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Key Economic Data 
  2003 2002 2001 Ranking(2002)
Millions of US $  406,000    
GNI per capita
 US $ 18,000
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Chen shui-bian

Update No: 032 - (09/10/06)

Colours of the rainbow
Taiwan is certainly a democracy with politicians coming in all colours of the rainbow - almost. In the conservative camp we have the "Pan-blue" coalition which comprises the KMT and the PFP. The PFP, we may recall, is the party led by former Taiwan Governor James Soong when he left the KMT because the party did not pick him as its presidential candidate for the 2000 election. In the legislature they represent the largest political group but in fact, they are the opposition. 
The President of Taiwan, Chen Shui-bian is a member of the Democratic Progressive Party (DPP) and its alliance partner is the Taiwan Solidarity Union, the party founded by former KMT president Lee Teng-hui before he left the KMT having been kicked out for losing them the 2000 election (an election in which he was not a candidate incidentally). Together the DPP and the TSU form the Pan-Green alliance. Since the President hails from the DPP, it gets to form the government since the premier is hand-picked by the president and in turn chooses members of the cabinet. Confused? Well wait, there is more.
Now added to the "greens" and the "blues" we have the "reds". Before you jump to conclusions we should point out that it would be wrong to assume that the Communist Party of China has made significant gains in Taiwan recently. Taiwan's "reds" have nothing in common with the "reds" on the other hand of the Taiwan Strait. Taiwan's reds are the creation of a former DPP chairman, Shih Ming-the, who quit the DPP a while back over internal squabbles in much the same manner as Mr. Soong parted from the KMT. In this instance, the colour red is used to signify "anger" at President Chen Shui-bian. Complicated isn't it?

President Chen hangs onto the presidency 
President Chen has been in hot water for some time now-ever since the party lost out in last December's legislative elections over allegations of corruption within his family and within the DPP. Former premier Frank Hsieh, a popular and charismatic politician resigned to take the heat for the fiasco, although he can still be counted as among the core powerbrokers within the party. While in all the mud that has been flying around, none has so far hit the President personally, his family have not been so lucky and while criminal charges have not yet stuck, the mud certainly has. President Chen is inevitably assumed guilty by association.
But of course, there is more to it than this. Mr. Chen is losing popularity within his own party for his high-handedness and autocratic manner as well as his uncompromising stance towards mainland China, which many in his own party believe has cost it the vote of Taiwan's middle ground. With a new president due to be voted in during 2008 (Mr. Chen will be ineligible to stand being already into his second term) many in the DPP can already smell defeat.
Shih Ming-teh of course has his own game to play. Having been sidelined by the party he was instrumental in founding, there is an element of revenge in his initiating his own campaign to oust Mr. Chen. The Pan-blues of course, have been plotting to remove the president for some time although a June attempt to introduce a recall motion in the legislature backfired on them. Fresh impetus was given to the ouster campaign when Mr. Shih organised a sit-in protest in front of the Presidential Palace in downtown Taipei. Demonstrations began on September 9 and quickly grew into the "red shirt brigade" and the mammoth sit in that has lasted almost a month now has taken on some of the aspects of comic farce. With competing groups-those "pro-Chen" and those "anti-Chen" angling for the media spotlight there has been an element of good humoured give-and-take with one group of protesters periodically yielding the limelight to make way for the others. Off to one side was another protest group led by Shih Ming-teh's former spouse who was complaining that her former husband had cut off child support for their daughter. Such is the stuff of Taiwanese politics.
While there is comedy in some aspects of the present scene, it has also exhausted police, disrupted traffic, as well as business and deepened overall divisions within local society. No laughing matters. Some calmer heads have called for issues to be settled within the Constitution and while respecting people's right to demonstrate, believe that things are rapidly getting out of hand.
Where is all this leading? Probably nowhere is the answer, at least not constructively. Mr. Chen is refusing to step down and, in fact, is gearing up to have a fresh attempt at introducing constitutional amendments. He has also vowed to see Taiwan enter the United Nations as the "Republic of Taiwan", Taiwan having been again rebuffed in its attempts to rejoin the UN body this year (it was unseated by the PRC back in 1971 and in fact, shot itself in the foot at that time by refusing to allow Beijing to join and forcing UN members to choose sides. Had it not done so the issue of membership for China and Taiwan would have been resolved 30 years ago with both of them in the world body.) Of course, such attempts are futile but appeal to politicians who love to play to the gallery and President Chen is adept at playing the crowd.
Attempts to reform the DPP have likewise not got very far, with little agreement among the various factions of the party as to how best to proceed towards a new consensus. 
In all of this jockeying, Taipei Mayor Ma Ying-jeou, regarded as the top KMT contender for the presidency in 2008, is appearing to be decidedly uncomfortable and many are blaming him for the disruptions caused by the daily demonstrations. Certainly, he is more than happy to keep the DPP flat-footed and on the defensive but many doubt it would really serve his purpose to actually unseat President Chen at this time. In fact, in many ways, the incumbent is the best thing Ma has going for him since if the DPP continues down its present path it will possibly fracture ahead of the poll. He will need to play his hand carefully and decisively in coming weeks and this will test his resolve as a politician of substance.

