CONFIDENTIAL
R e p o r t N o. FE-ll
Copy No. 7 Public Disclosure Authorized FILE COP¥'
This report is available to those members of. the staff to whose work it relates.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized
ECONOMIC REPORT
ON
CHINA (TAIWAN) Public Disclosure Authorized
J'une 1.7, 195 9 Public Disclosure Authorized
Howard E. Tolley Department of Operations Far: East. ..
CURRENCY CONVERSION
Currency Unit: New Taiwan Dollar u.s. $1.00 NT $36.08 NT$1.00 US$0.0277 US$.27, 713 NT $1.000,000 - TABLE OF CGl>TTENTS
Preface i
Basic Statistics ii
Summary and Conclusions iii
ECONQJ\ITC R"SPORT ON TAIWAN (CHINA) 1
I Introduction 1
II Production and National Income 1
Agriculture 1 Industry, Mining and Power 2 Gross Nc:-.tional Product and Total Available Resources 5 Gross Capital Formation 6 III Internal Finance 6
Goverw~ent Finances 6 Financial Institutions and Interest Rates 9 Money and Prices 11 IV Exta·.-raa.l Finance 16 Exchange Rate Policy 16 Foreign Trade 17 Nain E:z:port Items 18 CoTiposition of Imports 18 Direction of Trade 19 Balance of Payments 20 V Economic Prospects 23
Statistical Appendix (See next page for list of tables) 26 Map
;. (2)
TABLE OF CO:TTElTTS (Cent' d)
TABLES IN ST1tTISTICAL AP?ENDJX
Table l. National Accounts Data 2. Gross National Product by Industrial Origin 28 3. Area and Output of Agricultural Crops 29 h. Index Numbers of Industrial Production 30 5. Output of Selected Hining and Industral Products 31 6. Investment Uhderthe Four Year Plans ?. Su~~ary of ICA Aid Program to Taiwan (China) by Major Fields of Activity 33 8. Consolidated Statement of Condition of the Honetary System 34 9. Interest Rates 35 10. Volume of Foreign Trade 36 11. Value of Export Exchange Settlements 37 12. Value of Import Exchange Settlements and U.S. Aid Arrivals 38 13. Financing of International Transactions 39 lh. Barik of Taiwan Foreign Assets and Liabilities hl 15. Net Gold and Foreign Exchange Reserves of Ban.!{ of TahJan 16. Short-term Assets and Liabilities in U.S. Ban.l{s 17A, China- External Public Debt Outstandi~g, December 31, 1958 44 l?B. China - External Public Debt Payable in U.S. Dollars or Local CUrrency Outstanding December 31, 1958 45 'Preface
This report is intended to provide general economic background information against Nhich to consider the establishment and operating policies of the China Development Corporatio - i- Area ,886 sq. miles Population (Estimate, mid-1958) l0,468,oco Gross National Product (1957) NT;:·;35,8.SL~ Pillion Per Capita Gross National Product 3,538 (US~~98) Per Capita Total Available Product (including foreign aid) 3,868 (US~)l07) Production Indexes (1953 = 100) Agriculture, 1958 121 Industry, 1958 Jlr9 Consolidated Budr~et of Central and Local Governments, Fi l959 Estimate Revenue f\TT~;;8 ,538 million Expenditure 9,117 T! (Defense and Internal Security) ( 4,668 II ) Gross Deficit 580 !I Transfers from Counterpart Funds 282 !I Net Deficit NT~ 298 million Bank Credit Outstanding, end 1958 Public Se.ctor NT~;b,032 million Private .Sector NT~::4,615 million Money Sunply, t:::nd 19)8 NT .5,129 :-·1illion Price Indexes (1953 = 100) 1\lho1esale ·FJ.'=.ces, December 1958 150 Cost of Livi:1g, Decer.1ber 1958 135 Foreign Trade, 1958 (millions US dollars) "Exports: Sugar 85 Rice 29 Other so Total 164 Imports: u.s. Aid 82 Other 150 Total 233 Trade Balance ::b9 Bank of Taiwan Net Gold and Foreign Exchan~e Reserves, end 1958 (millions o:r US dollars) 47 - ii .. su~mary and Conclusions In the nearly 10 years since the Nationalist Chinese Government .. r,1ithdre1rr from the China mainland to Taiwan, economic progress in Tahran has been much greater than many people expected. In spite of the heavy defense burden imposed by the continuing state of "rrar 1rrith the Iv1ainland and a population growth of about 3.5% per year, a substantial amount of economic development has taken place and the national product has increased faster than the population. Although the population of Taiwan is more tha~ 80% higher than in 1937, per capita gross national product today is greater in real terms than in the pre-war period. This progress is attributable largely to the ability, skill and determined efforts of the Chinese Govern- ment and people, supplemented by a large U.S. aid program. Exports have also risen substantially in the last several years, led by sugar and rice 1·rhich together accounted for about 70% of export earnings in 1958. On the other hand imoorts have been maintained consistent ly at a higher level than exports, and export earnings have been equivalent to only about 60% to 70% of imports. The gap has been more than bridged by U.S. aid finctr1cing at an average of more than US~:90 million per year. There has been a substantial inf:l.atioa. in tho !hast nine yeU"s, re sulting mainly from large increases in baru( credit to both the public and private sectors. Bebreen 1950 and 19 58 the money supDly increased nearly ninefold and wholesale prices more than threefold. The official exchange rate ha.s changed from 5 New Taiwan dollars per US dollar to 36 NT dollars per US dollar. However, despite a continued increase in the money sunply at a rather rapid rate, the inflation has been much less severe in the last tHo or three years than in the early 1950's. Interest rates, although still very high, have declined substantially; e.g. the rate charged by commercial b2nks on secured loans is 1.5% per month at present, compared to more than 8% per month at the end of 1949':" The lflholesale Price index ~·ms stable during 19waTid most of 19 58. Since the Ouemoy attack in the summer of 1958 and the sharp increase in government expenditures T.1"hich foll01..red it, the vJholesale price index has risen by about 7%. · The disparity between the increase in money supply and increase in prices is explained in part by an increase in availability of goods, but it is also due in part to a considerable decline in the velocity of money circulation. The main explanation for the decline in money velocity is to be found in the growing confidence of the public in the present regime. lJith the passage of time it has become anparent that goods Nhich the people need and ,,;ant ;:,fill be available either from their own production or aid imports; that the Government can and "t·rill protect the island; and that rene1r1ed total war is less likely or imminent than seemed the case several years ago. ~mile progress has been substantial, the country is still facing many of the problems 1rlhich it faced nine years ago: a war "tvi thout an end in sight and a large population increasing at a rate of over 3% per year. ... iii ... As long as the st3.te of v:=:.r exists, rc: curring milita:r--;J ies nust be e:::cpected v:Thich 1rill lead to inter.nittent periods of ;nonetary and price insta1Jility. HoNever, 1,7J::lile it is to predict the frequency, severity c.nd duration of these periods, there appears little likelihood of a 11 runavray" inflation developin:. judsment is supported the recent eA.":Jerience vhen prices incre2sed orly ·noclerately fo1lmr5.ng the 0;uer10y at tack. Prospects ayr1ear reaso:1ably good that there uill 1)e a "urther im prove 1ent in poli .::md fj_nanc::i.c::,l confidence ancl that there ':ill be a further cleclj_ne L1 the velocity o:': circulation. probo.ble that in the ne~:t five years t~1e price level vill rise at a some11hat slmrer rate on the average than in the past five , 1::rhen the vrholesale price index rose at an average rate of close to Tai,ran's trade position has Forsened in recent months and is likely to deteriorc<.te further ~-n -l:he il'lh"nedj_ate future, as a result of the over-supply position and fall in prices in the Horld sugar ·:~arket 1Jith L:J]JOrts levelin;s off, the rate o:" grouth in G!JP in the n3xt years is likely to be slouer than in the past. However, it should be possible to r.aintain a ro.te of Qi:JP gr01:Jth approx:iJnately equal to population gro-vrt,h., Fri1:1ar-ff production is not likely to be hampered a leveling off iinpo:ets and s~1oulr\ continue to rise at a rate sli~:htly than the popul.:'.tion. On t:1e rat.e of incl.ustrial c1.eYelop .i2nt and ::;routh in :nanufacJ:,-__ ri~1g is likel7 to be slm<8d ~~O''Yl SO'",eu'1at due to l:iJtlita- tions 0'.1 i::1ports zooC.s ;:md ra't·l ·!atc;rials. HoHcver' after all011T- lllmly to be t;1ese J.i:·,1i tati::ms, !!1Cl.n1}.fac- o,,.t,p:'.t ;:;hould increase at about the same rate as grmrth. Thus tbe pros-pects a_:::,pe:lr reasonably that '}'lP 'rill rise at a rate to polJulation grol.rth or y:>erhaiJS ~· 1 1.tly faster. .~:~ter about Iive years a t:.radual increase in export e?crn·~.ngs should per.··lit a rise in imports, and tl1e rate of econorrd.c grouth may Lncre?.se somewhat. - iv- ECONOMIC REPORT ON CHINA (TAIWAN) I Introduction Taiwan is a semi-tropical island located about 100 miles off the south coast of mainland China. It is 240 miles long from north to south and about 85 miles at its greatest width. Mountain ranges vlith peaks exceeding 12,000 feet divide the rocky and rugged eastern half of the island from the wide, fer tile plains of the west. The island was und-er Japanese rule from 1895 to 1945. During this period it was developed as a major producer of food and raw materials for Japan. An extensive system of railways and highways was constructed. In ad dition, although the economy remained basically agricultural, power generating facilities and a number of industries were developed, particularly in the years just before and during World War II. At the end of the war, Taiwan became once again a province of China, and in December 1949 it became the seat of govern ment of the Republic of China when the Nationalists withdrew from the China mainland. A state of war still exists between the island and the mainland. With a population of over 10 million people, the population density of Taiwan is greater than in Japan and only slightly below that in Belgium. How ever, comparing the relationship between population and cultivated area, Tai wan is less densely populated than Japan but more heavily populated than Bel gium. The natural rate of population increase since World '\Afar II has been among the highest in the world. Prior to 1957 it exceeded 3.5% per annum. In 1957 and 1958 the rate is estimated at from 3.3% to 3.4%. Of the total popu lation at present some 8 million are Taiwan born people of Chinese origin and about 2 million are Chinese from the mainland. About 6% of the total popula tion is in the armed forces. Thus the two basic problems of Taiwan are the very heavy defense burden and the rapid increase in population. In spite of these problems, however, recent economic progress has been encouraging. With the help of substantial military and economic aid from the United States, national income has risen significantly faster than population and the inflation which occurred at the time of the withdrawal from the main land has been slowed down considerably. II Production and National Income In the immediate postwar period production recovered rather slowly. Recovery was hindered by