Looming Fed Rate Rise Welcomed by Taiwan Finance Chief Chang

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Taiwanese Finance Minister Chang Sheng-ford said he’d be “glad” to see the Federal Reserve raise interest rates, even given the likelihood that the resulting capital flows will deal a short-term blow to his economy.

“If the U.S. raises interest rates, it means the U.S. economy is recovering at a faster pace,” Chang, 65, said in an interview in Taipei on Monday. “This would be helpful to Taiwan’s economy because the U.S. is one of our big export destinations.”

Chang indicated that he saw any blow from capital shifts from Taiwan as likely to be manageable and outweighed by the benefits for Taiwan and Asia from a strengthening of the world’s biggest economy. Some money has already been exiting, he added.

In a so-called taper tantrum two years ago, investors dumped emerging-market assets after the Federal Reserve said it would start winding down a bond-buying program. Now, Asia is bracing for the first increase in U.S. interest rates since 2006, with the median forecast of Fed policy makers calling for two increases by year-end.

For Taiwan, “the short-term impact will be negative but the long-term effect is positive,” Chang said.

Property, Exports

U.S. interest-rate increases may be at a slower pace than the Fed median forecast suggests: more policy makers say just one would be enough in 2015, and Chair Janet Yellen said last week that she wants to see more “decisive” evidence of a lasting economic turnaround.

Talking of Taiwan’s economy, Chang said that the property market was experiencing “a soft landing, both in terms of transaction volume and prices.” The slowdown in China, the island’s biggest export destination, is having a “big impact” on Taiwan, which also has to compete with upgraded Chinese manufacturing capabilities, he said.

Asked about any Greek default, Chang said that the impact would be smaller than if it had occurred earlier in Europe’s debt crisis.

Expanding at the fastest pace of the so-called “tiger economies,” Taiwan is charting a different course than neighbors such as South Korea that have lowered borrowing costs to counter threats to growth. Taiwan’s first-quarter expansion of 3.37 percent surpassed South Korea, Singapore and Hong Kong.

Still, the government could invest more funds on public works next year to give the economy a boost, Chang said.

Policy Decisions

The island’s central bank, of which Chang is a board member, will meet on Thursday to review a benchmark interest rate left unchanged for almost four years. He wouldn’t comment on the possible outcome.

On the topic of Taiwan’s finance industry, the minister indicated that the government has pulled back from efforts to promote consolidation among eight state-backed banks.

“We have tried to play matchmaker, but it hasn’t worked,” Chang said, citing the likelihood that any efforts to push mergers would ignite labor union protests and public criticism of the sale of public assets, just as a Taiwanese election looms.

In January, voters will elect a successor to President Ma Ying-jeou.

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