20120903 Editorial: Too little, too late

Editorial: Too little, too late

It appears that the government does not operate efficiently enough to prevent the further deterioration of an already dire economic situation. The Cabinet said on Saturday that it would take one month to come up with stimulus packages substantial enough to lure investment from overseas Taiwanese businesspeople.

The timetable was unveiled about three weeks after the Cabinet launched a series of economic forums in an attempt to produce effective measures to boost the economy and get it back on track.

There is disagreement within the government, including divisions over issues such as relaxing hiring regulation for foreign laborers. Unfortunately, it is this labor issue that looks like the only factor that would motivate overseas Taiwanese entrepreneurs since there are no tax incentives or subsidies on offer.

With only three months left to the year’s end, it is unlikely that whatever stimulus plan is devised will help boost GDP growth this year. The government expected GDP to expand at an annual rate of 1.66 percent this year — an unrealistic forecast given the continuing weakness in the eurozone and emerging markets, primarily China. Credit Suisse projected Taiwan’s GDP would grow by just 1 percent this year, the lowest forecast among its peers.

The government’s inertia may sound like nothing new for most people. However, this time it goes too far — these are the crucial moments in determining an escape from economic recession. The government ignored the Asian Development Bank’s (ADB) warning in December last year, that compared with South Korea, Taiwan would suffer more from the eurozone’s debt crisis. At the time, the ADB expected Taiwan’s economy to grow at annual rate of 2 percent this year, falling behind South Korea’s 2.5 percent.

The impact from the eurozone’s debt crisis has been underestimated by the government. While only 10 percent of Taiwan’s exports go directly to Europe, a much larger chunk go via China, where Taiwanese companies can have components assembled cheaply. In other words, Europe accounts for a much bigger portion of Taiwan’s exports than the government realizes.

The South Korean government took the ADB’s warning seriously and started countermeasures. About five months ago, Seoul introduced new measures, including tax breaks, to encourage South Korean firms with operations overseas to make domestic investments. Since it implemented the new policies in April, Seoul has attracted 14 companies planning to invest 73 billion won (US$64 million) as a result of the latest announcement from South Korea’s Ministry of Knowledge Economy. The new investments would create more than 3,000 jobs, the ministry said. The investments do not look impressive yet, but Seoul’s efforts will start paying GDP dividends this year. Seoul’s investment stimulus packages took effect when the country still enjoyed resilient 2.8 percent annual GDP growth in the first quarter, while Taiwan’s economy expanded just 0.8 percent during the same period.

The Cabinet began its emergency forums three weeks ago after Taiwan’s economy drifted into its first annual economic contraction of 0.18 percent in almost three years in the second quarter. That forced the government to face the harsh reality that the economy would not grow 3 percent, or even 2 percent.

In another major effort to help the economy, the Ministry of Economic Affairs said it would selectively help local, small and medium-sized enterprises to export more goods and help them enhance their global competitiveness. No tax incentives or capital injections would be involved, officials said, citing tight budgetary constraints.

It seems impossible to expect the economy to improve this year. Perhaps Taiwan can look forward to a better economy next year, but it could be even worse.