Issue 6 Global Taiwan Brief Vol 5
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Global Taiwan Brief Vol. 5, Issue 6 Global Taiwan Brief Vol 5. Issue1 6 Fortnightly Review Russell Hsiao Taiwan’s COVID-19 Experience Earns International Praise I-wei Jennifer Chang Enhancing Taiwan Coast Guards’ Role in International Maritime Capacity Building Brandon Lee COVID-19 and New Realities in the Taiwan Strait: Four Scenarios Michael Mazza Fortnightly Review The Global Taiwan Brief is a By: Russell Hsiao bi-weekly publication released every other Wednesday and pro- Russell Hsiao is the executive director of the Global Taiwan Institute (GTI) and editor-in-chief of the vides insight into the latest news Global Taiwan Brief. on Taiwan. Taiwan Injects Record Amount of Stabilization Funds to Shore Up Market Amid Editor-in-Chief COVID-19 Pandemic; Excluded from IMF Response Russell Hsiao Staff Editor The fallout from the novel coronavirus (COVID-19)—which originated in Wuhan—is be- Katherine Schultz ing felt throughout the world. As the coronavirus pandemic spreads, authorities around Copy Editor the globe are scrambling to mitigate its fatal health effects and its widespread econom- Marshall Reid ic disruption. Indeed, global markets are tumbling and hitting new bottoms—at least The views and opinions expressed in recent memory—due to the profound impact that the virus is having on economic in these articles are those of the activities, and an end does not yet appear in sight. Governments across the world are authors and do not necessarily re- attempting to respond to the health and economic crisis with various stimulus and sta- flect the official policy or position bilization measures—and international monetary and fiscal institutions are calling for a of the Global Taiwan Institute. coordinated global response to assist smaller and more vulnerable economies. The US market just concluded its worst week since the financial crisis of 2008 and lawmakers are To view web sources cited in the published papers (underlined in finalizing a plan to inject substantial stabilization funds. Also, just in the past week, the printed text), visit http://global- Taiwan Stock Exchange (TWSE) fell over 8 percent. In response to growing uncertainty taiwan.org/2020/03/vol-5-is- in the domestic and global markets, on March 20, Taiwan’s Committee of the National sue-6/ Financial Stabilization Fund (國家金融安定基金管理委員會, hereafter the “National Global Taiwan Institute Stabilization Fund”) injected an unprecedented amount of liquidity, valued at NTD $50 1836 Jefferson Place NW, billion (USD $1.65 billion), to stabilize market conditions in the country. According to the Washington DC 20036 Committee’s statement on March 19: [email protected] “… negative factors such as the continued spread of the pandemic, the uncertain To subscribe, visit prospects for economic recovery, and unstable financial markets have affected the http://globaltaiwan.org/sub- confidence of domestic investors … the resolution authorizes the Executive Secre- scribe/. tary to use funds to perform market stabilization tasks.” © 2020 · Global Taiwan Institute Global Taiwan Brief Vol. 5, Issue 6 2 Created in 2000, the National Stabilization Fund is le- highlighted in December 2012: “No one can predict gally credited with NTD $500 billion (USD $16.5 billion) which pathogen will be the next to start spreading to in funds that it may inject into the market to serve as a humans, or when or where such a development will oc- buffer against unexpected external factors that disrupt cur. An easily transmissible novel respiratory pathogen the market. Of the total amount of funds, NTD $200 that kills or incapacitates more than one percent of its billion consists of stock held by the National Treasury. victims is among the most disruptive events possible.” The other NTD $300 billion is comprised of borrowings What may seemingly appear as a purely public health from Taiwan’s four major public funds: the Postal Life issue can have profound economic consequences. As Insurance Fund, the Labor Insurance Fund, the Labor this analysis published by the International Monetary Pension and Civil Servant Fund, and Postal Deposit Sys- Fund (IMF) noted: tem. The Committee is authorized to issue funds into “What started as a series of sudden stops in the market to intervene, smooth market volatility, and economic activity, quickly cascaded through the shore up investors’ confidence. Taiwan’s Vice Finance economy and morphed into a full-blown shock Minister Juan Ching-hwa (阮清華) serves as executive simultaneously impeding supply and demand …. secretary of the NSF Committee. The coronavirus shock is severe even compared The NSF’s latest injection of funds marks only the sev- to the Great Financial Crisis in 2007–08, as it hit enth time that the Committee has intervened in the households, businesses, financial institutions, last 20 years to stabilize and sustain the