Bloomberg News

Taiwan Keeping Perng at Central Bank Suggests Stability

February 03, 2013

Taiwan Central Bank Governor Perng Fai-nan

Perng Fai-nan, governor of the Central Bank of the Republic of China (Taiwan), is seen on March 31, 2011. Under Perng’s 15 years at the helm so far, the Taiwan dollar gained about 10 percent against its U.S. counterpart, less than half the 22 percent appreciation of Asian currencies. Photographer Maurice Tsai/Bloomberg

Taiwan’s re-appointment of its top central banker to a fourth term will likely mean continued stability for the island’s currency and protection for exporters.

The decision, announced late Feb. 1, came three days after Central Bank of the Republic of China (Taiwan) Governor Perng Fai-Nan reiterated the authority would intervene to offset any “disorderly movements” in the market for the local dollar.

The move bolsters President Ma Ying-jeou’s efforts to strengthen an economy that grew in 2012 at the slowest pace since the 2009 global recession. Perng has promoted order in the currency market as the island’s biggest companies, including Taiwan Semiconductor Manufacturing Co. and HTC Corp. (2498), compete with Sony Corp. and Samsung Electronics Co. Exports account for around two-thirds of Taiwan’s gross domestic product.

“Perng’s re-appointment is a big help in maintaining stability in Taiwan’s financial environment,” said Tsung-Sheng Liu, president of Yuanta Securities Investment Trust Co., Taiwan’s biggest money manager. “Now that the uncertainty is gone before the Lunar New Year holiday, we’re bullish about Taiwan stocks.”

The Chinese holiday is next week. Taiwan’s benchmark stock index, the Taiex (TWSE), rose 0.4 percent to 7,885.53, a sixth day of gains. The dollar strengthened 0.3 percent to NT$29.593, snapping a three-day decline. The currency has weakened 1.8 percent against its U.S. counterpart in 2013.

Export Competitiveness

The central bank has sold the local currency near the close on most days in the past 10 months, according to traders who asked not to be identified. Under Perng’s 15 years at the helm so far, the Taiwan dollar gained about 10 percent against its U.S. counterpart, less than half the 22 percent appreciation of Asian currencies, according to data compiled by Bloomberg.

Morris Chang, chairman of TSMC, the world’s biggest contract manufacturer of chips, said at a forum Jan. 11 that the government should let the Taiwan dollar depreciate further to aid competitiveness, according to a Formosa Television report.

Taiwan’s exports rose 9 percent in December from a year earlier after falling in eight of the 12 months. Export orders, an indicator of shipments in the next one to three months, climbed 8.5 percent from a year ago, a fourth straight month of gains, government data showed.

The governor’s extension to a new five-year term from the end of February was confirmed by presidential spokesman Fan- Chiang Tai-chi. The government yesterday also named former deputy transport minister Chang Chia-Juch Minister of Economic Affairs as part of an executive branch personnel shake-up as Ma battles a 14 percent approval rating.

Crisis Aftermath

Chang is chairman of Taiwan-based China Airlines Ltd. and succeeds Shih Yen-shiang, who has led the ministry since September 2009, the Cabinet said in a statement late yesterday. Chang, who was Vice Minister of Transportation and Communications for a decade until 2005, took over as chairman of the island’s biggest carrier in January 2011, and is also a former chairman of China Steel Corp.

Minister Without Portfolio Kuan Chung-Ming, 56, will lead the Council for Economic Planning and Development, taking over from Yiin Chii-ming, according to the Cabinet. Premier Sean Chen resigned on health and family grounds, and will be replaced by Vice Premier Jiang Yi-Huah, presidential spokesman Fan-Chiang Tai-chi said Feb. 1.

Perng was appointed in February 1998 by President Lee Teng- hui after Governor Sheu Yuan-dong died in an airplane crash. The holder of a doctorate in law from the University of Minnesota helped guide Taiwan’s lenders through the aftermath of the 1997- 1998 financial crisis in Asia, in part by cutting reserve requirements for banks to deal with bad loans.

Offshore Yuan

While the governor led Taiwan through those difficulties and helped stabilize the currency, his policies have also contributed to a surge in real estate prices, according to Wu Hui-lin, a research fellow at Chung-hua Institution for Economic Research in Taipei.

“The central bank’s currency-stabilizing policy has released a lot of money into the financial system over the years, contributing to the build-up of a property bubble,” Wu said.

M2 money supply, the broadest measure of money in the financial system, has surged more than two-fold since 1998, while the overnight money-market rate, which measures funding availability among banks, slumped to less than 0.4 percent from 7 percent. Housing prices in Taipei, the seat of Taiwan’s government, have more than doubled since 2000 and reached a record high last year, according to Sinyi Realty Co. (9940)

Systemic Stability

Taiwan’s central bank has held interest rates steady since June 2011 as the export-dependent economy struggled with weaker demand for its electronic goods. Gross domestic product 3.42 percent in the fourth quarter from a year earlier, compared with 0.98 percent in the previous three-month period.

Perng has led the monetary authority’s efforts to implement a cross-strait agreement signed in August, allowing for interbank trading of mainland China’s currency on the island, creating a new exchange rate for offshore yuan. Taiwan lenders can start conducting yuan business as early as Feb. 6, China’s official Xinhua News Agency said on Jan. 31.

The governor “has an incredible record of pre-empting crisis and reassuring the markets,” said Wai Ho Leong, a Singapore-based economist at Barclays Plc. “He’s done an excellent job of managing the growth-inflation trade-off and has maintained systemic stability.”

Perng told lawmakers in December that the governor’s position “will be my last public job.” He is the longest- serving central bank governor among Asian economies tracked by Bloomberg. Malaysia’s Zeti Akhtar Aziz, who took charge in May 2000, comes next.

Perng, Zeti, Amando Tetangco of the Philippines, Glenn Stevens of Australia and Israel’s Stanley Fischer received “A” grades in Global Finance magazine’s annual ranking of the world’s central bankers last year. They were rated higher than Federal Reserve Chairman Ben Bernanke and the European Central Bank’s Mario Draghi.

To contact the reporters on this story: Andrea Wong in Taipei at awong268@bloomberg.net; Debra Mao in Taipei at dmao5@bloomberg.net; Yu-Huay Sun in Taipei at ysun7@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


China's Killer Profits
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus