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December 2008
Prudent use of the expansion of public works to support economic development under the financial turmoil

Global credit crisis is sweeping the globe, it came from the collapse of the financial sector as a whole and has led the wealth of the people of all major countries to shrink dramatically, and in turn reduced the will of consumption, for Taiwan whose export is the main engine of economic growth, it not only means the stock market's sharp decline, it will also face the dual challenge of shrinking production. How to get the economy to ride out this wave of winter? It deserves food for thought.

Getting to the bottom of the causes of the crisis, the U.S. international trade competitiveness was heading in recession, coupled with loose monetary policy, resulted in the formation of large-scale private consumption and housing loans, it not only created the real estate bubble, it also formed the seeds of the sub-loan crisis. The U.S. government's fiscal imbalance, coupled with war spending and surging oil prices, the U.S. government and the private sector was already eating next year's food, surviving on loans. On top of increased financial leverage through the complex operations as well as the extended packaging of financial products, the economic impact spread to the developed countries in all sectors of the economy, under the ignition of the collapse of Lehman Brothers, in addition to the resulting system closure crisis of the financial sector, it brought about the global credit crunch, it not only impacted upon the normal financing operations of businesses in the economy, it also affected the global economy.

In addition to the impact on currency, what is even more worrying are the impacts on "real sectors", including the car and house mortgage crunch which already caused the United States automotive and construction industries to shrink dramatically, and after the United States salary earners who originally will need to pay off principal interest by one-sixth of their income can no longer afford to maintain existing jobs and income, drastic cuts in consumption is expected. In the various types of products, consumer electronics and IT products may be the first to be affected, once demand reduction begins in the major markets in computers, cell phones, and other consumer electronics products, being reliant on information technology products as the main export, Taiwan's economy it will begin to suffer a major bottleneck.

In the past six months, faced with the impact and challenge of climbing general price levels, Taiwan's government has become inadequate at dealing with such livelihood issues as oil prices and electricity prices. Now, faced with the immanent financial crisis, the Government should at the same time as saving the stock market, come up with more comprehensive planning and effective measures in order to avoid being taken by surprise, or make a repeat of the back-and-forth policy of the milk poisoning event, resulting in citizens' confidence crisis towards the government.

In the face the possibility of recession of the import market and domestic consumption, to maintain and even expand government spending, it will be the inevitable countermeasures. In fact, since the new administration took office, in order to achieve the promised goal of 633, it has already started to wave the "expanding domestic demand" banner, but as inflation remained high, and raw materials prices reaching new heights, whether or not to meet the policy objective of expanding domestic demand and avoid cases of civil and public sectors competing after high-priced steel, still remains highly controversial. However, a look at the next one to two years, possible deflation brought forth by economic recession, as well as unemployed workers released from the closure of factories, "expansion of domestic demand" would become the inevitable policy tools, especially as many nations are likely to jointly cut current interest rates, public borrowing is expected to further reduce the cost of capital, it would also benefit the major public constructions.

However, Taiwan has long been on the brink of financial debt limit, and the prevailing empty museums and empty airports throughout the country, casts even more doubt and distrust in the mind of the public on the actual effects of public construction. In fact, Taiwan's public construction compared to the level of per capita income level, remains a great deal of room for improvement, the bridges that collapsed in the rain, pot-holes of the road, untreated family sewage, repeatedly highlights our country's inadequate public constructions rated by international public construction standards. As a result, in the face of the impact of global financial crisis, the government should quickly plan the next phase of public construction strategy.

Public debt in the implementation of the objectives of public constructions, inter-generational justice issues must be addressed, if the investment projects would remain beneficial for future generations, modern-day debt will have a degree of legitimacy. On the other hand, if the purpose is only for contemporary consumer spending, for example, pyrotechnics or the payment of benefits, or even the maintenance of flowers on the sidewalk, its debt will be highly controversial. This thinking can be expanded for the dialectic, in the face of a collapsed land bridge brought about by the typhoon, to borrow for the construction of a temporary pavement, or to put up with the inconvenience of traffic diversion and proceed to borrow for total bridge reconstruction, the legitimacy of the difference is obvious. As a result, under the financial crisis in the face of the direction of public investment, construction projects that are accountable for future generations should be carefully handled, so as to avoid consumer type spending, and focus on capital-expenditure.
For example, to strengthen public investment on the overall transformation of the urban environment, is urgently important work. Taiwan's urban landscape has always been criticized for not only unable to match Japan in the metropolitan areas, even Kuala Lumpur, Shanghai and other emerging cities, have emerged as tidier than Taipei. A few years ago Hong Kong began the face-lift plan targeted at the old buildings has enriched the city of Hong Kong, but in recent years, Taiwan has remained stagnant, worthy sidewalk networks are not only scarce, most of the buildings after construction completion has never conducted exterior cleaning, they are left to be exposed to the natural elements and depreciation, and the metal housings spread throughout the CBD areas, and fragmented skylines cut by electric cables, all require the right investments by government departments for rectification.

By intervention of the government's public sector, regulating city appearances with vision, and through government financial subsidies and mechanisms to promote private sector participation, such as actuarial cost of building face-lifts after a pro rata subsidy, in addition to finishing the city landscape, but also to maintain the asset value, maintaining future land tax and housing tax revenue level. At the same time, public investment in such capital investment is limited, most of the project expenditures can reward the flow of labor, the demand threshold for labor skills is not high, so as to further implement the purposes of caring for the grassroots level workers. On the experience of improving urban landscape, South Korea's Cheonggyecheon example indicates the relevant laws supporting, professional technicians to play as well as the functions of those in Government's vision are the most significant factors for transformation of the urban environment.

In reference to Britain and the United States government under financial difficulties, the use of private funds to boost public participation and promoting the BOT model, due to continued debates on the BOT related promotion in Taiwan, the promotion has been relatively stagnant, and in the face of credit tightening brought about by the impact of the financial crisis, non-governmental funds will be even more difficult to obtain, it would be another blow for the implementation of BOT. As a result, under the premise that public constructions need to be on-going and constantly updated, government has to take the lead on the wave of investment, for the establishment of civil infrastructure, take into account the government to ensure that capital investment of the proceeds to pay patterns (PFI model), perhaps this way the civil participation bottlenecks can be slightly eased, in order to achieve on-going public construction improvements, and to maintain our international competitiveness.

All in all, in the face of the export market's chilling winter, government's effective and practical creation of domestic market demand to create, can fill the demand for investment in a timely manner, and the use such models as BOT in order to boost civil financing to improve infrastructure, would further bring about a more solid basis for the next phase of economic growth. However, cautions need to be taken not to repeat the same mistakes in the past, if only to secure local political agendas, or the allocation of resources for such non-economic factors as the balance of political habitat, then no matter how much money is injected the result will be in vain, and letting future generations to bare huge burdens for no apparent reason. The U.S. example is at sight, it is up to the wisdom of the Government in this regard to sufficiently to shake off the old ways, and bring hope and confidence to the people.

 

 
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