shortages of e~uipment and materials to repair da maged productive, power and transportation facilities, by the departure of Japanese administrators, managers and technicians and by the disruption of the trade pattern on which the island economy had become dependent. Hm.rever, the pace of recovery ~uickened following the arrival of the Central Government and the U.S. aid mission at the end of 1949. Agriculture During 1950 to 1953 main emphasis was placed on agriculture, led by the Sino-American Joint Commission on Rural Reconstruction (JCRR) which insti tuted a vigorous and comprehensive program to increase agricultural production. - 2 - A major land reform completed in 1953 was an important part of the program. Production of most of the important crops, including rice, sweet potatoes, soybeans, wheat, peanuts, tobacco and citronella had reached or was approaching pre-war levels by 1950. Since then total production, and yields per hectare, have shown a steady expansion. In 1958 rice production of 1.9 million tons was about 35% hi~~er and the yield per hectare 8% higher than the peak reached during Japanese rule. In spite of the rapidly rising domestic consumption, rice exports have been maintained at between 110,000 and 175,000 tons during recent years end have been the island's second largest export. Sugar is the most important commodity where production remains below the pre-war peak. In 1957/58, although production of refined sugar (approxi mately 900,000 metric tons) was the highest in the postwar period, it was still some 35% below the level recorded in 1938/39. Most of the sugar is exported. It is by far Taiwan's largest single export item, accounting for 50% to 70% of total exports in the years 1950 to 1958. While output has increased substan tially from the low level of the early post-war years, it has been prevented from reaching the pre-war level mainly by export quota restrictions under the International Sugar Agreement. Yields per hectare during the past four years have been close to the peak yield ob~ained before the war. The progress achieved in primary production is indicated by the move ment in the index of agricultural, forestry, fishery and livestock production, which rose by 64% between 1950 and 1958. Index of Pril:lary Production (1953 = 100) General Index ~!culture Forestry Fisheries Livestock 1950 79 85 71 65 6o 1951 82 81 80 73. 97 l952 9l 88 97 92 l03 1953 100 100 100 100 100 1954 101 99 103 116 102 1955 104 98 104 137 104 1956 111 105 111 146 113 1957 121 115 125 158 123 1958 129 121 134 174 153 Industr~. Mining and Power The industry of Taiwan is fairly widely diversified, ranging from - simple food processing to more complex manufacturing in such lines as textiles 1 paper, electrical appliances and plastics. Most of the industry may ~e classi fied in the category of "light industry", although there are a number which could be considered as "heavy industry" such as production of aluminum ingots, petroleum refining and production of chemical fertilizers. - 3 - Industry is organized into a large number of small enterprises and a relatively fe'!ilr medium or large-scale enterprises. Nost of the larger enterprises are ovmed by the govern.."llent. The ma.jori ty of these enterprises '1-rere formerly private Japanese undertakings 1rJhich Here taken over by the Chinese Government t-rhen Taiwan 1-ras returned to the Republic of China in 1945. Industries in r,vJ:lich the Government is the sole operator include sugar refining, production of chemical fertilizers, petroleum refining, product~on of aluminum ingots, copper mining, production of salt, cigarettes and alcoholic beverages, and production and distribution of electric pm,yer. After the program for agricultural improvement was ~rell under way, the r~in emphasis of government economic policy and the U.S. economic aid program was shifted to development of industry, idth a vietv to achieving greater diversification of the economy, strengthening the balance of payments, increasing employment opportunities and maximizing the rate of growth of national income. A four-year plan for agricultural and industrial development covering the years 1953-1956 allocated 70% of the total planned investment to industry and 30% to agriculture. A second four year plan (1957-60) similarly places major emphasis on industry. lThile there vms some short-fall in reaching the targets of the first plan and a short~fall is also likely in the more ambitious second nlan, the actual expansion of industry has nevertheless been substantial. Large invest ments ::..n the public sector have been made in power and basic facilities as ~1ell as in the government mining and manufactur industries. Besides providing basic facilities, encouragement has been given to nrivate industry by such means as operating exchange controls and adjust ing custe>ms tariffs to favor import of capital ecmipment and ratv materials, while restricting the import of goods produced locally; granting tax exemptions to new or expanded local industries; transferring four govern ment enterprises to private ownership; granting loans under the ICA Small Industries Loan Program; and adopting policies designed to attract foreign orivate investment. Another measure designed to encourage industrial development was the establishment in r~y 1959 of the China Development Corporation. Its purpose is to provide medium-term financing for development of private industry. The establishment of this Corporation is a desirable step, because with the exception of a shortage of finance, the climate for industrial development in Taiwan is generally favorable. The most important resource on T~ich Taiwan industry can be based is an ample supply of literate, hard-1-mrking and adaptable labor. There is already a fairly large pool of skilled labor, and new skills can be taught quite quickly. r,Jage rates are leer (an average of 75 U.s. cents per day in manufacturing industries); there is a fairly good suoply of experienced technicians and engineers and managerial and entrepreneurial talent; a sizeable and growing domestic market and the possibility for a modest expansion of - 4- export markets; and local availability of raH materials for many industries. Raw materials are available domestically for such industries as food and beverages (sugar, canned pineapple, tea, rice wine), cement, paper, plywood, glass and some chemicals and plastics. On the other hand, Tahran is dependent entirely or in large part on imported ra't-r materials to produce aluminum ingots, refined oil products, steel, rubber products, and cotton and woollen textiles. HoHever, the main handicap to industrial development is the shortage of finance on reasonable terms. Aside from the Taiwan ~velopment Corporation, there are no Tailimnese institutions :;-Jhich provide medium-or long-term credit to private industry. Even short-term money is in short supply, and interest rates charged by commerical banks begin at 18% per year (see section below on Financial Institutions and Interest Rates). Postwar rehabilitation of industry had been completed by 1953. In the five years between 1953 and 1958 the index of industrial production (mining, mRnufacturing, building construction and public utilities) increased by about 50%. Production increases ~rere registered in both private and public industry, but the increase was greater in the private sector. Nearly 8,700 private enterprises were established during this period while the number of government undertakings declined slightly. At present there are 133 public enterprises and more than 20,000 private industrial establishments. The proportion of the total value of manufactured products produced by the private sector rose from about 47% in 1953 to 57% in 1958. Some of the note;~rthy increases in output of manufactures have been in electrical appliances, cement, paper and naper products, plywood, plate glass, canned pineapple, amonium sulphate, refined petroleum products and steel rods and bars. Output of cotton textiles rose rapidly until about 1955 when production became sufficient to meet domestic demand; since that time the rate of increase has slot,red down. Among new manufactures introduced in the last few years are plastics, staple fiber, bagasse board, electric meters, power tillers and assembly of jeeps. In Narch 1959 the first super tanker (36,000 deadr...reight tons) produced in TahJan was launched by the Taiwan-Ingalls Shipbuilding Company, a joint Chinese-American undertaking. Nineral production has risen about 4L:% si:r..ce 1953. Tahran t s most important mineral resource is bituminous coal. Production has been adequate to meet domestic demand, and there have been occasi. onal small exports. Reserves are estimated at about 50 years. Other minerals Hhich are mined in significant quantities include salt, copoer, gold, pyrites, sulphur and marble. There is a very small output of crude oil. Both hydro and thermal power generating capacity have been expanded rapidly since the war and have kept pace vrith essential needs. There are, however, occasional shortages in the winter dry season. Electric power generation of 2.9 billion K.1rJ.H. in 1958 t·ras 84% larger than in 1953. The total installed capacity as of August 1958 amounted to 542,000 ID1J. The peak load of about 450,000 K1J is more than double the best reeord during Japanese I"Jle. - 5 - Gross National Product and Total Available Resources 1rJith the increase in azriC'llt1.'Tal and industrial production, total national output has risen sicnificantly. Accordi:1g co estL.rnates prepared by the ICA ?-1ission to China, the gross national product of Taiwan, in current prices, :increased by 65% in the four years from 1953 to 1957. Takin3 account of cb..anses in the price level, the increase in ::·eal terms is estL.11ated at 21+% o:r an average of 6% per year. A further increase of 5% to 6% is probable for 1958. On a per capita basis miP in real terrns increased at about 2% per year beh'll'een 1953 and 1957. The per capita availability of goods and services today is substantially higher than in pre-uar days, despite a population increase of more than 8076. In 1957 per capita GNP in real terms v-ras 5% higher than in 1937. Hovrever the increased availability of goods and services was much larger than indicated by these figures. In 1937 Tahran had a sizeable export surplus which reduced the amount of goods available to the local market, 1oJhile in the post-Har period domestic production has been supplemented to an appreciable extent by net imports of goods and services, financed largely by U.S. aid. Thus during 1953-1957 the total available resources Here about 9% larger than GNP, and in 1957 the per capita available resources were 28% greater than in 1937. The trends in national production and total available resources are indicated in the follouing table: National Output and Total Available Resqurces (in millions of 1957 NT dollars).