Taiwan Defence and Security Report Q3 2009

Gloomy economic data continues to preoccupy Taiwan President Ma Ying-jeou. Unemployment continues to rise and threaten his '6-3-3' manifesto (6% real GDP growth, a 3% unemployment rate and US$30,000 per capita income) used during campaigning for the 2008 general elections.

The economy has been severely battered by the collapse in global demand, a precipitous slump in investment and weighed on private consumption. We forecast the island's economy will contract by a record 4.5% in 2009, but there are downside risks to this prognosis.

While he has hitherto not revealed any intention to reshuffle the Kuomintang cabinet on the urging of the opposition Democratic Progressive Party (DPP), such a move could deflect attention from economic woes.

In late February, Premier Liu Chao-shiuan said he would resign if the economy fell by more than 5% in 2009. Cross-strait relations remain on a benign path and have centered on economics rather than political rapprochement given economic headwinds, as we detailed in our last report.

Ma has confirmed his commitment to maintaining Taiwan's defence forces, while continuing political and economic reforms, although opposition to increasing rapprochement with mainland China continues.

Nevertheless, in March 2009, the Ministry of National Defence (MND), in its 2009 Quadrennial Defence Review, has proposed streamlining the military hierarchy by combining the current six-tier general military command into three - army, navy and air force - and reducing the nation's 275,000 troops to 215,000 over the next four years.

Taiwan is moving to fully professionalise its military forces by phasing out the conscription of young men over the next five years. This process will see a ten per cent reduction of conscripts each year and its cessation by 2014. However, the government will still require its citizens to undertake a four-month military training program (perhaps to comply with the country's constitution) and require these trained men to be on standby, should circumstances require their mobilisation.

This quarter we have introduced a significant new aspect to BMI's Defence reports, which is the City Terrorism Rating (CTR). This assesses the risk of a terrorist attack. The CTR takes into account the overall BMI Terrorism Rating for the country in question. It also incorporates the 'prevalence' of terrorism, which recognises the frequency of attacks, and whether the city is a target for terrorists. The CTR also recognises the 'threat' of terrorism in terms of the likely numbers of victims and the ability of groups to launch sustained campaigns.

In Taiwan we assess the CTR Taipei. These city-specific ratings are created by integrating the state-wide threat with an evaluation of the specific characteristics of that city and level of activity.