The Taiwanisation of Taiwan
Business of course, would generally be happy to see the KMT return to government. While neither party can claim an entirely clean record, the Kuomintang has done much in recent years to clean up its act in favour of a western-style democratic party organisation (but it should be added, that it still has a long way to go in this regard). The problem for business, and especially international business, is really two fold. On the one hand, Taiwan and China remain at loggerheads politically and with no real sign of a thaw in the relationship in spite of the token efforts that are being applied towards such things as tourism promotion and cross-straits exchanges. The political tension remains and that tension has to be factored into any new investment decisions. For the moment and under the DPP government, many international corporations remain in "asset management" mode. 
Secondly, the DPP in adopting a "pro-Taiwan" stance has at the same time clawed back the internationalisation of Taiwan. "Taiwan for the Taiwanese" seems to be the unspoken attitude of many in government. Many foreigners, even long-term residents living on the Island, report that it is becoming increasingly difficult to live and work and that petty harassment is creeping in at all levels-in regard to business registrations, visa and residency renewals and such like.
In fact, under the presidency of Lee Teng-hui, the future of Taiwan looked to be being secured by its large international population and links to the outside world, which served both to bring much-needed expertise to play locally and also served as an insurance policy. At one time Taiwan was being touted as the "Switzerland of Asia." No more, it seems.

Competiveness declining?
Taiwan's political leaders need to stop their politicking and concentrate on restoring Taiwan's economic competitiveness. This at least is the message coming from the World Economic Forum. According to WEF, Taiwan's competitiveness has continued to decline over the past year, with the drop in Taiwan's score for "institutional infrastructure" causing the country to slide to 13th place this year in the annual rankings, down from eighth place last year.
Taiwan's overall ranking also fell from being the second-most competitive economy in Asia in 2005 to fourth place this year-after Singapore, Japan and Hong Kong, according to the most recent poll. Singapore remains the most competitive economy in Asia.
While Taiwan fared well in terms of innovation and higher education, and performed modestly in the category for public health services and macroeconomics, poor institutional infrastructure held the country back, the WEF said. 

Central bank raises interest rate; economic growth remains robust
With the real interest rate still negative, the Central Bank of China announced on 28th September that it would raise the benchmark interest rate for the ninth straight quarter by 0.125 percentage points. The decision to hike rates took effect immediately, boosting the bank's rediscount rate to 2.625 percent, while lifting the secured accommodations rate and the unsecured loan rate to 3 percent and 4.875 percent respectively. The authority has ratcheted up its benchmark interest rate by a cumulative 1.25 percentage points since October 2004.
The central bank has predicted that the CPI growth rate could be maintained at 1.5 percent this year, lower than the Directorate General of Budget, Accounting and Statistics' (DGBAS), the government's statistics agency, estimate of 1.8 percent, citing falling crude oil prices and a higher comparison base last year.
The bank's main concern for the moment is to steer the negative real interest rate-the value of the prime rate minus the CPI -back to a neutral level, according to central bank governor Perng Fai-nan.
On the currency front, Perng expressed confidence in the New Taiwan dollar, saying that exchange rate movements against the greenback are stable, fluctuating between NT$31.3 and NT$33 to the US dollar.
Meanwhile the DGBAS predicted that Taiwan's economy will expand by 4.28 percent this year, up from last year's rate of 4.03 percent. But domestic demand will only contribute 1.1 percentage points to the economic growth rate as private consumption has weakened dramatically as a result of the consumer loan crisis. Robust exports will account for the lion's share of 3.18 percentage points.

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