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China Times: Set up sovereign wealth fund to stimulate economy

2014/02/05 16:45:21

In its efforts to stimulate economic growth, the government would do well to set up a sovereign wealth fund with Taiwan's huge foreign reserves to pump into national development projects.

Economic growth is driven by four factors: consumption, investment, net exports and public spending. All four have been stagnant in Taiwan.

Consumption has remained flat because of a decline in real income; investment is actually decreasing on the sluggish global economy; exports have also plunged because of feeble demand from European and American markets; and public spending has not expanded because of the government's reluctance to increase spending by borrowing.

What the government has power over is the last category: boosting the economy by spending on development projects.

As for which projects will contribute the most to economic growth, the key is infrastructure and transport development, if the experience of other countries is an indication.

There is no lack of such projects in the pipes, but where Taiwan has problems is finding the funding to launch them.

A solution would be channeling the country's more than US$400 billion in foreign reserves into a sovereign wealth fund.

Managed by the central bank, Taiwan's foreign reserves have yielded returns of about 1.894 percent a year -- NT$227.3 billion (US$7.51 billion).

If used for public projects, the funds would certainly produce profits greater than the returns being yielded now.

This idea is not difficult to implement -- and neither is breaking through the sluggishness of the economy. All it takes is the government's determination and support from the Legislature. (Editorial abstract -- Feb. 5, 2014)

(By Maubo Chang)