Parliament approved a proposal to drop all controls on capital outflows raising the prospect that Taiwans vast resevoir of foreign exchange will flow into the world economy. A government spokesman said the new law would be promulgated by President Chiang Ching-Kuo within 10 days and financial authorities would then be empowered to lift controls on currency outflows at any time. Tight restrictions on capital inflows introduced this year will remain in place the spokesman said. Central Bank Governor Chang Chi-Cheng has said the controls will be lifted at the end of next month or early in August. The central bank and finance ministry proposed lifting currency restrictions to help reduce Taiwans foreign exchange reserves which stand at about 60 billion U.S. Dlrs and have led to runaway growth in money supply. The reserves the worlds third largest after Japan and West Germany also draw attention to Taiwans huge trade surplus and the government fears they are making the island a target for U.S. Trade protectionism. The surplus rose 34 pct to a record 7.32 billion U.S. Dlrs in the first five months of this year and about 90 pct of it was with the United States. Money supply rose a seasonally adjusted 51.9 pct in the year to end-April raising fears of higher inflation. Local bankers and economists say when the controls are lifted businessmen will be allowed to buy foreign currency and invest it freely overseas. But they warn against expectations of a sudden outflow of capital. I dont think were going to see a big bang John Brinsden the Taiwan manager of Standard Chartered Bank tolds in a recent interview. Bankers said that businessmen have been holding vast quantities of foreign exchange overseas for many years and also have been freely buying and exporting currency through a flourishing black-market. Obviously there will be an outflow of funds ... But I dont think its going to be much said Danny Chan director of Fidelity Securities Investment Consulting Corp. Economists say the success of plans to encourage capital outflow depend on whether the central bank can slow the rise of the local currency. The Taiwan dollar has risen by about 23 pct against the U.S. Dollar since September 1983 prompting an inflow of speculative money. It rose by one Taiwan cent today to close at 31.08. The government spokesman said the new law does not empower authorities to permanently lift capital controls but any proposal to reimpose them would need the approval of parliament. Many economists believe that once the controls are lifted it will be almost impossible to reimpose them.
TAIWAN PARLIAMENT BACKS FREE CAPITAL OUTFLOWS