~/ 1937 1950 1953 1957 A. Gross No.tional Product 18,548 20,505 28,930 35,854 B. Net Imports of Goods and Services -1,847 3,1135 2,349 3,345 c. Total Available Resources 16,701 23,690 31,279 39,199 D. Per Capita GNP 3,354 2,566 3,286 3,538 E. Per Capita Total Available Resources 3,020 2,965 3,553 3,868 ~ Except D. and E. Hhich are in NT dollars. ''·Tith the growth in national output, there has been some change in the distribution of GNP by industrial origin. In 1957 agriculture (crop and livestock production) contributed 29% of G~W. It thus continued to be the largest contributor, but its share had declined from 35"'% in 1937 and 35% in 1953. In the meantime the percentage of GNP originating in manufacturing increased from 18% in 1937 to 20% in 1953 and 22% in 1957. The relative importance of public administration and education also increased significantly from 5% in 1937 to 8% in 1953 and about 10% in 1957. - 6 - Gross Capital Formation • Due to scarcity of reliable data, the available information on gross capital formation is subject to a fairly wide margin of error. This is particularly true of gross investment in inventories. Hm-Iever, after allowing for these shortcomings it is clear that capital formation has increased substantially in recent years. Thus it is estimated that the ~.verall rate of investment has increased from about 14% of GF? in 1953 to 20% in 1956 and 1957. In terms of current prices, gross fixed capital formation increased by 175% between 1953 and 1957, while gross capital formation in inventories increased by 55%. After allowing for the rise of 41% in wholesale prices, this would indicate that fixed investment in real terms approximately doubled, and investment in inventories increased about 10%. Investment has been facilitated by the net inflow of goods and services financed by U.S. aid. III Internal Finance Government Finances The consolidated budget of the central and local governments indicates the general trends in government finances, but it does not give a complete picture. It is incomplete in two main areas: (a) public sector expenditures financed by U.S. aid, and (b) the accounts of the public enterprises. A substantial amount of defense expenditures and the bulk of development outlays in the public sector are financed from u.s. aid, and these expenditures are not included in the budget. The only reflection of U.S. aid in the budget is a receipt item labeled 11 Trans.fer from Counterpart Funds. 11 This is a relatively small item for general budget suoport and represents only a small part of the aid program. The accounts of the public enterprises are included in the budget on a net basis only, i.e., the enterprise profits appear as an item of budget revenue. The valuation of the assets of the enterprises is not adjusted promptly to take account of inflation, with the result that the accruals to the enterprises' depreciation reserves are lower, and the 11 profits11 transferred to the government budget are higher, than would otherwise be the case. As a consequence, the enterprises have to borrow from the Ban~ of Taiwan to finance part of the expenditures which should normally be met from deoreciation reserves. On the expenditure side of the budget, there is a provision for capital outlays of public enterprises. This provision, hmv-ever, covers only a small part of the capital requirements, and the bulk of the needs are met from U.S. aid or by borrowing from the Bank of Taiwan. Funds obtained from U.S. aid and the Bank of Taiwan are not reflected Ll1 the budget. The consolidated budget of the central and local governments for the fiscal years 1955 through 1959 is shown in the table on the following page. Both revenue and expenditure have risen fairly rapidly. Leaving - 7- aside, for the moment, the budget estimate for FY 1959, the gross deficit before taking account of transfers from counterpart funds ranged from a low of 1JT~~238 million (4. 7% of total expenditures) in FY 1955 to a high of ~IT~565 million (7.2% of total expenditures) in FY 1957. The deficits were reduced substantially by the transfers from counterpart, and in FY 1958 the counterpart receipts turned the deficit into a small surplus. Consolidated Budget of central and Local Government (in millions of NT dollars) FY 1955 FY 1956 FY 1957 FY 1958 FY 1959 Revenue Taxes 3,197 3,992 4,340 4,998 4,684 Monopoly profits 820 1,060 1,330 1,419 1,480 Profits of public enterprises 232 546 709 716 Other revenue 861 650 1,070 1~374 1,657 Total 4,878 5,934 7,286 8,500 8,538 Expenditure Defense & Internal security 2,747 3,646 4,281 4,705 4,668 Administration 748 884 1,037 1,097 1,064 Education 593 718 961 1,068 1,213 Capital outlays for public enterprises 76 109 289 203 128 .?ublic works 500 436 512 653 698 Other 453 - 598 770 1,132 1,347 5,116 6,391 7,851 8,858 9,117 Gross Deficit -238 -457 -565 -357 -580 ~ransfers from Counter- part Funds 219 412 294 390 282 Net fuficit (-) or Surplus PJ -19 -45 -270 /J3 -298 Notes: 1. Fiscal years ending June 30 of year indicated. 2. Figures for FY 1955 and FY 1956 are final; figures for FY 1957 and FY 1958 are final for central and provincial governments and budget estimates for prefectural and municipal governments; figures for FY-1959 are budget estimates for all levels of government. - 8- The major part of revenues are from taxes and profits of the fiscal monopolies (Nine, tobacco and salt). These items contributed 75% of total revenues in FY 1958. Profits of public enterorises accounted for 8% of total revenue in 1958. Outlays for defense and internal security have been by far the largest expenditure item. They have risen approximately in step with total expenditure and accounted for about 53% of total expenditures in FY 1958. 1·ath some 20% of the total population attending school, education has an important claim on g1vernment resources; educational outlays re?resented about 12% of total budget expenditures in 1958. JudgLng from past exoerience, and from developments since the beginning of the current fiscal year, the results for FY 1959 will be significantly different from the budget estL~ate. Because of the conservative method of estimating income, it would not be surprising if total revenue were as much as 10% higher than shOi.Jn in the budget estimate. Tax revenues in particular should show some increase over the estimated level. On the other hand, expenditures are also likely to be higher than estimated. In viei.Y of the Ouemoy attack early in the current fiscal year, defense expenditures may exceed the original budget estimate by a considerable margin. The decisions taken following the Ouemoy incident are also likely to affect the budget for FY 1960, which is nm.r under prepar3.tion. Information on the government cash position, as reflected in the accounts of the barucing system, sho1~ a substantially different picture from the budget accounts. There are three main reasons for this difference. (a) The time period covered by the two sets of data is different; i.e., data on the cash position relates to calendar years, uhile the budget accounts refer to fiscal years ending June 30. {b) Until 1958, the various government ministries were accumulating substantial cash balances. The ministries drev.r down their appropriations, vJhich were thus renected as an expenditure in the budget accounts, but failed to spend the entire amount. The unspent balances were deposited in bank accounts separate from the general Treasury balances. L~ 1958 a stricter budgetary control was enforced and the agencies, instead of adding to their balances, drew them down slightly. (c) The loans and deposits of the public enterprises are reflected in the accounts of the banking system, but do not appear in the budget accounts. As indicated in the table belotv the over-all net cash deficits of the government have been substantially larger than the net deficits shown in the budget accounts. - 9 - Estimated Government Cash Position (in millions of ~~ dollars) 1955 1956 1957 1958 General Government Increase in bank borrowings 374 272 338 458!!/ 1=: Increase in Treasury deposits ..) 14 158 -17 Increase in deposits of govern- ment agencies 181 ~ .3..S2 -3~ A. Surplus (f) or Deficit (-} -188 /38 fl45 -507 Public Enterprises Increase in bank borrowings 384 629 404 449 Increase in deposits -14 53 3 320 B. Deficit -398 -576 -401 -129 Over-all Net Deficit (A I B) -586 -538 -256 -636 !!/ A The principal financial institutions in Taiwan at present are the Bank of Taiwan, three commercial banks, a land bank and a cooperative bank. These banks have more than 300 offices throughout the island. Another insti tution, the Central Trust of China, acts as government purchasing agent, handles insurance and does some commercial banking. The Government owns the majority of shares of the three commercial banks and all of the shares of the other institutions. The Bank of Taiwan performs the functions of a central bank under powers delegated to it by the Central Bank of China. The latter has been - 10- inactive since the lvi thdrawal from the mainland. The Bank of Tai!van also performs commercial banking functions, consisting mainly of loans to public enterprises and some financing of foreign trade. The commercial banks confine their activities to the private sector. Besides these institutions, the Taiwan Sugar Corporation and the Government Food Bureau • extend credit to sugar cane and paddy farmers for such purposes as purchase of fertilizers and improved seed varieties. The Bank of Taiwan makes loans to public enterprises for one year, and the commercial banks lend for periods of from one month to one year. Aside from renewal of these loans, which is reported to be a common practice, there is no Chinese source of medium or long-term credit. Ho-vJever, under the u.s. aid program, a considerable part of the project assistance has been made in the form of loans ranging up to 20 years for projects of the Government and public enterprises. In addition ICA established in 1954 a Small Industry Loan program which has made four-year loans to private industry. The commercial banks participate in this program, providing 20% of any loans granted. The Development Loan Fund has made loans totaling USf3l.l million (tr...rough April 30, 1959) for siX projects; the term has averaged about 10 years except on one multipurpose project where the term was 35 years. Funds available to the private sector from the above sources, ho•rever, have not been sufficient to meet the demand, and part of demand has been met from private money lenders (the "free market"). Although quantitative data are not available, this market has apparently been an important source of finance for shopkeepers, traders and some manufacturing industries. As one example, a recent analysis made by the Bank of Taiwan of the financial position of a group of cotton textile factories showed that one-half of the group's debt was held by the banking system, one-quarter was borrowed from shareholders and one-quarter from other private lenders. There is no organized securities market in TaiNan. However, there are 21 securities brokers in Taipei Nho do an over-the-counter business, trading in bonds issued by eight