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Central Bank of the Republic of China


Statement by the Governor for the Republic of China at the 40th Annual Meeting of the Asian Development Bank

Statement by the Governor for the Republic of China at the
40th Annual Meeting of the Asian Development Bank
Fai-nan Perng, Governor, The Central Bank of the Republic of China (Taiwan)
Kyoto, Japan, May 7, 2007

Mr. Chairman, Mr. President, Fellow Governors, Ladies and Gentlemen:

On behalf of the delegation of the Republic of China, I would like to thank the government and people of Japan for their generous hospitality, and the staff of the Asian Development Bank for their thoughtful arrangements. Kyoto, an imperial capital of over a thousand years, is adorned with ancient temples and beautiful gardens, blending cultural heritage with natural beauty. It provides an idyllic setting for the Bank’s annual gathering. I would also like to join my fellow governors in welcoming Georgia and Ireland to the Bank family.

Over the last four decades, the Bank has contributed greatly to the development of the Asia-Pacific region. During President Kuroda’s two years in office, the Bank has crossed many important milestones. It actively promoted regional economic and financial integration and assisted developing member countries in reducing poverty. It also did an outstanding job in disaster prevention and rehabilitation. I believe that under President Kuroda’s leadership, the Bank will continue to steer a course for sustainable growth and prosperity for Asia.

Indeed, the Bank is noted for sound operation and good credit ratings. In 2006, total allocable net income surged by 44.7%, or US$200 million, from the previous year to US$652.4 million. Yet, this striking gain masks a perplexing feature that might have been overlooked. Between 2005 and 2006, income from lending operation as a share of total net allocable income fell from 35.4% to 20.3%. It would appear that income generated by loan business was decreasing.

A possible reason for the decrease in loan business is that the Bank’s mandate prevented it from following a more diversified lending policy. The Regional Cooperation and Integration Strategy passed last July has opened up the lending scope. It advocated that the Bank play an active role in regional cooperation based on four pillars. They are regional and sub-regional economic cooperation programs on cross-border infrastructure and related software, trade and investment cooperation and integration, monetary and financial cooperation and integration, and cooperation in regional public goods.

A similar proposal was put forth recently by the Eminent Persons Group of the Bank in the report Toward a New Asian Development Bank in a New Asia. They recommended the Bank take a step further from its function of transferring external aid resources for poverty reduction. As a forward-looking regional development institution, the Bank should support higher and more inclusive growth to create job opportunities and improve living standards. It should also establish itself as a platform for economic integration and as a financial intermediary within Asia. Beyond channeling excess capital from developed countries to the needy, the Bank should link up lenders and borrowers within the region, and effectively combine financial aid with the transfer of knowledge and experiences.

I fully endorse these proposals as the important foundation for the Bank to broaden and deepen its operations in the future, especially in the area of regional economic and financial integration. To build on this strategic thinking framework, I would like to expound my views on the regional exchange-rate stability mechanism and the regional financial assistance arrangement.

With regard to the regional exchange-rate stability mechanism, intra-regional trade and investment in Asia have been expanding since the 1990s. Stable exchange rates not only contribute to regional economic stability but also further promote trade and investment by bringing down transaction costs and reducing uncertainties incurred by exchange rate volatility. Moreover, the persistence of global trade imbalances in recent years highlights the importance of setting up such a mechanism. This arrangement can provide a buffer against the precipitating pressure on the US dollar to depreciate if global imbalances continue to worsen. Therefore, I would urge Asian countries to establish a formal regional exchange-rate coordination mechanism as soon as possible to maintain the stability of Asian currencies.

In 2005, the Bank introduced the concept of Asian Currency Unit (ACU). A weighted index of a basket of Asian currencies, the ACU can serve as a benchmark to monitor movements in the values of currencies in the region and, therefore, can provide an important basis for the regional exchange-rate stability mechanism. However, the development of the ACU has been on hold. I fully support the continued promotion of the ACU. But I also believe that the ACU should include all major Asian currencies to represent the true economic configuration and financial structure of Asia. To be more specific, Taiwan’s economic strength makes it one of the regional powerhouses in Asia. An ACU without the Taiwan dollar would not represent the true external value of Asian currencies.

In terms of the regional financial assistance arrangement, in 2000, the ASEAN+3 countries set up a bilateral swap mechanism based on the Chiang Mai Initiative. However, such bilateral mechanisms are mostly based on mutual trust between the parties involved. They are very small relative to the scale of foreign exchange markets and may not be able to help contain the contagion effect arising from financial crises. To enhance its function, I suggest the Chiang Mai Initiative be expanded into a multilateral swap mechanism across Asia with the Bank as the intermediary. The Bank can also set up mechanisms similar to the IMF’s General Arrangements to Borrow and New Arrangements to Borrow. Under these arrangements, the Bank may borrow from countries with ample foreign exchange resources within the region and, through this supplementary source of funds, help assist member countries in a timely manner in the event of a financial crisis.

Regional economic integration is an inexorable trend and an important foundation for the stability and growth of Asia. However, its success depends on whether countries can cast aside political differences and work closely together. Regional cooperation at all levels and in all forms should be inclusive. All economies with adequate strength and financial resources should be allowed to participate and should not be excluded because of political or ideological considerations. What’s more, the Bank possesses more than 40 years of experience, quality manpower, technology and other valuable resources. It should play an even more active role in promoting extensive cooperative relationships among member countries. In short, the Bank should not be confined by the goals and objectives that have guided it in the past. Instead, it should re-examine the development of Asia from a broader perspective, and accordingly re-define its functions and create a new vision for its future development.

I will take this opportunity to briefly update you on the Taiwan economy. Taiwan’s real GDP went up by 4.6 percent in 2006. Not only is it higher than the 4.0 percent in 2005, but it also surpasses the target 4.5 percent. Our projection of real GDP growth stands at 4.6 percent for 2007. Consumer prices are stable. CPI inflation was a mere 0.6 percent in 2006 and is expected to stay below 2 percent this year. Balance of payments has been in good shape. The current account and overall balance remain in sustained surplus. Foreign exchange reserves have been building up. The private sector maintains a net external claims position.

I would like to reiterate that the Republic of China is a founding member of the Bank and has fully carried out her membership responsibilities. My delegation continues to protest against the unilateral alteration of our membership designation. I would also like to call on member countries to respect each other concerning the equal opportunities of hosting meetings and workshops of the Bank. Lastly, I wish the meeting every success. Thank you.