

Second, Wu said an ECFA would only be signed if there is legislative oversight. The Constitution gives the legislature the right to monitor the Cabinet. However, given that the legislature is dominated by the ruling party, it cannot fully arbitrate over social disputes or ease public concern. That is why a major policy such as signing an ECFA must be decided in a referendum.

Third, Wu said support for an ECFA must command more than 60 percent of public support in opinion polls. While I do not dispute the importance of opinion polls in demonstrating the will of the people, the government has often made use of them to manipulate public opinion when dealing with highly debated issues. When politics takes precedence over professionalism, the government could distort public opinion by using biased polls. For example, when various media agencies reported that government approval ratings had hit an all-time low, the administration responded with its own opinion poll showing wide public support, causing widespread doubts about the reliability of official public polls.

Even in Western democracies where public opinion polls are highly developed, people know that public polls are not a substitute for referendums. This is a tenet of democracy and political common sense. The government should stop using public polls as an excuse for not amending the Referendum Act (公民投票法) and give the public the right to decide.

The Referendum Act makes it difficult to hold a vote given its stringent requirements: first, 0.5 percent of all eligible voters in the latest presidential election must sign a referendum proposal, and then, 5 percent of voters must sign a reviewed and approved referendum proposal to establish the referendum. This threshold is even higher than the number of joint signatures required to support the registration of a presidential candidate.

I suggest that this unreasonable law be amended, making the joint signatures of 1.5 of all eligible voters sufficient to establish a referendum.

The Referendum Act also requires that half of all eligible voters in the previous presidential election vote in a referendum for it to be valid. I suggest this be changed to a plurality, or half of all who actually voted in that election.

Cheng Li-chiun is the chief executive officer of Taiwan Thinktank.

Dubai World and Chinese illusions

Sunday, Dec 06, 2009, Page 8

Is the world financial crisis rearing its ugly head again? Dubai World, the biggest state-owned conglomerate in Dubai, the second-biggest sheikhdom in the United Arab Emirates, has fallen into financial difficulties, and a few days ago asked its creditor banks for a half-year delay on repayments of nearly US$60 billion in debt. This move sparked fears among investors everywhere that the global financial crisis is heating up again and triggered big falls in European, American and Asian stock markets.

The Dubai crisis could hit financial institutions in many countries hard. Statistics from the Financial Supervisory Commission on Tuesday showed that Taiwanese financial institutions’ exposure to Dubai equity investments totaled NT$34.7 billion (US$1.08 billion), including NT$21 billion in loans. Although the figure is small compared with their NT$80 billion exposure in Lehman Brothers, the end of the Dubai dream has significant implications for Taiwan.

The past few years have seen “economic miracles” take place in several countries, with Ireland and Dubai, for example, hailed as fast-rising stars. However, the truth behind these “miracles” has yet to be fully analyzed. It is too early to say whether they were but an economic bubble that has visited many countries throughout history.

Whatever the long-term outcome may be, the fact is, certain Taiwanese media and politicians have built these “miracles” into fairy tales, contrasting them with what they consider Taiwan’s isolationism and failure to keep up with the globalization trend that has left it marginalized.

In reality, the fairy tale these people want to promote is that of China. They say that Taiwan needs to break free of the constraints of an island-state mentality and embrace the world by riding the tide of globalization and internationalization. Such proposals may sound attractive, but they are mere words that lack substance. Their real motive is to have Taiwan open wide its gates to China, without any kind of precautionary measure.

In other words, what these pundits call globalization is really integration with China. When they talk about internationalization and embracing the world, they mean climbing the Great Wall and hugging the Chinese panda. We have seen these dreams crumble one by one in Ireland and Dubai among others. Will the Chinese fairy tale be the next to fall?

Let us take a closer look at what happened in Dubai. Dubai is the second-biggest city-state in the United Arab Emirates. Its population is just 1.8 million — about 90 percent of whom are immigrants — and its area is just one-ninth that of Taiwan. It is a desert country with next to no rainfall all year round. These conditions are hardly favorable to its existence as an independent state. The only advantage Dubai enjoys is oil, which was discovered in 1966; but oil only accounts for 6 percent of its GDP.

The main driving force behind the creation of the Dubai fairy tale is the ambition of its ruler, Sheikh Mohammed Bin Rashid al-Maktoum, backed up by effective marketing. Dubai was willing to borrow a lot of money and invest it in major construction projects such as Burj Dubai, the world’s tallest building; the manmade Jumeirah Islands, which some have called the eighth wonder of the world; the sail-shaped Burj Al Arab, the world’s only seven-star hotel; and the world’s biggest shopping mall.

Dubai has been touted as an international financial center, transshipment center, prime tourist destination and investment paradise. Hot money pouring in from abroad has made the Dubai bubble bigger and bigger, but now the economy is faltering and Dubai finds itself in a tight corner.

However lacking in resources a country might be, as long as its people are willing to work hard, and as long as it chooses the right direction, it can build a bright future. Dubai, too, has development potential, but it ought to establish its own manufacturing base.