economy, and markets all at the same time—first in China thereby highlighting the severity of the current glob- and now globally. “ al pandemic. In the past, the NSF stepped in twice: in In addition to the World Health Organization’s (WHO) 2000 after the first transfer of political power, when slow response to the current global health crisis, the Beijing issued a stern threat that spooked the market, patchwork of global economic responses to the coro- as well as when the dotcom bubble burst; and in 2004 navirus highlights another international institution after the assassination attempt against Taiwan’s pres- where Taiwan is notably excluded: the International ident and vice-president. The Committee also inter- Monetary Fund (IMF). For an organization that boasts vened in 2008 during the global financial crisis, again in about universal membership, its membership remains 2011 in response to the European Sovereign debt crisis, far from universal even though there are no rules pre- and most recently in 2015 after the RMB depreciated conditioning membership on being UN member states. sharply and the devaluation of many Asian currencies Indeed, IMF members include economies such as Aru- triggered panic selling. The current injection is the larg- ba, Curaçao, Hong Kong, and Macau, as well as Koso- est amount that the Committee has ever authorized vo. Moreover, as the IMF Managing Director Kristalina since its inception. The NTD $50 billion is equal to one- Georgieva recently stated: “The human costs of the tenth of the funds’ entire worth, four times more than Coronavirus pandemic are already immeasurable and the NTD $12.27 billion (USD $405 million) of liquidity all countries need to work together to protect people that it injected into the market during the economic and limit the economic damage. This is a moment for turmoil of 2000, and nearly 10 times more than the solidarity.” Despite Taiwan’s large population (24 mil- NTD $6 billion (USD $198 million) that it doled out as a lion) and key role in the global economy (22nd largest result of the 2008 financial crisis. economy by purchasing power parity), it seems that Global Coronavirus Response Highlights Taiwan’s Ex- the IMF does not include the island nation in its call for clusion from IMF global solidarity. The proliferation of transnational threats and conta- To be sure, the Wuhan coronavirus pandemic is taking gion between them should give rise to calls for a more a heavy toll in terms of disrupting human lives and the effective cooperation and coordination among govern- economic order. Taiwan has had to undertake mea- ments. The ripple effect of pandemics is one of them. sures to shore up its economy during this global crisis, Indeed, as the assessment of the US National Intelli- but it is in a position to contribute to a global response gence Council’s Global Trends 2030: Alternative Worlds as well. Its significant role in the global tech supply Global Taiwan Brief Vol. 5, Issue 6 3 chain makes it an essential part of the global recovery ammunition to escort the Chinese planes. During the process. Taiwan should be a part of a global response, exercise on the 10th, the PLA dispatched an H-6 that provided with up-to-date information and able to co- crossed the median line of the Taiwan Strait, the first ordinate with other financial bodies. time the PLA has deliberately crossed the median line since March 2019. In turn, this prompted Taipei’s mili- The main point: In an effort to counter contagion in tary to scramble F-16 jets to intercept and shadow the terms of the economic fallout from the coronavirus bomber. On February 12, the US military dispatched pandemic, Taiwan has injected a record amount of li- one MC-130J special combat transport aircraft and two quidity into its domestic market from its National Sta- B-52 bombers, flying respectively over the median line bilization Funds. A more coordinated global response of the Taiwan Strait to the west of Taiwan and in the appears necessary to limit further serious economic eastern airspace of Taiwan. damages, yet Taiwan remains excluded from the ef- forts of International Monetary Fund. In response to these initial incursions by the PLAAF, R. Clarke Cooper, assistant secretary for political-military affairs at the US Department of State, stated: “Abso- The New Normal of PLA Military Exercises Around Tai- lutely it concerns us … [i]t was completely inappro- wan? priate of China to take such an aggressive act …. That aggressive act is not just a reflection on China’s rela- Since January 2020, the People’s Liberation Army (PLA) tionship with Taiwan, it certainly is reflective about has already conducted at least four known military ex- how China may be looking at the entire region in total.” ercises in the vicinity of Taiwan. These exercises pri- marily involved flight training operations by the PLA Air These flights appear to represent a new normal of mil- Force (PLAAF).