private corporations (these bonds were issued in late 1958 and early 1959); two government bond issues; and stocks of five private corporations, two public enterprises, and the three commercial banks. Interest rates in TaiNan are still very high even though they have come down substantially in the past several years. The main reason for the decline has been some lessening in inflationary pressure and a growth in political and financial confidence. In this climate, the Government's policy of lmvering interest rates by adjusting the prescribed rates "1-Jhich commercial banks may charge has been successful. Rates on loans are usually quoted on a monthly instead of a yearly basis. At the end of 1949 the Bank of Tahran lending rate T~~Jas close to 4% per month, the commercial bank rate was over 8% and the free market rate was 15% or more per month. At present the Bacl~ of Taiwan lending rate to public enterprises is 0.99% per month (about 12% per year), co~mercial bam< lending rates are 1.5% to 1.74% per - 11- month (about 18% to 22% per year), and free market rates are around 2% to 3% per month (roughly 25% to 40% ner year). Loans to the public sector under u.s. project assistance ha7e been made at approximately 6% per year, and loans under the ICA Small Industry I,ol:l.n program have been at an effective rate of up to 13% ?er year; the borrower carries the exchange risk on the foreign exchange portion of both of these types of loans. The rates on Development Loan Fund loans have ranged from J.5% to 5.75% with a maintenance of value provision. Interest rates paid on time and savings deposits are the same at th~ Bank of Tahran and the commercial banks. Rates on time deposits range fr~.. >r,1 7.2% per annum for one month deposits to 12.6% per annum on six month deposits. On savings deposits, which were just introduced in January 1959, the rates range from 17% for one year to 21% per annum for three year deposits. An interesting example of recent conditions in the money market was the s2le of bonds - or rather notes - to the public by eight private corporations in late 1958 and early 1959. This was the first time such securities had been offered to the public, and they were quickly sold. Four of the issues (NT ~50 million) were guaranteed qy the Bank of Taiwan and four (NT $32 million) were not guaranteed. All of the issues have a two year maturity. The interest on the guaranteed issues is 20% per year, payable 0uarterly. The rate on the other issues is 26.4% per year, payable semi-annually. In light of the success of these issues the Government is plaffi~ing to sell NT ~400 million of short-term securities in the near future. ET $300 million torill bear interest of 18% per year payable quarterly, and t..rill be offered to the general public. (This will be the first sale of Government securities to the public since 1949). NT 0100 million will bear interest at 9% and are intended for sale to the commercial banks. Half of the 18% issue will be redeemable at the end of 15 months and the balance at the end of 30 months. The 9% issue ~dll be redeemable in 14 months. The lending policy of the recently established China Development Corporation has not yet been finally decided. A proposal under considera tion is to lend to private industry for periods of 3 to 10 years at an interest rate in the range of 14% to 18% per year, with the Corporation carrying the exchange risk. In the existing financial climate, these terms appear reasonable and are considerably more favorable than those obtainable by private industry from other sources in Taiwan. Money and Prices Inflation has been almost continuous in Taiwan since 1949, although it has been less severe in recent years than in the early part of the period. L~ 1950, the first year following the transfer of the Central Government to Tai~~n the money supply doubled and the average wholesale price index was some 300% higher than in 1949. From 1950 to 1954 the money sunply increased at an average rate of close to 40% per year and wholesale - 12 - prices at about 25% per year. From 195h to 1958 the increase in money supply averaged about 25% and the increase in prices about 9% per year. Heanwhile, the interest rate charged by commercial banks on secured loans has declined from 8.4% r··;r month at the end of 1949 to 1. 5% per month at present. The officliJ: exchange rate for the New Tai l-JCm dollar has changed from 5 per U.S. dollar in late 1949 to 36 per U.S. dollar at present. Credit expansion has been the factor primarily responsible for the rapid increase in the money supply. As indicated in the table below total credit outstanding has more than tripled in the past five ye2rs. Somewhat more than half of the credit expansion has been to the ~~·:.vate sector and the remainder to the public sector (government and public enterprises). Bank Credit Outstanding (in millions of l\lT dollars) End of Public ?eriod Government CnterDrises Private Total 1953 1,121 1,414 832 3,367 1954 1,619 1, 703 1,294 4,619 1955 1,883 2,087 2,099 6,069 1956 2,155 2, 716 2,385 7,256 1957 2,493 3,120 3,363 8,976 1958 2,463 3,569 4,615 10,647 Percentage Increase During Period 1954 44.4 20.,4 55.5 37.1 1955 16.3 22.5 62.2 31.3 1956 14.4 30.1 13.6 19.5 1957 15.6 14.8 41.0 23.7 1958 -1.2 14.3 37.2 18.6 As noted previously (see footnote to table on page 9) bank credit to the Government would most likely have expanded by NT~~h58 million, or 18%, in 1958 but for the transfer of a bookkeeping devaluation profit to the Treasury. This would have resulted in an increase in total bank credit of 2L.% instead of the 19% indicated above. Follo1P!ing the sharp increases in credit to the private sector in 1954 and 1955, a tighter credit policy \-Jas introduced in late 1955. Total required reserves of commercial banks Here raised from 13% to 28% on demand deposits and from 8% to 15% on time deposits. This policy was successful in curtailing the rate of private credit expansion. In 1956 bank credit to the private sector incre2sed by 14% as compared to 62% in 1955. - 13 - In 1957 credit nolicy was eased. The Bank of Tahmn granted rediscount and advance facilities to commercial banks to moderate the effects of the reserve renuirements. 1breover, during 1956 and 1957 Bank of Tai~~n credit to the public sector continued to increase quite rapidly; this led to an increase in deposits Hith the commercial banks, thus improving their liquidity. The result was another sharp rise in credit to the private sector in 1957. During 1958 the number of reported business failures increased considerably. Nost of the failures were reported to be among small traders and shopkeepers, but private manufacturing industry was also affected to some extent. The major reason given for this development was the interest rate burden, which became too great when the increase in the general price level slowed down in 1957 and leveled off in early 1958. One result of this situation was that private lenders lost confidence in the free market, and a substantial amount of funds was transferred to deposits with commercial banks. At the same time the Governmellt encouraged the commercial banks to give at least temporary accommodation to firms in financial difficulty in order to prevent more widespread business failures, and in August the Bank of Taiwan lowered the reserve requirements of commercial banks. In these circumstances private credit showed a further substantial increase (37%) in 1958.- At the beginning of 1959 reserve requirements were raised to the present level of 28% on demand deposits and 15% on time deposits. 30sides the credit expansion, an increase in foreign assets has also been a significant contributing factor to the increase in the money supp1y, particularly in 1955 and 1958. The largest offsetting factor has been an increase in time and savings deposits; tllis was especially important in 1958. Increases in counterpart fund deposits, which are held with the Bank of Taiwan, have been an important offsetting factor in certain years. Hov,Jever, since 1955 these funds have been spent at approximately the same rate as they have accumulated and their net effect on the money supply has been small. As shown in the following table, the money supply increased by 35% in 1958, compared to 17% in 1957. Nearly all of the 1958 increase occurred in the last half of the year. The main cause was a substantial increase in credit to the public sector3 combined with some dravring down of government balances following the Quemoy attack in August 1958. As noted previously there was also an unusually large increase in credit to the private sector associated with the business failures and the transfer of funds from the free market to the banking system. HOwever, the rise in time and savings deposits more than offset the increase in private credit. - 13a- Factors Affecting the Money Suoply in Hands of Public {in millions of NT$) 1955 1956 1957 1958 PUBLIC SECTOR A. Gross Credit to: 648 901 742 907 General government 264 272 338 458~ Public enterprises 384 629 404 449 B. Increase in Balances: 961 390 640 -104 Treasury 5 14 122 -17 Government agencies 181 296 325 -32 Counterpart funds 775 80 193 -55 c. Net Effect (A-B) -313 511 102 1,011 PRIVATE SECTOR D. Gross Credit to Private Sector 805 286 978 1,252 E. Increase in Bank Liabilities & Ca·o j_ -~ c1 J-: 437 146 644 1,251 Tinie·· :.~savings deposits 240 107 552 1,422 Capit·''l & net unclassified liabilities 197 39 92 -171 F. Net Effect (D-E) 368 140 334 1 ,., u. TOTAL DmlESTIC CREDIT EXPANSION (elF) 55 6.51 436 1,012 b/ H. JNCREASE IN NET FOREIGN ASSETS 372 23 124 328.!:/ I. INCREASE IN M0NEY SUD?LY ( GfH) 427 674 560 1,340 (Percentage increase) . {20%) (26%) (17%) (35%) !( Including use of bookkeeping profits from devaluation. ~ Excluding bookkeeping profits from devaluation. - 14 - Although the price level has risen substantially over the past several years, prices have risen much less rapidly than the money supply, as sho~m in the following table: Index of Money Supply and Prices "I953 - 100) Money SuEply ~molesale Prices Cost of Livin~ (end of year) (yearly average) (yearly average) 1950 35 45 So 1951 56 77 66 1952 76 92 85 1953 100 100 100 1954 126 102 102 1955 152 117 112 1956 192 132 124 1957 225 141 133 1958 305 143 134 The difference between money supply and price movements is only portially explained by the increase in availability of goods and servicr:?s. For instance, bebreen 19 53 and 1957, while the money supoly incrca~··:c:d by 125%, the wholesale price index rose by 41% and total availabJ8 resources (in real terms) by 25%. A considerable part of the nrice effects of the increased money supply must therefore have been mitigated by a slowing down in the velocity of money. That the velocity did in fact decline is indicated by the change in the ratio of total available resources to the money supply from 15.6 in 1953 to 11.2 in 1957.!