You know the news is all bad when your main joy in life is saying I-told-you-so. In 2007 I opined at the end of a long discussion of AmCham and foreign businessmen, and KMT and DPP policies:
One of the major problems with Taiwan's economy, from outsider's perspective, is that it is often a game outsiders are not allowed to play. The Chambers of Commerce appear to be of the opinion that this will change if Ma is elected. Lotsa luck, guys. Because after Ma "opens" the economy, AmCham editorials are going to read like this:Today the Taipei Times pointed out in its editorial that the island is already lurching that direction:
"While in principle we welcome the new openness shown by Taiwan during the first two years of President Ma's administration, AmCham wishes to express its growing concern over the preferential treatment given firms from China....."
AmChan's institutionally pro-KMT stance, which I have long criticized (see here, for example), is bad, but not as bad as the Europeans. Unfortunately despite the fact that many of the things AmCham criticizes in their annual White Paper are hand-me-downs from the martial law era, and the fact that many of its members are long-term residents (Don Shapiro, the current head, was an active supporter of the democracy movement in the bad old days), AmCham consistently fails to make the connection between the past behavior of the KMT and its probable future policies.
How bittersweet it is to recall pronouncements — on and off the record — by Taiwan-based foreign chambers of commerce and individual businesses that the election of a Chinese Nationalist Party (KMT) government would improve Taiwan’s economy.How amusing it is, then, to see the American Chamber of Commerce in Taipei (AmCham) and the European Chamber of Commerce Taipei (ECCT) complaining about a KMT legislative amendment that will lower the cap on credit card interest rates and probably damage Taiwan’s attractiveness as an investment destination.
The latter-day KMT is not the technocrat-friendly organization it once was, and in recent times individual legislators have used their authority within the party to advance spurious — sometimes almost anarchic — reforms at the expense of good governance and against all expert advice.
AmCham and the ECCT are absolutely justified in their concerns. But they cannot complain too loudly: They got what they asked for, and there is likely more of this to come. When they lament a “sudden and arbitrary shift in regulatory policy” resulting from political considerations, the real question that arises is why they didn’t heed this tendency when the KMT was in opposition.
Whether in opposition or government, the cultivation and protection of democracy has never been the guiding principle of the KMT machine. This is why it is so willing to cut hasty, unaccountable deals with the Chinese Communist Party. But with this latest display of financial ineptitude, there is a real concern that any economic cooperation framework agreement (ECFA) with China might carry a potentially crippling payload.
The evidence for this has amassed to the extent that it is shocking just how consistently think tanks in the US and other countries are ignoring it.
The AmCham editorial that drew the Taipei Times' attention was in a recent issue of their superb Topics magazine, which some of island's top reporting talent has written for. It says:
A case in point is a bill, currently before the Legislative Yuan, which would lower the annual statutory interest-rate ceiling of 20% that banks may charge credit-card customers for revolving credit. The proposed new cap would be defined as 9% above the Central Bank’s rate for unsecured short-term lending – which at current levels would come to 12.5%.AmCham goes on to point out that poorer consumers would have to source credit from informal or illegal providers who charge even higher interest. The clincher was that the reduced profitability of credit cards, and therefore, of banks, would make the island a less attractive investment destination, as the Taipei Times pointed out.
The major flaw in that reasoning is that the same severe economic downturn prompting the Central Bank to cut interest rates will inevitably lead to a higher incidence of credit-card delinquency, raising the banks’ cost of credit. Further, the cost of funds is only one part of the total operating cost for the banks’ credit-card departments. Looking only at the interest rate neglects the burden of processing huge quantities of small-volume transactions and of maintaining 24-hour customer service.
What would happen if banks had to slash the maximum interest charged on rollover balances? The immediate result would be to force banks to protect themselves against heavy losses by tightening up on their credit policies. According to one industry calculation, that would cause at least 3.5 million credit cards with a total credit facility of NT$690 billion to be withdrawn from the market. The estimated annualized impact on retail sales would be NT$274 billion – just at a time when the deepening recession calls for efforts to increase private consumption, among other forms of economic stimulus.
It's only the beginning, folks.
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