Country Report Taiwan March 2009

Summary

The president, Ma Ying-jeou of the ruling Kuomintang (KMT), has a strong mandate to govern, as the KMT also controls the Legislative Yuan (parliament).
In January family members of the previous president, Chen Shui-bian, admitted to money-laundering. This has undermined MrChen's suggestion that the corruption case against him is politically motivated.
Funding for public works projects worth NT$500bn (US$14.7bn) was approved in February. However, the deteriorating external economic outlook will outweigh the positive impact of public spending.
The Economist Intelligence Unit has revised down its forecast for Taiwan's economy to a contraction of 9.3% (6.5% previously) in 2009. This follows a downward revision to our forecast for global economic growth this year.
Weak domestic demand will ease capacity constraints in product markets, thus limiting the ability of companies to increase prices. This will be the main reason for a 1.3% fall in consumer prices in 2009.

The opposition Democratic Progressive Party will attempt to focus more of its efforts on grassroots policies, as an attempt to distance itself from the problems facing a former leader of the party, Chen Shui-bian.
In a boost to Taiwan, the US national intelligence director, Admiral Dennis Blair, has indicated that the US may be willing to sell more arms to Taiwan. The move would help Taiwan to defend itself against an attack by China.
Amid a rapidly deteriorating economic outlook, the Central Bank of China (Taiwan's central bank) cut interest rates for the seventh time in five months in February, bringing the main policy rate to a record low of 1.25%.
The government is looking into signing a free-trade deal, or Comprehensive Economic Co-operation Agreement, with mainland China as a way of boosting Taiwan's economy.
Taiwan's real economy contracted by 8.4% year on year in the fourth quarter of 2008. Exports, investment and private consumption all contracted in the period.
Other areas of Taiwan's economy are also in meltdown. In January industrial production fell by over 40% and unemployment rose to its highest level since 2002, while imports slumped by almost 29% in February.