Taiwan voters should focus on growth, not China

January 10, 2012

By Wayne Arnold
The author is a Reuters Breakingviews columnist. The opinions expressed are his own 

Taiwan’s economy should be the winner if the ruling party clinches this weekend’s presidential and legislative elections. A big issue is how fast the island should build trade and financial ties with China. President Ma Ying-jeou wants to go full steam ahead; the opposition would ease the pace. But growth is the more immediate issue. Ma’s party, the Kuomintang, is more likely than his rivals to give Taiwan’s flagging economy the jolt of fiscal stimulus it needs.

Links with China have grown under Ma, though democratically governed Taiwan still rejects its neighbour’s claim to sovereignty over the island. The opposition Democratic Progressive Party doesn’t endorse a one-China policy, but is unlikely to roll back ties. Its candidate, Tsai Ing-wen, has nonetheless tapped voter fears that opening to China has helped the rich but hurt the poor.

Ma’s economic record is mixed. He deserves credit for passing a $5.6 billion spending plan to offset the global financial crisis and for sealing a landmark deal in 2010 that eases trade and investment barriers with China. But he has failed to reduce Taiwan’s dependence on exports.

Now, Taiwan’s vital electronics exports are succumbing to slowing global demand. Interest rates are already so low – 1.9 percent – that cutting them would do little to boost investment. The most expedient remedy is to spend on infrastructure and domestic services. That’s more likely under Ma’s party. In the past, DPP governments have proved more fiscally conservative than the Kuomintang. Tsai has vowed to create jobs but also cut government debt in half – equivalent to 17 percent of GDP – in just four years.

Taiwan can afford some stimulus. Despite a perennial budget deficit, its debt is below 40 percent of GDP and it borrows more cheaply than the United States. It can’t afford, though, to stagnate. The worst outcome would be that Ma wins, but the coalition through which he controls the legislature loses its majority. Ma has only a slim edge in polls, maybe because of Tsai’s populist inequality agenda. If that costs Ma a decisive victory, Taiwan’s economy faces a tough four years.

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