Taiwan President Ma Ying-jeou ruled out driving down the Taiwan dollar to boost exports following the currency’s rally against the yen and said the government still aims for growth of at least 2 percent this year.
A decline in the Taiwan dollar would push up prices of imported commodities and hurt the livelihood of the island’s people, Ma said in an interview at his presidential office in Taipei today. Japan, which competes with the island as an exporter of electronics, was able to depreciate its currency because of entrenched deflation, he said.
The weakening global recovery led Taiwan in May to cut its official forecast for gross domestic product growth this year to 2.4 percent from 3.59 percent. Exporters including Taiwan Semiconductor Manufacturing Co. have called for a drop in the local currency, which has rallied 22 percent against the yen in the past 12 months as Japanese Prime Minister Shinzo Abe moved to revive growth. Orders for Taiwan exports, which account for about 70 percent of the economy, fell for a fifth straight month in June.
“We would like an adequate depreciation in the Taiwan dollar to keep our competitive edge,” Tsai Lien-sheng, secretary general of the Chinese National Federation of Industries, which represents more than 100,000 manufacturers on the island, said by phone today. “The government needs to look at the currency moves of our major competitors, including South Korea and Japan.”
Ma said the economy can continue to expand without risking inflationary pressures from a weaker currency. “We have a more balanced policy,” he said. “We think a stable currency will affect our imports and exports in a more balanced way.”
So far, the policy is working, according to Grace Ng, an economist with JPMorgan Chase & Co. in Hong Kong.
“I don’t see a significant negative impact on the real economy in terms of competitiveness because what the central bank is doing is to keep a stable effective exchange rate,” she said. “In Asia, you can see Taiwan’s inflation picture is relatively well contained.”
Ma said the performance of the island’s trading partners will help decide economic growth. “We want to grow at least 2 percent and hope for faster than 2 percent,” he said. “We need to see how quickly Europe and the U.S. recover.”
U.S. data indicated the world’s biggest economy may experience an uneven recovery, with production climbing and sales of existing homes unexpectedly falling in June. The Euro-area’s economy has contracted for six quarters in the meantime.
China, the island’s largest trading partner, has forecast growth to slow to about 7.5 percent in 2013, the weakest pace in 23 years. Goods bound for China and Hong Kong represented almost 40 percent of Taiwan’s exports last month.
“We can’t rely on China or the U.S. as in the past,” Ma said. “We have actively built up new markets such as in Southeast Asia so that we can allow our exports to maintain their momentum.”
Taiwan signed its first free trade agreement with a developed country, New Zealand, this month and has concluded substantive talks with Singapore on a free trade pact that Ma said will be signed “soon”. Neither country has diplomatic ties with the island.
China, which claims sovereignty over Taiwan and has diplomatic ties to New Zealand, didn’t raise objections over the trade deal, signaling other nations could reach trade deals with Taiwan without antagonizing the mainland. Ma said he plans more deals.
“We are seriously lagging relative to our trade competitors, including South Korea, Singapore, and Japan,” Ma said. “We must act fast to catch up with the regional trend.”