/ The decline in money velocity has resulted from a number of factors, both tangible and intangible. Since about 1951 the total supply of goods and services has been sufficient to meet the basic require ments of the population and to provide for an appreciable rise in the standard of living. One of the major stabilizing influences has been the ample supply of foodstuffs, particularly rice. The Government as a matter of policy holds a sizable stock of rice and sells whenever necessary to maintain orderly market conditions. This policy has not prevented price rises, but it has undoubtedly eliminated speculative pressures and slowed the rate of price iucreases. However, the most important factor contributing to the decline in money velocity has been an increase in confidence of the people. With the passage of time it has become apparent that goods which the people need and want will be available either from their own production or from aid imports; y In 1957 the ratio of GNP to money supply 1.-Jas 8.3 in Nexico, 6.4 in the Philippines, 3.6 in Japan and 3.2 in the United States. - 15- that the Government, with whatever u.s. assistance is necessary, can and v.rill protect the island; and that rene;v-ed total Far is less likely or imminent than seemed the case several years ago. Even the Ouemoy crisis in the summer of 1958 did not bring any sudden price reactions. In retrospect the developments in 1958 demo~strate clearly the strength of the confidence of the general public in the present regime. During the year there were two exchange rate adjustments (in April and November), the offshore islands were attacked by the Chinese communists and the money supply increased by 35%. In light of these events, a large upward price movement might have been expected. In fact the price level remained stable through the first three (Uarters of the year, and increased only moderately in the last quarter; i.e. between September and December the wholesale price index rose by aporoximately 6% and the cost of living index continued virtually unchanged. In January 1959 the vTholesale price index increased by a further 1. 5% to a level a-oproximate1y 7% higher than January 1958. It is probable, however, that the full effects of the 1958 events have not yet been reflected in the price movements. In particular an increase in the cost of living index is likely in response to the rise in wholesale prices v-1hich has already occurred. Some further increase in v.rholesale orices may also t.ake place. -16- Since 1950 'i'ai Ivan 1 s balance of pa~nnent s has been characterized by substantial deficits on trade and no~~l inv~sibles. In most years, however, U.S. aid has equalled or exceeded the deficits. As a result official foreign exchan:le res Exchange Rate ~.SX ltJhen the New Taiwan dollar 1,ra3 established as the currency unit in June 1949, the par value Has fi;ced at 5 NT dollars per U.S. dollar. The exchange system introduced at that time provided that exporters receive 20% of their export proceeds at the par rate and 8DJs in exchange certificates denominated in forei~1 currencies. Importers acquired foreign exchange with certificates equivalent to the full value of the imrort. 'vJith the inflation which occurred at the time of the j)ationalist Hithdrawal from the mainland, the certii'icate rate rose sharply during 1950. The 5 NT dollar rate I·Jas abolished ani the certificate rate thus bacame a plicable to all export proceeds ciPd import payments. By the fall of 1950 the export rate was NT~:l0.25 ar:;,d the i:.'tlport rate liT''a0.30 per US dollar, representing a devalu ation of 50% within the period of a year. In 1951 a multiple exchange rate system was introduced which, vith fairly frequent amendments, remained in effect until 1958. During this period there were at different tL~es different rates for government exports (which include sugar and rice), private exports, invisible receipts, government imports, private imports and invisible payments. By the end of 1957 the principal buying and selling rates per US dollar were as follows: Government exports 20.35 Private exports 26 • .35 Government imr~rts 24.68 Private Lnports 29.05 In 1958 it \rTas decided to adopt a unified exchange rate system in conjunction \rri th a further devaluation. This was done in two stages. In April the rate for private exports and non-trade receipts was raised to NTS36.J8 per US dollar, and the rate for private imp8rts and non-trade payments "ras raised to NT~;J6.38 per dollar. The rate for government exports was raised to N~$24.58 and the rate for gover~~nent L~ports remained unchanged at NT$24.68 per US dollar. In November the second step was taken which raised the rates for gover~~ent exports and imports to the same level as other transactions (i.e. NTG36.08 for exports and liT$.36.38 for imports). - 17- There is a black market for foreign exchange in Taiwan. It is believed, hm·Jever, that it is a fairly narrow market. The main transactions are probably the purchase of dollar notes and gold to hold as savings, some purchase of goods for ~port in contravention of official restrictions {smuggled goods), and accumulation of balances to finance travel and children's education abroad. The black market rate was reported at around NT~;4J per US dollar in the summer and early fall of 1958. Subsequently, after the Quemoy attack an.d the Hovember exchange rate adjustment, the rate rose to around 55. It has since declined someHhat, and in i'rarch 1959 it was reported in a range from 43 to 50 per US dollar. For§j.gn Trade In the period from 1952 through 1958 Taiwan's export earnings were equivalent to 62% of import payments. The trade deficit ranged from ~;:61 million to ~~106 million and averaged .~81 million per year. However, U.S. aid financed an average of 1P93 million per year (more than 40% of total imports) and thus more than bridged the gap between export earnings and import payments. The development of the foreign trade position is summarized below. Taiwan's Foreign Trade {in millions of US dollars) ill.? 1:2~2 1954 19,22 19?6 192Z 19~ Exports 111.5 129.8 97.8 133.4 130.1 168.5 1E4.4 Imports 207.0 120.6 204.0 19~ Qb2 2~9.1 239.2 Balance -87.5 -60.8 -106.2 -60.8 -104.2 -90.6 -74.8 Exports as %of Ln:t=:orts 57.7% 68.1% 47.9% 68.7% 55.6% 65.0% 68.7% Aid imports 89.1 84.0 87.8 93.,3 102.6 105.6 88.7 (As 7; of' total im;,Jorts) 43.0% 44.1% 43.0% 48.0% 43.8% 40.8% 37.1% Note: The above table is based on Bank of Taiwan exchange control data. The da·ta on imports have been increased to include imports under PL480 as follows (in millions of US dollars): 122§ 1927 6.1 6.9 Customs data are published in iiT dollars. Because of the multiple exchange rate system which vJas in effect during most of the above period, it is difficult to translate them into US dollar equivalents. Exchange control data have, therefore, been used because it is believed they give a more accurate picture than the customs data. - 18 - As indicated above the poorest trade year was 1954, due mainly to a decline in exports. This was caused largely by a sharp fall in sugar exports from a peak of 875,000 tons in 1953 to 522,000 tons in 1954. The international sugar market weakened in 1953 as a result of over supply, and severe restrictions were placed on sugar exporters when the International Sugar Agreement (to which Tah1an is a. party) came into operation in 1954. The substantial increase in total exports in 1957 -...Ias due largely to the sharp rise in world sugar prices and a 25% increase in the vol~~e of Taiwan sugar exports to 748,000 tons. In 1958 export earnings were well maintained despite a fall in sugar prices, as a result of an increase in the volume of sugar exports (817,000 tons), an increase in the volume and price of rice exports and increased exports of a number of smaller items such as bananas, canned pineapple, cement and lumber. The devaluation of the exchange rate was one factor which facilitated the increase in small exports in 1958 and was also a contributing factor leading to the $20 million decline in imports in that year. Main Export Items The great :najority of Taiwan exports consists of agricultural products and processed agricultural products. Durin~ the period 1952-1958 sugar has accounted for from 51% to 70% of annual exports. In 1957 TaiWCJ.l1 vias the world's second largest sugar exporter after Cuba (Tai~mn exports were equivalent to about 16% of Cuban exports). Under the International Sugar Agreement Taiwan's basic export quota is 655,000metric tons, second only to Cuba and equal to that of the Dominican Reoublic. Quota restrictions were eased in 1957 and 1958 Which permitted 'Jhi Wan IS eXpOrtS to rise Well aboVe its basic quota. RL-e has been Taiwan's second most important export, accol.Ulting for 8% to 19% of total exports during the period under review. After sugar and rice, which together accounted for 69% of total exports in 1958, the remain ing items c~e relatively small. In order of importance in 195S, they included canned pineapple, tea, bananas, citronella oil, lumber and salt; canned pineapple comprised 4.5% of total exports and salt 1.5%. Composition of Imports With the rapid development of industry, there has been a substantial change in the commodity distribution of imports in recent years. As indicated in the table below, raw materials have replaced consumer goods as the largest import group. Betueen 1953 and 1958 the share of consumer goods dropped from 50% to 26% o~ total imports, while raw materials increased from 21% to 479,. The share of capital goods remained fairly steady at close to 30%. - 19 - Im~orts bv Commodity Grou~ (in millions of US dollars) Caoital Goods Raw ~·late rials Consumer Goods To~al d Value % Value p Valu;;---r Value 195.3 5.3.8 28 40.7 21 96.1 50 190.6 1954 65.7 32 48.1 24 85.4 44 199.1 1955 61.4 .32 50.0 26 78.4 41 189.8 1956 91.1 29 6.3.1 35 74.0 35 228.2 1957 106.1 Jl 61..3 .34 84.8 .35 252.2 1958!!