Unfortunately, the ambitious Sheikh Mohammed chose to take a short cut, using borrowed money to make money the easy way. With this in mind, the country launched dream projects in the desert — skyscrapers, manmade lakes, sumptuous hotels, an airport and so on. It seemed like Aladdin’s magic lamp. All you had to do was rub it and make a wish, and a palace would appear right there in the desert sands.

Sheikh Mohammed’s magic show did produce some amazing achievements. Dubai’s GDP grew 230 percent between 1995 and 2005, giving its population an average yearly income of about US$30,000. However, this show was built on money that was mostly raised through loans. It had all the features of a bubble, but greed won over wisdom. Investors could see there was a tiger lurking, but they convinced themselves they could tame it.

Andrew Lawrence, an analyst with Deutsche Bank Securities in Hong Kong, has created what he calls a skyscraper index. Lawrence said economic recessions and stock market slumps often occur around the time that new tall buildings are built.

New York’s Empire State Building was finished in 1931, just when the US was bogged down in the Great Depression. Malaysia’s Petronas Towers, then the tallest building in the world, were built in 1998, in the midst of the Asian Financial Crisis.

Now the world’s new tallest building, at 160 stories high, is under construction in Dubai. The country’s present crisis seems to be proof of Lawrence’s skyscraper curse.

In Taiwan, Ireland was first presented as a model for development, followed by Dubai. The dazzling show Dubai put on made it a place of pilgrimage for some Taiwanese politicians and media personalities, who used its example to attack pro-localization policies in Taiwan. Taiwan does not have many opportunities left, they say — and its biggest chance lies with China.

If Taiwan does not grab this window of opportunity, its decline and fall would be inevitable, they warn. In reality, the Chinese economy is a super-bubble a hundred times as big as the Ireland and Dubai bubbles. If it bursts, the disaster will be worldwide, and there has never been a bubble that did not burst. It can only be a matter of time before the China illusion crumbles.

Regrettably for Taiwan, the government of President Ma Ying-jeou (馬英九) is committed to eventual unification. Ma’s policies have already made Taiwan over-dependent on China. When the China bubble bursts, the shock to Taiwan will be unimaginable. In its 18 months in government, the Ma administration has brought Taiwan to the edge of a precipice. If Taiwan perishes as a result, Ma will be a villain for eternity.
　

Ma silent on crucial issue of sovereignty
　

By James Wang 王景弘
Sunday, Dec 06, 2009, Page 8

‘That Ma accepted the ‘one China’ policy shows clearly that he does not think Chinese sovereignty over Taiwan is harmful.’

Diplomacy depends on eloquence to promote the nation’s viewpoint and secure national interests, and that is why a mute can be engaged in many things, but not diplomacy. President Ma Ying-jeou (馬英九) and his administration may not be mute, but they certainly do not know how to approach diplomacy.

In his recent visit to brief Taiwanese leaders on US President Barack Obama’s visit to China, American Institute in Taiwan Chairman Raymond Burghardt said Washington’s understanding was that respect for China’s sovereignty and territorial integrity was related to the issue of Tibet and Xinjiang and had nothing to do with Taiwan.

Less than two days later, Chinese Ministry of Foreign Affairs spokesman Qin Gang (秦剛) responded that Taiwan was an inalienable part of China, and that the principle of respecting China’s sovereignty and territorial integrity “of course applied to the issue of Taiwan.”

The US and China obviously had their own, separate interpretations of Obama’s and Chinese President Hu Jintao’s (胡錦濤) joint statement. Regardless of whether Burghardt’s statement was truthful or favorable to Taiwan, the Chinese government did not hide its intent to annex Taiwan and eliminate the Republic of China. However, the Ma government has remained silent on this crucial matter.

Even though Burghardt reiterated the US’ position on its Taiwan policy, he is not a US government official by the US system’s definition. His interpretations of the joint statement were not as authoritative as comments made by US Department of State or White House officials.

Not only that, his statement is also quite far-fetched. In negotiations preceding the Three Sino-US Communiques, the issues of sovereignty and territory focused only on Taiwan and never touched upon Washington’s official recognition of Tibet or Xinjiang as part of Chinese territory. If Burghardt interpreted this as being a new US position on the cross-strait issue, then it would be better for the White House to issue an official statement.

There are many different terms used in connection with the Taiwan issue — including “sovereignty,” “legal status,” “international status,” and what the US Central Intelligence Agency called the “relationship between Taiwan and China.” But that Burghardt used the phrase “the political status of Taiwan” when speaking of the Three Communiques implied that Taiwan is part of Chinese internal politics — and that violates one of the six assurances proposed by former US president Ronald Reagan — that the US “would not formally recognize Chinese sovereignty over Taiwan.”

That Ma accepted the “one China” policy shows clearly that he does not think Chinese sovereignty over Taiwan is harmful to the nation. Nevertheless, Burghardt said that whether Taipei should engage in talks with Beijing depended on Taiwan. In other words, Taiwanese have the right as well as responsibility to prevent Ma from submitting to China at the expense of Taiwanese sovereignty.

