A number of questions concerning the economy of Taiwan occupy the minds of commentators in the early months of 1998. The optimists will question how Taiwan has managed to survive the worst of the Asian financial crisis. The pessimists ponder on how long it will be before the meltdown reaches Taipei, while the moderates speculate on the future direction of economic conditions and financial variables. It is just this inability of the financial markets to accurately predict interest rates, stock prices and exchange rates in Asia (whether they be driven by fundamentals, sentiment or the brute force of powerful speculators) that has brought home to investors worldwide the fragility of many of the region’s markets. This leads to the next penetrating question: Is the Taiwanese financial system fragile? This of course depends on the soundness of economic fundamentals and the robustness of the financial system. Over the remainder of this chapter we will attempt to answer this and several other questions. We will begin by examining how Taiwan has apparently survived relatively unscathed, proceed to examine the vulnerability of the financial system and conclude with some speculation on the likely future course of events.
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- Taiwan: An Island State with Economic Insulation?
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