Coping with the Asian Financial Crisis: The Taiwan Experience

Abstract

Taiwan was affected by the 1997 Asian financial crisis, although, fortunately for Taiwan. the degree of fluctuation in the exchange and interest rates was less than most of other crisishit countries in Asia. The better performance of Taiwan, in the wake of the crisis, can be attributed to various factors, including those linked with the macroeconomic, financial, and real sectors. Economic and financial stability have been made the priority goals of the government. Since the 1950s, Taiwan has followed a suitable sequence in undertaking economic reform, and has often enjoyed a trade surplus and excess savings. This paper takes such factors into account in its analysis of how Taiwan managed to cope with Asian financial crisis so effectively. Other areas which come in for scrutiny in this regard include Taiwan's abundant foreign reserves and low foreign debt, strong financial regulations, the industrial structure based on small- and medium-sized enterprises and how this facilitated the economy's flexible reaction to the crisis, and industrial upgrading and technology promotion and how this helps explain Taiwan's economic robustness. Although Taiwan has performed well during the Asian financial crisis so far, there will still be many more challenges to face in the future. These future challenges are discussed, too. Finally, some policy recommendations are put forward.