/ 62.8 27 108.6 47 61.3 26 232.8 a/ Preliminary Note: The totals above are slightly different from the import data shown in the preceding table (page 17) because of a difference in coverage; the main difference is that PL 480 imports were included in the preceding table, but are excluded from this table. Direction of Trade Japan is still by far the most important trading partner of Taiwan, although -;~he relative importance of Japa...11ese trade has declined somewhat in recent ye.':crs. Exports to Japan have declined from about 50 - 60% of total exports a f\:n,J years ago to about .3 5 - 1/J% during the past 3 years. Imports from Japan have declined somewhat less; i.e. from about 55 - 65% a few years ago to 50 - 55% recently. This chan6e is probably due mainly to two factors: (a) a conscious e~~ort to diversify export markets and import sources as a general principle, and {b) a delay in negotiating the 1956 trade agreement uith Japan which had the e~fect of postponing exports a.'1d foreign exchange income and receipt of a nQ~ber of essential imports, such as fertilizers, for several months; this stimulated the efforts tov:ard diversification of the geographical trade pattern. As Japan 1 s share in exports has declined, the share of other Far Eastern and Hiddle Eastern countries has increased. The main co:.nponent of the increase has been susar. On the import side an increase in the share of the Middle East has offset the declining share of Japan, as indicated in the following table: - 20 - Direction of Trade (Percentage Distribution) 1953 1954 1955 1956 1957 1958 Exuorts: Japan 46 54 61 35 39 42 Other Far East 20 28 19 34 32 27 Middle East 8 5 9 19 23 18 Europe, U.S., Canada & all other countries 25 14 11 12 6 13 Total 100 100 100 100 100 100 Imports: Japan 53 56 64 57 51 53 Other Far East 13 8 7 7 8 6 Middle East 5 2 7 9 11 7 0 Europe 12 12 7 ,/ 10 9 U. S. & Canada 15 19 13 15 19 18 All other countries 2 3 _1 _2 6 Total 100 100 100 100 100 100 Source: 1953-1957 based on Ban~ of Taiwan data which exclude aid imports; 1958 preliminary estimate based on customs data, excluding aid imports. Balance cf Payments Since 19Sb Taiwan's overall balance of payments deficit has ranged from a low of U.S. $48 million in 1951 to a high of $121 million in 1954. After an improvement in 1955 the deficit rose again to $112 million in 1956, due largely to an increase in imports and a slight decline in exports (see table on page 22). In 1957 the deficit declined to ~89 million, when exports rose substantially and more than offset the increase in imports. Moreover, the transportation and insurance account changed from a small deficit to a surplus ($6 million), ~ich also contributed to the improvement in the overall position. The major financing items have been u.s. aid and "monetary movements", mainly changes in foreign exchange holdings (short-term assets and monetary gold) and changes in the balance under the payments agreement with Japan (short-term Habj Hties). In 1956 receipts from U.s. aid plus - 21- net financing of $25 million under the Japanese payments agreement, Here more than sufficient to cover the t112 million deficit. As a result, short-term assets and monetary gold held by official and banking institutions increased by ~::5 million. In 1957, while the overall deficit declined, aid receipts were maintained at close to the 1956 level and the debit balance with Japan increased by a further $13 million. The result was an increase of ~~19 million in short-term assets and monetary gold. Complete balance of payments data are not available for 1958. Information for the first half of the year indicates a deterioration, as compared to the similar period of 1957, due mainly to a rise in imports. Ho\ Between the end of 1954 and the end of 1958, the net gold and foreign exchange reserves of the Ba~~ of Taiwan increased by the equivalent of us~; 41 million. The major change in the currency composition was a rise in lle'ldings of U.S. dollars from ~;,2 million to $62 million and an increase i~ the debit balance under the Japanese trade and payments agreement from US$10 million to S33 million. (Tables 14 and 15, Statistical appendix). Besides the Bank of Taiwan reserves, a small amount of gold and foreign exchange is held by the Central Bank of China and other government banks, such as the Bank of China and the central Trust of China. At the end of 1957 these banks are reported to have held the equivalent of US$2 million in gold and $9 million in foreign exchange. Tahran 1 s net short-term assets held in U.S. banks, including both official and private holdings, increased by f.}.64 million in the four years ending December 1958 (Table 16, Statistical Appendix), which is fairly close to the rise in free dollar holdings reported by the Bank of Taiwan. - 22 - S,1!llii1ary of International '""ransactions :"> T':' r (in millions 0_:. d • .::J. -:iollars) First Half 19.~5 1956 1957 1957 1958 A. Go::lds & Services Z}..'J)Orts, fob 127 124 lhE 91 88 T1ports, cif -185 -222 -245 -117 -131 ,.,.- Tra.de 1Jalance -58 -98 -96 -<-0 -43 Services and non- monetary gold (net) -13 -10 3 -5 Total -71 -108 -96 - 2"c:. -48 B. l•Iiscella.'l.eous Donations and Capital 7 3 8 3 17 c. Net Errors and Omissi::ms 2 -7 -1 +7 D. Total (A through C) -62 -112 -89 -19 -25 E. u.s~ Grant and Loan Aid 90 97 95 48 42 F. r1Ioneta:cy Novements Shon,-term liabilities -3 20 13 -5 -8 Shc::.'~.-·t-,er:~1 assets and mane- tary gold (increase -) -25 -5 -19 -24 -9 Total -28 15 -5 -29 -17 - 23 - V Economic ProSY.~cts Since 1950 noteworthy progress has been made :..n 'Taiwan in increasing agricultural and industrial production, in instilling confidence in the people and in reducing price inflation during a period when a state of war continued to prevail. However, '.Jhile the progress has been substantial, the country is still facing many of the basic problems which it faced nine years ago~ a war without an end in sight and a l~rge population increasing at a rate exceeding 3% per year with little prospect of a substantial drop in the rate in the foreseeable future. Moreover, the danger of inflation is likely to continue, and the vJOrld market conditions for a number of Taiwan's exports, especially sugar, will most likely be less favorable in the next few years than in the recent past. As long as the state of war exists, recurring military emergencies must be expected which will lead to intermittent periods of monetary and price instability. U.1ile it is impossible to predict the frequency, severity and duration of these periods, there appears little likelihood of a "ru."laway" inflation developing. Instead, a patter::1 of monetar-.r and price movements similar to that of the past couple of years appears a more reasonable expectation. For example in the period from August 1957 to July 1958 (the year preceding the Quemoy crisis) the money supply increased by 13% and the price level remained stable. Following the ~uemoy crisis, as noted previously, the money supply rose sharply, but prices increased only moderately. A continuation of this general pattern assumes that there will be a further steady improvement in political and financial confidence and hence that the velocity of noney circulation will continue the downward trend which has been evident the past several years. The downward trend, of course, cannot be expected to continue indefinitely. However, the velocity of circulation is still high by comparison with other countries, and there appears to be considerable scope for a further decline. Thus prospects appear reasonably good that the price level in the next five years will rise at a somewhat slower rate on the average than in the past five years, for instance, when the wholesale price index increased at an average rate of close to 9% per year. The outlook for exports is not particularly bright. ~!orld demand for most of Taiwan's exports is not likely to grow rapidly. In view of the _::>resent over-supply position in the 1..-.'0rld sugar market and the recent fall in prices, export restrictions were tightened Qy the International Sugar Council in February 1959. As a consequence, Taiwan's earnings from sugar exports in the near future will be well below the 1958 level. Further restrictions may be placed on sugar exports under the International Sugar Agreement, and this would in due course lead to some recovery in world free market prices from their recent low level (slightly below 3 U.S. cents per pound fob Cuba). In the longer run Taiwan should participate with the other exporting members of the International Sugar Agreement in a very gradual growth in sugar exports to the world free market. - 24- Uith regard to rice, Taiwan v..rill probably do well to increase pro duction rapidly enough to provide for the rising domestic cansuinptian and maintain exports at recent levels in the ra.."lge from llJ,JJJ to 175,00'] tons. World rice prices have recently declined from the 1958 level, mainly as a result of improved world supplies. Thus Taiwan's 1959 earnings from rice exports are also likely to be lower than in 1958. In the longer run, while there are uncertainties in the ~·Jarld rice outlook, such as the role which mainland China will play in the export market and the trends in rice produc tion and consumption in main importing countries (India, Pakistan, In1anesia ana Japan), average vorld rice prices during the next several years should be near the present level, ca~nensurate with, say, £32 or EJJ per tan for Burmese small mills specials. Taiwan's rice export earr-ings consequently are likely to be fairly stable at somewhat below the 1958 level. Among the smaller exports, prospects are reasonably good far a gradual growth in bananas, caLned pineapple and tea. More rapid increases may take place in a number of industrial items such as cement (which earned US~5 million and was Taiwan's sixth largest export in 1958), plate glass, electric appliances, cotton textiles, timber products (e.g. plJnJaad and paper) and aluminum. In vievl of the above prospects, Taiwan's total export earnings are likely to decline in the short run, and thereafter to recover gradually. However, five years hence the total is nat likely to exceed substantially the 1958 level. This assumes of course that serious inflation >:ill be avoided or that exchange rate adjustments will be made if necessary to permit exports to remain competitive in world markets. In view of the prospective foreign exchange availability, imports in the short run are nat likely to exceed recent levels and they may even have to be curtailed slightly. In recent years foreign exchange earnings plus foreign aid receipts have been sufficient to cover im~~rts and ather foreign exchange payments 1.-ri th a margin left aver far so:ne accumulation of foreign exchange reserves. US aid will probably continue at about the same level as in recent years, but any substantial increase does nat appear likely. Without an increase in aid, imparts could be maintained in the face of a moderate fall in export earnings by foregoing a further increase in foreign exchange reserves. A larger fall in export earnings mi~ht be met at first by a modest dra.... iing an reserves, but therec.fter a cut in imparts would became necessary. Such a cut, if it occurs, is not likely to be large and would be temporary. Subsequently a recovery should take place, and within about five years there should be scope far a gradaal increase in imports above recent levels. ~dth imparts approximately stable, the rate of growth in GNP in the next few years is likely to be slavrer than in the past. However, it should be possible to maintain a rate of GNP growth at least equal to papulation growth. Increases in primar; production (agriculture, livestock, fishery and forestry) are nat likely to be hampt.·red by a levelling off of imparts. The largest irrigation project (Shihmen Dam) is well under way and is being supported by US aid. Completion of this project seems assured \·Tithin the - 25- framework of an aid program at current levels. Moreover an adequate supply of fertilizer should be available even vith a reduction in imported supplies, due to increasing domestic ~oduction. Thus primary production should continue to rise at a rate somewhat faster tha11 population growth. On the other hand it may be necessary to reduce the rate of industrial development. The rapid increase in industrial development in the past has been accompanied by a rapid increase in imports of capital goods. hith total iuports levelling off, it would be difficult to continue increasing imports of capital goods. The most likely pattern would be a gradual rise in imports of raw materials, which ~uuld be offset by some decline in capital goods and, possibly, consumer goods imports. Even with this pattern, however, there would still be a sizeable volume of capital goods imports which would permit a significant in dustrial development, althou5h the rate of development would be slower than in the rast several years. In conclusion, during the next few years primary production should continue to increase at about the same rate as in the past several years, or slightly faster than population growth. Fanufacturing output may increase at a slower rate than in the past, but on a conservative estimate it should rise at about the same rate as population. Thus the prospects appear reasonably good that GNP will rise at a rate equal to population growth or perhaps slightly faster. After about five years a gradual increase in export earnings should permit a rise in imports, and the rate of economic growth may increase somewhat. - 26 - STATISTICAL APPENDIX - 27- Table 1 NATIO~JAL ACCOU:.ITS DATA (in millions of NT do::!.lars) 1/ I. Data in Current Prices Percent Increase 1953 1954 1955 1956 1957 1953-57 A. Consumption Expenditures 19:,990 21,314 24,134 27,503 31;991 60.0 Prj ~rate 16:,182 16,289 18,094 19,483 22,459 38.8 Government 3,808 5,025 6,040 8,020 9,532 150.3 B. Gross Capital Formation 3,129 3,501 4,437 6,169 7,208 130.4 (Percent of Gross National Product) (14.4) (15.5) (16.5) (20.0) (20.1) (Percent of Total Available - Product) (13.5) (14.1) (15.5) (18.3) (18.4) Fixed Capital Formation: 1,969 2,257 3,323 4,107 5,408 174.7 Private 842 1,054 1,490 1,984 2,207 162.1 Government Enterprise 7o6 677 1,245 1,478 2,169 207.2 Other Government 421 526 588 645 1,032 145.1 Inventory Accumulation 1,160 1,244 1,114 2,062 1,800 55.2 c. Expenditure on Total Avail- able Product (A + B ) 23,119 24,815 28,571 33,672 39,199 69.5 D. Net Imports of Goods and Services 1,324 2,200 1,642 2,826 3,345 152.6 E. Expenditure on Gross National Product ( G ... D) 21,795 22,615 26,929 30,846 35,854 64.5 F. Per Capita ~otal Available Product 2,626 2,719 3,020 3,437 3,868 47.3 G. Per Capita Gross National Product 2,476 2,478 2,846 3,149 3,538 42.9 II. Data in Constant (1957) Prices A. Total Available Product 31,279 35,124 34,431 36,758 39:,199 25.3 B. Gross National Product 28,930 31,708 32,431 33,845 35,854 23.9 c. Per Capita Total Available Product 3,553 3,849 3,639 3,752 3,868 8.8 D. Per Capita Gross National Product )J286 3,475 3,426 3,455 3,538 7.7 Source: Based on data prepared by the IGA. ]\fission to China, December 1958. ]/ Except in F,IG under I and C/D under II, mich are in NT dollars. - 28 - Table 2 GROSS NATIONAL PRODUCT BY INDUSTRIAL ORIGTii (Percentage distribution} 1937 1950 1953 1954 1955 1956 1957 A. Proc"1ction of Goods 65.0 57 .. 2 62.8 59.2 60.1 60.6 61.4 Agricultural crops 35 .. 0 28~8 30.2 23.2 23.8 23.1 23.4 Li7e~-;tock 4.3 5.0 4.4 5.0 5.7 s.o 5.3 o.5 0.4 0.6 1.4 1.1 1.0 0.9 Fisheries 1.3 2 .. 1 1.7 2.0 2.1 2.2 2.4 Mi..""ling 2.3 1.2 1.8 1.5 1.4 2.3 2.6 Hanufacturing 18.0 14 .. 6 20.5 21.5 21.6 22.5 22.0 Electricity, Water a..'"'td Gas 1.8 3 .. 9 2.0 2.0 2.0 2.1 2.0 Construction 1.7 1.2 1.8 2.8 2.5 2.5 2.7 B. Services 35.0 43.0 37.2 40.8 39.9 39.4 38.8 Transportation and Communications 5.2 6.2 5.9 6.1 6.3 6.1 6.4 Wholesale ar.d Retail Trade and Storage of Goorls 17.5 15.4 17.0 16.0 16.2 16.4 16.6 Public AJministration and Ed·J.cacion 5.1 12 .. 5 8.0 11.4 10.6 10.2 9.8 Other serr."iceJ 7.3 8 .. 9 6.,3 7.3 6.8 6.7 6.0 C. Net E:x:terna!. Factor Income 0 -0.2 -0.01 -0.02 -0.02 -0.02 -0.02 D. Gross National Product lCO.O 100.,0 100 .. 0 100.0 100.0 100.0 100.0 Source: Based on data prepared by the ICA ~lission to China, December 1958. . - 29 - Table 3 AREA riND OUTPUT OF AGRICULTURAL CROPS (area in thousand hectares, output in thousand metric tons) Rice '::ugar cane ll -················-··-··························-····················-··-Sweet 2otatoes .':':o;z::beans Tea Tobacco Year Area Cut}2Ut Area Cut12ut Area Out12ut Area Out2ut Area CutQUt Area Out12ut Pre-war peak 625 1,402 162 1,374 139 1,770 17.7 10.8 45.2 17.2 5.5 9.8 1950 770 1,421 122 615 233 2,201 20.3 12.5 42.0 9.6 5.5 6.3 1951 789 1,485 79 353 232 2,022 23.3 13.4 42.7 10.5 7.7 10.6 1952 786 1,570 98 520 234 2,090 24.3 14.6 44.1 11.6 5.5 9.0 1953 7'78 1,642 113 882 238 2,277 28.2 17.4 44.7 11.9 5-5 9.9 1954 777 1,695 96 701 248 2,557 30.0 20.3 46.2 13.0 5.6 9-7 1955 751 1,615 78 733 246 2,437 34.5 2L~.2 47.0 14.7 6.2 11.6 1956 784 1,790 91 767 230 2,568 37.5 26.4 47.6 13.1:. 8.3 15.2 1957 783 1,839 98 833 229 2,693 41.0 33.1 48.0 15.0 9.7 18.7 1958 778 1,894 n.a. 894 n.a. 2,927 n.a. 37.0 n.a. 16.8 n.a. 16e2 Peanuts Bananas finea122le Citronella Citrus fruit Vegetables_ !l.r~ Output j;.rea Output ~ CutEut Area 0UtJ2Ut Area 0utJ2Ut i.r.ea Output Pre-war peak 31.5 31.7 2lo3 219 10.4 145.8 4.3 45 5.4 38.7 42.5 440 1950 83 .. 4 57.1 14.7 117 5.0 45.9 14.,6 79 4.7 28.3 74.3 591 1951 84.9 61~2 14... 7 100 5.7 52cl 27a6 148 4.9 27.3 78.6 616 1952 8L.O 6o.o 15.7 107 5.8 62.8 25.9 148 4.6 27.8 77.3 619 1953 82.6 60~1 12.7 96 5.7 68o5 24.2 150 4.8 29.4 77.2 623 1954 94.0 65.9 12.5 98 5.5 65.6 19.8 86 4.8 27.8 79.0 636 1955 96 .. 0 66.6 10.7 85 5.7 70.5 l3t'9 76 5.2 30.2 80.4 648 1956 98.3 81.8 9e6 59 6.4 83.1 16.1 99 5.8 35.3 81.9 670 1957 103.6 93·7 11.3 92 7.2 93.9 17 .. 8 92 6.2 39c0 84.2 705 1958 n.a. 97.9 n.a. 105 n.a. 124.4 n.a. 89 n.a. 45.2 n.a. 737 li Crop year ending in the cc:.ler..dar year indicated; output refers to sugar content of the su~;ar cane. 3ource: Hinistry of Economic Affairs and Tai't·Jan Iravincial Department of Agriculture and Forestry. - 30 - Table 4 INDEX NU};BER,:.:, OF INDUSTRIAL PRODUCTION (195J = 100) General Building Public Yea.r 1-.iining l'JanufactLlring Index Construction Utility 1950 54.1 66.2 49.J 74.9 1951 6J.7 77-7 58.1 87.6 1952 80 .. 5 104.8 75.0 9J.J 195J 100.0 100.0 lOOoO 100.0 100.0 1954 l07o0 100 .. 1 106.8 10.5.6 115.1 1955 119 .. 1 llJ.6 119"6 144.7 123.1 1956 125.1 120.1 124.7 104.5 135.3 1957 142.2 133.5 142.9 117.5 149.1 1958 149 .. 4 143.6 148.1 176.6 162.3 ource: Linistry of Economic Affairs. - 31 - ----Table 5 OUTPUT OF SELECTED ?H!TI!'G ''J:D I?DUSTRL.~L PRODUCTS (in thousa~ds of unit indicated) Item Unit 1952 1954 1956 1957 1958 l1:ining: Coal N.T. 2,286,.4 2,117.,6 2,,5~ oO 2,916.1 3,181.5 Copper N.T., 0.,7 0.,7 1 .. 5 1.7 1.7 Salt M.,T. 329.8 388.9 328.5 387.1 443.9 Electric Po1-rer mn.K.\ftJ .H.[h 1,420.3 1,805.3 2,249 .. 8 2,555.2 2,880.3 Manufactur:i.ng: Eefineci S:l:·gar H.. T. 624.0 642.0 775&8 917.9 866.8 Canned Pineapple case 490.0 999.3 1,132.2 1,142.8 1,744.2 Cotton Yarn N.T. 13.6 23.,6 25.1 27.9 27.5 Cotton Fabrics mn. m iJ:. 87.6 166.6 lli.2 .. 4 155.5 147.2 Plywood sqo m. 1.4 3.9 3 .. 1 4.. 4 6.9 Bagasse Board piece 7h0.4 973 .. 6 1,579 .. 1 2,918s6 2,128.1 Paper :H .. T. 27.6 33 .. 8 49.4 59e6 71 •. 9 Bicycle Tires piece 332.3 551 .. 1 525.6 648.9 722.2 Caustic Soda N.T. 8.9 l4.L 19.6 25.4 25.7 Soda Ash h.T$ o.6 1.2 2 .. 5 3.1 3.1 Amonium Sulphate i"l. T. 5.7 5.0 6.6 13.4 17.4 Plastics Kg., 115.0 644.9 1,432 .. 5 2,102 0 6 3,214 .. 9 Gasoline K.L. 81.3 137.1 162.7 186 .. 6 201.5 Dtesel Oil h.T. 39.3 12.9 94.7 116.1 132.5 Fuel Oil 11.T .. 105.8 168.0 311.,5 297.2 273.0 Plate Glass case 161.5 182 .. 3 162.,2 Cement H.T. 445 .. 6 536.4 591.2 603 .. 9 1,014.7 Pig Iron "i:i., T• 9.9 l6o6 18.0 19 .. 7 17.1 Steel Rods, Pars and Slabs H.T. 17 .. 8 53.6 78,8 88.8 106,7 Aluminum Ingot N.T. 3 .. 9 7.1 8.8 8.3 8.6 Aluminum Sheet l'l.T • 1.6 3.8 3.2 5.5 4.5 Bicycles piece 3.7 43.4 34.0 42.1 30.8 Electric Fans piece 9 .. 9 30,.2 81.5 102.,8 lOL.5 Electric Heters piece 115o2 139.,9 122.1 million kilowat hours million meters Note: H.T., =metric ton sq. ma = square meter K• L., = kiloliter Source: Ministry of Economic Affairs. - 32 - Table 6 nqVESTI IE:NT UNDER THE FOUR YF....I'-R PLA~!S First Plan, 1953-2b Second ?lan2 1257-bO .n.ctual Investm~t flanned Investlnent Item Planned Investment I'Iillion Eillion l:il1ion NT$ PercGnt NT$ Percent NT$ Percent Invest.'!lent in: Agriculture 2,358 30 1~818 28 4,689 23 Industry 5,441 70 4,629 72 10,345 52 Transpo1·tation and Coromu.""lications 2,473 12 Special Projects J! - - 2,504 _12 Total 7,799 100 6,447 --100 20,011 100 Sources of Funds: u.s. aid n.a. n.a. 1,561 24 5,768 29 Other Government n.a. n.a. 2,222 35 8,617 43 Private n.a. ~ 21664 41 ,2!625 28 Total n.a .. n.a .. 6,447 100 20,011 100 L1 Shihmen Resevoir, tidal land reclamation, vocational assistance for retired service men, and public housing. Source: Economic Stabilization Board, Ei2:hli~hts of the Second Four Year F1 an; L'linist.ry of Economic Affairs, TI.evievT of the First Four Year ~ 1 an for the Ecor.s~~-c .Qevelopment of Taiv.Jan; and information submitted to the IR.t(D mis&i 'fc:ble 7 Sill'll1ARY OF ICA AID PROGRAJVI TO CHINA (TAIHAN) BY i'ihJOR FIELDS OF ACTIVITti (in millions of U.S~ dollars for fiscal year ended June 30 of year indicated) Item 1951-55 1956 1957 1958 1959 !1 A. Project Assistance 57.9 20 .. 6 27.2 34.,6 18.3 Agriculture and Natural Eesources 2.8 1.7 0.7 1.,8 0.7 Industry and Hining 33.7 13.6 19..,8 24.,0 12.6 Transportation 7.3 1.1 1.3 2.7 1.2 Labor il. /3 fl_ fl_ Ll Health and Sanitation 1.3 0.2 o.B 2.0 1.1 Education o.5 0.7 o.8 1.5 0.2 Public Ad~inistration 0.,8 0.5 o.4 0.3 0.1 Community Development /3 /3 /3 0.1 0.2 General and Miscellaneous 2:6 0.7 1."1 1.6 1.7 Direct Force Support 8.9 20 1 2.3 0.6 0.5 B. Non-Project Aesistance --rGommodity Ai~) 314.9 82.4 55.2 66.3 16.3 c. Total (A and B) 372.8 103 .. 0 82o4 }-00.9 35.6 /1 Including the program of ICA's predecessor agencies. The data represent actual ;_rri vals of aid in Tehmn. fl. First half of year, ending December 31, 1958. il. less than ::,sco,ooo. Source: Information obtained from the ICA Hutual Security Hission to China. - 34 - Table 8 CONSOLIDATED STATE~·.:CHT OF CClJDITION OF THE !1iOlTETARI SYSTEH (end of period, in Hillions of NT dollars) 19.52 19.5.3 19.54 19.5.5 19.56 19.57 19.58 Assets Foreign Assets .376 772 L~76 87.3 1,181 1,646 ),706 Claims on Government 962 1,121 1,619 1,88.3 2,1.5.5 2,49.3 2,46.3 Claims on Goverrunent Enterprises 1,112 1,414 1,70.3 2,087 2,716 J,l20 J ,.569 Claims on Private Sector 671 8.32 1,294 2,099 2,.38.5 J,J6J 4,61.5 Unclassified Assets 1,264 1,508 1,462 1,4'36 1,562 ~0 _)_z_l43 Total Assets 4,.38.5 .5,647 6 ,.5.57 8,.378 10,000 12,66.3 17 ,Lr-96 Liabilit~es Noney ::::upp1y 1,286 1,68.3 2,128 2,.5.5.5 ),229 .3,789 .5,129 Treasury Deposits 89 67 106 111 12.5 247 2.30 Deposits of Gov 1t h6encies .370 .527 676 8.57 1,1.5.3 1,478 1,446 Time and ~avin~s Deposits 6)2 8.32 1,114 1,.3.54 1,461 2,01.3 J ,4.3.5 Counterpart Fund Deposits .3.5.3 6.37 630 1,40.5 1,48.5 1,678 1,62.3 Foreign Liabilities 2.34 .3.59 342 367 6.52 994 1,998 Unclassified Liabilities and Capital Account 1.421 1,561 1,729 1,895 ..1..t_464 :2z632 Total Liabilities 4,38.5 ~.5 f 7 6,.5.57 8vJ78 10,000 12,663 17,496 :;.ource: Bank of Taiwan, Tahran Financial Statistics Morrt:.hly and International Financial Str:,tistics. - 55 - '!'able 9 INT~~R"3ST llii.TES Loans Deposits , (percent per month) (percent per a~~um) Secured Loans up End of Secured Loans Demand Deposits Time Deposits period to 1 year Taipei Bank of Other Free B[illk of Other Bank of Other Tahran Banks Narket Taiwan Banks Taiwan /a Barks /b 1949 3 .. 