Taiwan's new controls on currencyinflows, implemented today, are a desperate bid to stem a flood
of speculative money prompted by the local currency surge
against the U.S. Dollar, local and foreign bankers said.
    The central bank now has to clear remittances exceeding one
mln U.S. Dlrs earned from exports, shipping and insurance and
bank lending plus remittances of more than 10,000 dlrs from any
other source.
    Petitioners have to show their remittances relate to
genuine commercial transactions.
    Meanwhile, traders are no longer required to report all
outward payments concerning invisible trade, including freight,
insurance and royalties, to the central bank.
    But bankers said they believed the new controls would be
ineffective since businessmen could split up remittances into
smaller units or simply remit money through Taiwan's
flourishing currency black market.
    The bankers said the controls, announced on March 6, are a
panic reaction to U.S. Pressure, which has intensified over the
past week, for a faster appreciation of the Taiwan dollar to
slow the growth of Taiwan's exports to the U.S.
    The government has denied local press reports Washington is
pressing for an exchange rate of up to 28 dlrs.
    The Taiwan dollar opened four cents up today at 34.70.
    "I don't think the central bank has a final target," said an
executive with a U.S. Bank. Other bankers and economists said
they are wary of making any firm predictions about how far the
Taiwan dollar will rise.
    Taiwan's trade surplus with the U.S. Hit 13.6 billion U.S.
Dlrs last year against 10.2 billion in 1985. The surplus
widened in the first two months of the year to 2.35 billion
dlrs from 1.87 billion in the same period last year.
    Economists estimate up to five billion dlrs in speculative
money flowed into Taiwan in 1986.
    This inflow helped boost foreign exchange reserves to more
than 51 billion dlrs from just under 25 billion this time last
year and provided further upward pressure on the currency.
    The Taiwan dollar has appreciated by almost 15 pct against
the U.S. Currency since September 1985, further encouraging
speculators.
    Central bank governor Chang Chi-cheng said last week
Washington's pressure plus rising foreign exchange reserves
meant a further strengthening in the currency is inevitable.
    Many local bankers argue the only effective solution to the
currency problem is to drop foreign exchange controls and allow
the local dollar to find its own level.
    "Lifting exchange controls is the final answer, but the
central bank is not prepared to do it. It simply does not want
to take the risk," said one local banker.
    He said he believed the new restrictions are a temporary
measure designed to buy time as the central bank grapples with
the exchange rate problem.
    The restrictions are a bureaucratic imposition and skirt
around the real issue, he said.
    Taiwan needs a fundamental restructuring of foreign
exchange controls, said an executive with a western bank.
    "The controls will create more paperwork, but the extra bank
charges will not outweigh the profits of speculation," said the
manager of a European bank.
    Economists criticised the controls, saying they could
antagonise Washington, which is pushing for further economic
liberalisation in Taiwan.
    "Instead of liberalising outflows, the government has
restricted inflows," said Kate Newman, an economist with Vickers
da Costa.
    A local banker, who declined to be named, said, "It's
basically ridiculous. It's a backward movement and goes against
the government's liberalisation programme."
    Taiwan last year eased some of its financial regulations to
enable Taiwan nationals to invest in foreign government bonds,
treasury bills and certificates of deposit and to allow
individuals to take 5,000 U.S. Dlrs in cash out of the country
each year.
 REUTER
