Customer Reviews

Weathering the Storm: Taiwan, Its Neighbors, and the Asian Financial Crisis

5 star:		(0)
4 star:		(0)
3 star:		(2)
2 star:		(0)
1 star:		(0)

 

 

This book, and the conference organised by the Chung-Hua Institution for Economic Research on which it is based, asks a question which is fundamental to Asia's future: how did Taiwan ride out the 1997 financial storm when Thailand, Indonesia, and Malaysia were almost capsized by the wave?
Several essays in the book note that small and mid-sized firms make up nine-tenths of Taiwan's economy, with equity financing being the norm rather than debt financing. This meant that there was far less opportunity for speculative funds to sweep into and out of the economy, and also meant that the business sector was much more stable than in some of Taiwan's neighbours.
The capital sector was also strong, with a minimum of exchange rate controls and most financial institutions in private rather than government hands. When the crash came, non-performing loans accounted for less than five per cent of credits, compared to 16 per cent in Malaysia and 19 per cent in Thailand. Taiwan's financial institutions had also been markedly more successful at mobilising private capital and channelling it into productive investments than its neighbours.
At the macroeconomic level, Taiwan's performance had been solid, with growth at over five per cent and a current account surplus of about 4.5 per cent of GDP. Not spectacular, but the point is that Taiwan had been turning in good results for a substantial period, rather than looking like an overheated economy heading for a fall.
In spite of Taiwan's sturdy foundations, the meltdown still had a punch. There was a 15 per cent currency depreciation in 1997-98 and a steep drop in the stock market. But this did not translate into an economic free-fall, mainly due to decisive action by the Central Bank. It stabilised the exchange rate with sales of foreign reserves and then, crucially, let the domestic currency float. In 1999, the Central Bank buttressed its success by promoting growth with low interest rates and new investments. Credibility was a key asset, with the Central Bank being widely seen as prudent and competent, run by technocrats rather than political cronies.
In some ways, the retreat of government may have gone a little too far: several contributors to the book note that Taiwan might have fared even better if the Central Bank had had a wider range of monetary instruments to use. But the bottom line for Taiwan remains: a solid base and a swift response meant that the '97 storm was mostly distant thunder.

Weathering the Storm sets its points with admirable clarity, but there are subjects which are not covered. The underlying issues of macroeconomic/currency policy are hardly touched, and there are comparisons (such as with South Korea) on which there is insufficient depth. Perhaps these issues were discussed in the conference, but they are not in the book.

As with many conference volumes, the quality of papers collected in this book varies. Some (Frank Flatters on Thailand, for example) are informative, some less so. None of the papers considers the financial crisis as a regional or systemic crisis -- instead the focus is on country by country analyses. Oddly enough, none of the papers on Taiwan deal with its decision in the fall of 1997 to devalue its currency, the New Taiwan dollar, which arguably intensified the crisis, at least with respect to Hong Kong and South Korea. One can find some interesting material in these essays, but one will have to look elsewhere for an in depth analysis of the Asian financial crisis, even with respect to Taiwan.