90 8.40 15.0 1.,8 3.,24 18"o 5h.o 1950 1.80 3.30 10.5 0,9 1.,62 19.8 27 .o 1951 1,80 4.50 9.0 0 .. 9 1.62 19.8 27.0 1952 1.80 3~00 5.,5 0.9 1.62 19.8 21.6 1953 1.20 2,.25 3o5 0.,9 1.62 12 0 6 12.6 1954 0.99 1.,95 3.1 0.9 1.62 10 .. 8 10.8 1955 0.99 1.,80 3o6 0.9 1.62 10.8 10.8 1956 0.99 1.,80 3o3 0.9 0.90 1957 0.,99 1.,65 3.0 0 0 1958 0.99 1,65 3.0 0 0 Feb.,l959 0.99 1.,50 2a7 0 0 /a Rate for 6 month deposits. ~ F~te for 3 month deposits. Note: In Januar; 1959 sa,~ngs deposits were introduced by both the Bank of Taiwan ar-d the corrmercial banks which pay 17% for one year deposits, 19% for two year deposits and 21% p~a. for three year deposits. Source: Bank of Taiwan, Taiwan Financial Statistics Honthly. - 36 - Table 10 VC\LU[vfB OF FCBEIGN TlU,m; 1952 1953 1954 1955 1956 1957 1958 Volume Indexes (1953 = 100) Exports 67 100 69 86 83 97 12=d Imports 81 100 105 98 94 102 no§:/ Sugar 460.5 874.7 522.2 585.9 600.5 7llG.4 816.6 Rice 105.3 59.4 36.1 169.8 109.2 121.8 179.3 Carmed :)ineapple 5.0 8,1 12.3 17.1 19.8 16.0 27.9 Tea 9.3 10.4 15.1 7.8 10.7 12.0 11.9 Bananas 42.6 .8 29.5 26.8 19.6 25.1 39.4 Cement 11.1 47.8 23.5 2.6 - - 267.6 Citronella Oil 2.5 2.4 1.8 1.2 2.2 1.8 2.1 Salt 181.1+ 174.1 217 ·'+ 236.7 197.0 201.1 290.6 ~ Average af first eleven months Source: International Financial Statistics and Inspector General of Customs • - 37 - Table 11 VALUE OF E:>:Pnfd' EXCHANCE SETTLENENTS (in millions of US dollars) 1952 1953 1954 1955 1956 1.2.21 1958 Sugar 69.7 (58.3%) 90.3 58.6 67.9 76.1 110,8 84.7 (51. 5%) Lice 23.2 (19.4%) 11.4 7.8 32.8 12.8 21.2 28.6 (17.4%) Canned Jineapple 2.0 ( 1. 7%) 2.6 4.0 5.6 6.1 4.4 7.5 ( 4.5%) Tea 5. 7 ( 4.8%) 6.8 9.4 5.6 5.1 5.8 6.8 (4.1;~) Bananas 6.6 ( 5. 6%) 3.4 4.7 4.0 3.1 3.8 6.2 (3.&~) Cement 0.3 (0,2%) 1.0 0.4 0,1 - - 4.9 (3.0%) Citronella Oil 2.4 (2.0~b) 2,2 2.7 3.5 5.1 3.6 3.5 (2.2%) Lumber and Timber - - 0.3 0.2 0,8 0.8 0.8 3.3 (2.0%) Salt 2.5 (2.1%) 1.7 1.9 2.1 2.3 2,3 2.4 (1. 5%) Others ---1.4 {5.9~ ~0.1 8.1 11.0 18.:z 15.8 .Jb2 (lQ.~) Total ll9o5 (100,0%) 129.8 97.8 133.4 130.1 168.5 164.4 (100.0%) Source: Bank of Taiwan - 38 - T;:.ble 12 !c:TD U.S. ;~:':..t1IVALsY (in millions of u.s. dollars) 12.22 12.2:2 1954 12.22 Item U.J. Others Total u.s. 2thers Total u.s. Others Total u.. 3. Others Total Aid Aid Aid J:.id Nachinery and Tools 2.6 10.3 12.9 4.8 11.2 16.0 11.0 13.4 24.4 11.3 11.3 22.6 Ores, Metals and Mfrs. 5.2 11.6 16.8 7.0 11.9 18.9 7.7 14.2 21.9 5.9 15.6 21.5 Chemical Fertilizer 22.8 12.7 35.5 7.8 10.6 18.4 0.9 20.2 21.1 - 22.4 22.4 Raw Cotton 11.4 1.8 13.2 14.3 J.3 17.6 19.7 1.1 20o8 19.5 0.9 20.4 11iheat, Flour and Cereals 5.5 7.9 13.4 12.5 5.6 18.1 16.2 1.3 17.5 12.l.f. 0.5 12.9 Crude and Fuel Oil 9.1 0.9 10.0 ).2 4.4 7.6 2.3 7.7 10.0 1.6 8.7 10.3 Vehicles, Vessels and l arts 0.7 3.8 4.5 3.6 3.5 7.1 1.4 4.4 5.8 2.3 2.5 4.8 and 0.3 0.3 0.2 0.2 0.2 0.2 0.1 0.1 - - - - - Pharmaceuticals 1.8 6.9 8.7 1.3 5.8 7.1 0.8 5.6 6.4 ).2 3.3 6.5 Chemicals 0.9 1.4 2.3 0.8 2.2 3.0 1.1 2.3 3.4 1.7 2.0 3.7 Oil and ·ax 2.9 2.7 5.6 1.5 2.7 4.2 2.5 2.2 4.7 4.4 1.1 5.5 Rubber and Froducts 0.4 3.4 3.8 o.6 3.3 3.9 1.0 3.1 4.1 1.3 2.7 4.0 Others ....?2& 54.2 80.0 26.2 41.9 68.S 23.2 L~O.~ 6J.z 25.6 29.8 2.2 .4 Total 89 .. 1 117~9 207 .o 84.0 106.6 190.6 87.8 116.2 204.0 89.2 100.9 190.1 1956 ___..12.21. 12.28 D.::>. ·- Others Total u.s. Others Total u.s. Others Total ~ Aid Aid i1achinery and Tools 18 •.5 16 .. 6 35.1 21.8 .9 42.7 17.9 21 .. 3 39.,2 Ores, and i'.lfrs. 8.7 19.7 28.4 7ol 24.7 31.8 2.7 21.7 24.4 f1 Excluding Chemical Fertilizer 0.1 22.6 22.7 - 26.0 26.0 - 19.5 19.5 arrivals .cav.r Cotton 15.4 4.3 19.7 18.4 1.5 19.9 16~5 1.6 18.1 financed under ·!heat, Flour and Cereals 13 .. 7 - 13 .. 7 17.2 0.7 17.9 17o0 - 17.0 PL 480 Crude and Fuel L~.2 14.0 18.2 - 4.9 20~2 15.3 0.7 15.4 16.1 Vehicles, Vessels and Parts 3,7 7.0 10.7 3.1 9.8 12.9 3.6 11.9 15 .. 5 Source: Bank of Beans and .teas 9.4 0.1 9.5 11.5 1.3 12.8 9.6 1.1 10.7 Taiwan .i.harmaceuticals 3.0 3.6 6.6 1.6 5.1 6.7 0.5 7.4 7.9 Chemicals 2.8 4.6 7.4 1.7 5.2 6.9 0.5 6.7 7.2 Oil and ~'ax 5.6 0.9 6.5 2.7 1.4 4.1 3.6 2.9 6.5 Rubber and Products 0.9 J.8 4.7 0.9 4·.3 5.2 0 .. 6 4.5 5.1 Others 10.5 J4.!! 4~.0 17o6 J2.4 ,20$0 9.1 J6.2 42.6 Tot~l 96.5 131.7 228.2 98.7 153-5 82.3 150 .. 5 232~8 • - 39 - . Tab~e ~3 . _ . "' l/ FINANCING OF 3JiiT0'Jl1ftl\iilJDdf.1 'ITU'J.1!$nC.tiDNS:.:: (in millions of u.s. dollars) Item First half 1952 1953 1954 1955 1956 1957 1958 A. Goods and Services Exports f.o.b. ~ 119.5 128.6 95-9 127.1 124.1 148.3 87.7 Imports mainly c.i.f. 11. -208.3 -192.9 -204.9 -184.7 -----222.1 . =244.7 -130.7 Trade b:o.l B. ~uscellaneous Donations and Capital Private donations 1.8 2.4 - 0.1 1.3 0.4 0.1 9.0 Private capital 4.1 9.9 10.7 1.8 - 4.4 9.1 7.0 Official loans received 12 - 5·5 2.0 0.7 Official repayments - 1.2 - 3-3 - 3.5 - 1.1 - 1.6 - 3-5 - 0.8 U.S. grants for student assistance 1.3 0.4 0.3 0.1 O.l-1- 2.0 1.8 Other official __0.7 - 1.0 3.9 ----0.2 --- Total 6.7 14.9 10.4 6.7 3.0 7·7 17.0 c. Net Errors and Omissions 2.1 - 1.7 - 0.4 2.2 - 7-3 - 0.8 + 6.5 D. Tot~l (A through C) - 90-7 - 67o7 -121.4 - 62.0 -111.9 - 89.4 - 24.9 E. U.S. Grant and Loan Aid 92.6 84.3 88ol 90.3 96.9 94.8 41.5 F. Monetary hovements Short-term liabilities - 0.5 - 9.7 - J.4 20.2 13.2 - 7.8 Short-term assets (increase -) 0.5 - 15.0 24.9 - 23-7 - 3.6 - 17.7 - 7.6 Monetary gold (increase -) - L9 - 1.6 - LJ ---- L2 - 1.6 - 0,9 - 1.1 Total - 1.9 - 16.6 33·3 - 28.3 15.0 - 5.4 - 16.5 ------·------··---- Source: International Monetary Fund~ Balance of Payments Division. For footnotes, see next page. - 40 - Table 13 (Cont 1d) Footnotes No sign indicates credit; minus sign indicates debit. Entries for 1952-1956 are based on exchange records; those for 1957 and first half of 1958 are based on trade returns. There are small, unexplained differ ences between the exchange data reported to the International Monetary Fund and the exchange data obtained by the recent Bank rr~ssion. The latter are shown in Tables and Loans received under official guarantee by Taiwan Power Company and Chinese Petroleum Company from U.S. firms. - 41 - BANK OF TAIWAN FOREIGN ASSETS AND LIABILITIE'3 (in millions of US dollars) End Of' Assets Liabilities Net Assets Period Gold Foreign 'l'otal Exchange 1952 2.6 31.7 34.3 22.9 11.4 1953 4.2 44.3 48.5 23.2 25-3 1954 9.4 18.6 28.0 22.0 6.0 1955 11.0 42.0 53.0 23.7 29.3 1956 12.5 59-9 72.4 42.0 30.4 1957 13.4 88.7 102.1 63.9 38.2 1958 6.4 96.3 102.7 55.4 47.3 Source: Bank of Taiwan, Report on Foreigp Exchange Business and International Financial Statistics - 42 - Table 15 NET GOLD Ar-ID ?OR"SIG;' 81~CE·'GJGE j.l=:SERVES OF BA.NX OF TAIUAN (end of period, in m~llions of US dollars) 1952 1953 1954 1955 1956 1957 1958 Gold 2.6 4.• 2 9.4 11.0 12.5 13.4 6.4 US dollars 6.5 8.2 2 .L~ 3.9 25.6 48.9 61.9 Open-, :;count!I 2.2 5.0 -9.7 5.0 -20.0 -33.2 -32.5 Pou ...· '::; sterling 0.1 7.0 2.2 7.3 9.2 7.2 8.8 Hong :,:mg dollars 0.7 1.6 2.0 2.4 1.4 2.3 Other 0.2 0.2 0.1 0.7 o.5 0.4 Total 11.4 25.3 6.0 29.3 30.4 38.2 47.3 ------y Net balance outstanding under the pay;.1ents agreement 1r:d th Japan. Source: Banl{ of Taii.·ran, Report on Foreign 'Sxchange Business; and International Financial .Statistics - 43 - Table 16 SHORT-'l'ERM ASSETS Al\TD LIABILITIES IN U.S. BANKS (in mill1ons of' US dollars) End of Period Assets Liabilities Net Assets 1953 37.2 5-5 31.7 1954 34.3 5.4 28.9 1955 38.8 5-5 33.3 1956 60.5 5.5 55.5 1957 85.8 5·7 80.1 1958 98.7 6.1 92.6 Source: U.S. Treasury Department, Treasury Bulletin - 4h - Table 17A CHINA - EXTERNAL PUBLIC DEBT OUTSTANf'Il'JG, DEC:ST>JBER 31, 1958-!f (in thousands of US dollar equivalents) Debt Outstanding Dec. 31, 1958 TOTAL EXTERNAL PUBLIC DEBT 448,289 Loans :t..n DefalL:..t 379,758 Pre-~rar Debt 249,021 u.s. dollar publicly-issued bonds 51,310 Pound sterling publicly-issued bonds 172,009 French franc publicly-issued ~::Jonds 376 Japanese y'3n publicly-issued bonds 309 Belgian franc publicly-issued bonds 2,755 'Netherlands guilder puhlicly-issued bonds 8,092 u.s. dollar privately-held debt 4,170 Post-war Debt 130,737 Export-Lmport Bank loans 28,973 ~S2, 540,948 Republic of China 3~%, 19h6-1968 2,541 $8,282,219 Republic of China 3~%, 1946-1961 8,282 ~16,650,000 Republic of China 3%, 1946-1976 16,650 $1,500,000 Republic of China 3%, 1946-1966 1,500 Other u.s. Government loans 51,071 ~50,345,~00 Lend-lease credit 2-3/8%, 1946-1976r2/ 45,989 $4,081,7ul.71 Surplus property 2-3/8%, 1946-197o 4,082 Canadian Government loan 50,6933/ Can.$51,037,091 Canadian Export credit 3%, 1946-1976 50,69~ Loc:ms Not in Default 68,531 Post-T-Jar Debt 68,531 Export-Import Bank loan 610 ~4,243,750 Republic of China 3~%, 1946-1968 610 Other u.s. Government loans 67,921 ~a6,3e7 ,000 E'iarit:L'11e Administration 3~-;~, vario~s, maturities 2,913 $)20,000,000 Army surplus property credit, 1945-' 20,000 ~~55,000,218 Surplus property repayable in local currency, real property and imp;J;gvements to real property 2-3/8;s, 1946, 1948-1975, 1977~ 45,008 1/ Excluding debt in u.s. dollars or local currency. ~/ These three loans are a.ll parts of the ~·i79, 082,000 sales of overseas surpluses loan. There has been no settlement as to terms of repa;;;rment on the ~?20,000,000 Army surplus pro•)erty portion. 2./ A.rnount outstanding ~Tarch 31, 1958. Source: IBRD Statistics Division. - 45 - Table 17 B CHINA - EXTERN:tl.L PUBLIC DEBT PAYABLE IN U.S. DOLLARS OR LOCAL CURRENCY OUTSTAl\IDL,rG DECID-1BER 31, 1958 (In thousands of U.S. dollar eQ.uivalents) Debt Outstanding December 31, 1958 TOTAL 84,700 Payable in U.S. dollars or local currency U.S. Government loans 60,000 1/ af,20,000,000 ICA loan 3% or 4%, 1955-199~/ 2o,ooo I f2o,ooo,ooo ICA loan 3% or 4%, 1956-199~ 20,0003./ ~~20,000,000 ICA loan 3% or 4%, 1957-1997!/ 20,000,g_ Payable in local currency D~velopment Loan Fund loans 24,700 , 200,000 loan to raihray admhistration 3 1/2%, 1958-1970 3,200 ~:21, 500,000 loan to Shihmen Dam 3 1/2%, 1958-1994 21,500 1/ The contracts on these loans provide that any instalment of principal or interest may be paid in U.S. dollars or local currency at the option of the creditor. The interest rate 1iJill be 3% if paid in U.S. dollars and 4% if paid in local currenqy. 2} The following amounts 1vere undisbursed in these loans as of December 31, 1958 Total $23,340' 458. 91 Loan of 1956 5,533,4~ Loan of 1957 17,807,026.86 Source: IBRD Statistics Division. " (Mainland) CHINA ,:::~ tt·=f"~HINA HONG ~ (Taiwan) KONG 4-i q"- I PHILIPPINE SEA Q CHINA {TAIWAN) El I I I I I I I I I I Railroads Main roads Mountainous areas of 3000 feet and over SOUTH CHINA MAY 1959 IBRD-589