Taiwan gov't to use forex reserves to revitalize economy

Taipei, Dec. 5, 2003 (CENS)--To stimulate private investments in Taiwan, the Executive Yuan (Cabinet) has decided to utilize part of the nation's foreign exchange reserves to set up an economic revitalization fund.

To accelerate the recovery of the island's economy, Premier Yu Shyi-kun recently directed Tsai Ching-yen and Hu Sheng-Cheng, both ministers without portfolio, to invite officials from relevant government units to form a task force and work out a proposal for legally using forex reserves to finance private investments. The government units involved are the Ministry of Finance (MOF), the Ministry of Economic Affairs (MOEA), the National Science Council, and the Central Bank of China (CBC). The proposal will be submitted to the Cabinet within two months.

As of the end of October this year, Taiwan's forex reserves accumulated to a new high of US$196.6 billion, the world's third-highest level of its kind, next only to Japan and mainland China. Yu said Taiwan's forex reserves have increased by US$70-80 billion since Democratic Progressive Party (DPP) took power in 2000, and he believed that the excessive forex reserves may induce pressure on the appreciation of the New Taiwan dollar. And the appreciation of the N.T. dollar against the U.S. dollar may undermine Taiwan's export competitiveness.

Accordingly, the premier said the government should make good use of the expanding forex reserves. The government, for instance, can use part of the reserves as loans to domestic manufacturers and inbound investors. Domestic manufacturers can borrow such loans to purchase machinery equipment and high technologies to enhance their production capabilities.

Yu emphasized that such a practice can not only properly lower the amount of the forex reserves, but can also ease the pressure on the rise of the local currency. Besides, the loans offered to private sectors would stimulate inbound investment and help boost the island's economy as well.

Perng Fai-nan, governor of CBC, disclosed that CBC has already appropriated US$10 billion for such loans. Perng said the central bank will set aside another US$20 billion as seed fund for inter-bank call loans in foreign currencies, and will offer preferential interest rate for such loans.

Insiders said that the proposal is expected to reach the Cabinet before the Chinese New Year holiday starts on Jan 21, 2004. They believed that the proposal would be a big year-end bonus to domestic enterprises from the ruling party.