James Wang is a journalist based in Washington.

The elusive search for global financial rules in a crisis-hit world
　

The supervisory role of Bretton Woods institutions such as the IMF needs to be strengthened to avoid new crises. However, the financial body is being weakened

By Lorenzo Bini Smaghi
Sunday, Dec 06, 2009, Page 9

If the financial crisis is global, it is said, then the solution must be global: an international financial system that works better. And, because the Bretton Woods institutions (BWI) — the World Bank and the IMF — form the center of the international financial system, they must be included in the solution.

An enhanced international financial system must pursue two main lines of action. The first is to broaden the scope of international cooperation. At the moment, the Financial Stability Board, whose members include the G20 countries, mainly pursues initiatives in this field.

A second line of action is to strengthen the international institutions’ soft powers to aim for more consistent economic policies, especially by systemically important economies. This would directly involve the BWIs, notably the IMF. A strengthening of the IMF was agreed after the Asian crisis in the 1990s and the G7 summit in Cologne in 1999 mandated the fund to play a strong surveillance role to ensure greater transparency and encourage early adjustment by countries with unsustainable balance-of-payments positions.

Over the last decade, however, the expectations raised by this mandate have not been met. Some emerging economies did not let their currencies float but, instead, continued to peg them at undervalued exchange rates in order to promote their exports and build up reserves as a form of insurance in case of crisis.

IGNORING THE IMF

Moreover, the IMF has not succeeded in convincing countries to pursue macroeconomic policies consistent with sustainable current-account positions. Nor have advanced economies, particularly the US, taken IMF advice fully into consideration. The accumulation of large surpluses, especially in emerging Asian economies and oil-exporting countries, enabled the US to finance its current-account deficit. It also lowered long-term interest rates in the US and made monetary conditions there more expansionary.

Emerging economies, following the advanced countries, also attached less importance to IMF surveillance, especially as their accumulation of external assets made them less dependent on IMF financing and advice. For example, the IMF has been unable to complete a surveillance program with China for three years. All this occurred against the background of emerging-market economies’ claims that their relatively low representation in the BWIs denied the IMF legitimacy.

In recent months, the IMF played an important role in resolving the crisis, in particular by assessing the gravity of the situation and providing countries with external finance. But, if we are to create an international monetary system in which crises are the exception, the IMF must play a greater preventive role.

There seems to be a sense of denial in several countries that large external imbalances were a cause of the crisis. These imbalances ultimately reflected the accumulation of excessive international liquidity by countries like the US, stemming from excessive savings by countries like China. This spurred an unsustainable consumption boom, as well as unwarranted risk-taking by consumers and financial institutions, which contributed to the large distortions and bubbles in global financial markets that were the preconditions for the current crisis.

WEAKENED

The risk now is that the forces favoring earlier and effective adjustment of imbalances have been weakened. Indeed, few today are calling for the IMF to play a stronger role in preventing the accumulation of excessive external imbalances and in fostering more disciplined domestic policies.

An example of this is the way the IMF’s Decision on Bilateral Surveillance over Members’ Policies, aimed at identifying fundamental exchange-rate misalignments, was modified to allow greater discretion in surveillance, especially over exchange rates. This might look like a tactical choice, but I doubt that it will result in a stronger hand for the IMF.

Emerging and developing countries are demanding a stronger voice in the IMF, but they also seem to be suggesting that they would like it to be less intrusive and less able to impose conditionality — while simultaneously providing more and cheaper financing. This might be appropriate in times of systemic crisis, but it is not sustainable in normal times. Indeed, some thought should be given to an exit strategy from cheap and unconditional IMF financing.

Instead, most IMF shareholders seem to favor making the organization’s financing easier. Enhancing the role of its Special Drawing Rights, or supplementing the dollar with another world reserve currency, would help facilitate the financing needs of both deficit and surplus countries. For deficit countries, borrowing from international institutions outside the markets would be easier, giving the issuer of such currency some form of international lender-of-last-resort function. For surplus countries that want to accumulate reserves, it would reduce exchange-rate risk.

If financing were to become easier, however, it would be unclear how both creditors and debtors would perceive the risk of excessive imbalances. The real danger is that adjustment would take place even later, with imbalances left to accumulate for a longer period of time. Under these circumstances, crises could be even greater, and the adjustments harsher — as occurred under the last world currency, the gold standard.

A viable international financial system requires a mechanism to keep imbalances in check. An essential element of such a mechanism is to give the IMF a prominent role in two areas: strong and effective surveillance in order to prevent crises and responsible lending to countries in need, but with appropriate limits and conditionality.

We don’t need to reinvent the wheel; we just need to follow up on the commitments made 10 years ago. Dealing with the short-run challenges of the current crisis should not distract us from the objective of preventing future meltdowns.

Lorenzo Bini Smaghi is a member of the executive board of the European Central Bank.