DIRECTOR HIGHLIGHTS FINANCIAL CRISIS COORDINATION

C O N F I D E N T I A L AIT TAIPEI 001635 STATE FOR EAP/TC AND EAP/EP STATE PASS USTR FOR STRATFORD AND KATZ, TREASURY FOR OASIA/WINSHIP AND PISA, NSC FOR LOI, COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN, USDA FOR FAS/OCRA RADLER AND BEILLARD E.O. 12958: DECL: 11/20/2018 TAGS: ECON EFIN PGOV PREL ETRD EAGR TW SUBJECT: DIRECTOR HIGHLIGHTS FINANCIAL CRISIS COORDINATION IN NOVEMBER 21 MEETING WITH VICE PREMIER Classified By: Stephen M. Young, AIT Director, for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY. In a November 21 meeting with Vice Premier Paul Chiu, the Director observed that the current APEC leaders' meeting in Peru presents a useful opportunity for Taiwan to coordinate with counterparts on the global financial crisis. He stressed U.S. interest in fast action on opening Taiwan's market to the full range of U.S. beef imports, and asked the Vice Premier to help facilitate resolution of the ongoing Tyco customs valuation dispute. The Vice Premier said Taiwan's financial system is sound, and noted that official stimulus efforts are designed to boost domestic demand as a counterbalance to declining exports, which have traditionally accounted for the vast majority of Taiwan's growth. A consumption voucher program and official infrastructure spending should help Taiwan post a 2.12% rise in GDP next year, he said. The Vice Premier agreed to encourage Department of Health public education efforts on the safety of U.S. beef, and would also relay U.S. concerns about the Tyco case to the agencies invovled. END SUMMARY. PARTICIPANTS ¶2. (SBU) The meeting took place at the Executive Yuan (EY). Vice Premier Paul Chiu was joined by EY STAFF members Gui Xian-nong and Su Yuan-fu, as well as Ministry of Finance Deputy Director General for Customs Administration Lillian Hsieh. The Director was accompanied by economic chief (notetaker). COORDINATION ON FINANCIAL CRISIS AT APEC ¶3. (C) The Director observed that the APEC leaders' meetings in Peru would be an excellent opportunity for Taiwan's delegation, including former Vice President Lien Chan, Minister of Economic Affairs Yiin Chi-ming, and Minister of Finance Lee Sush-der, to coordinate with Asia-Pacific counterparts on the global financial crisis. Chiu expressed his thanks for ongoing U.S. support for Taiwan's participation in APEC, and noted that delegation leader Lien Chan's high official rank and personal relationships with senior PRC officials would benefit Taiwan's participation in this year's meetings. Chiu also noted his gratitude for Taiwan's existing coordination with the Federal Reserve, Treasury, and other U.S. agencies in addressing the financial crisis. TAIWAN FINANCIAL SYSTEM ¶4. (C) Chiu highlighted Ma administration efforts to stabilize the financial system and stimulate the economy. Confidence in the banking system has been bolstered by an official deposit guarantee, he explained, while the administration has coordinated with the Taiwan Banking Association in allowing financially-strapped companies the option to defer payments on loan principal for up to six months. No major banks are at risk due to weak capital adequacy ratios, said the Vice Premier, and the authorities are ready to inject capital into any institutions that face difficulty. Although prices for higher-end residential property in Taipei have declined by 15-20 percent in recent months, observed Chiu, overall prices for Taipei housing are off by only 1.5-2%. TAIWAN ECONOMIC STIMULUS PACKAGE ¶5. (C) Chiu avowed that he was unpleasantly surprised by Taiwan's third quarter GDP figures, which showed a 1.02% year-on-year decline (septel). He attributed the worse-than-expected performance to the Taiwan economy's increasing reliance on exports, which he said had accounted for roughly 4.3% of the overall 4.88% average GDP growth figure in 2003-07. Taiwan's growth has become vulnerable to shifts in export demand, explained Chiu, a problem also experienced by Japan, China, Hong Kong, and other economies in the region. To address the problem, he stated, the administration's new stimulus package will focus on boosting domestic demand. As a first step, the authorities have approved an NT$83 billion (roughly US$ 2.5 billion) consumption voucher program (septel). The administration will also spend an additional US$ 13 billion on infrastructure projects, including bridges, highways, and schools, over the next four years, he added. In 2009, estimated Chiu, the consumption voucher program and initial infrastructure spending of about US $5 billion will produce an estimated GDP growth figure of 2.12%. BEEF AND PORK MARKET ACCESS ¶6. (C) Emphasizing U.S. interest in using science-based criteria as the basis for prompt opening of Taiwan's market to the full range of U.S. beef imports, the Director noted his frustration that despite a completed Ministry of Health risk assessment report demonstrating the safety of U.S. beef, the administration has still not acted on market opening. Citing Senators Baucus and Grassley's November 19 letter to President Ma on the issue, the Director urged the Vice Premier's engagement in quickly resolving the beef issue and removing a major impediment to improved bilateral trade relations. In the same vein, the Director encouraged the Vice Premier to follow established international science-based standards in opening Taiwan's market to U.S. pork imports. After Taiwan pioneered the resumption of U.S. boneless beef imports in the region nearly three years ago, said the Director, Taiwan consumers amply demonstrated their confidence in the safety of U.S. beef. The Director noted that he raised the beef issue publicly during his recent press conference, and would continue to press the administration for prompt action. The Vice Premier said he understood the importance of the issue, and would follow up with the Minister of Health Yeh regarding public education efforts on the safety of American beef. TYCO CUSTOMS DISPUTE ¶7. (C) Addressing the ongoing Tyco customs valuation dispute, the Director asked for the Vice Premier's support in facilitating a planned interagency meeting to discuss the issue. He requested the administration's consideration of options for allowing Tyco to suspend penalty payments, consistent with Taiwan regulations, pending resolution of the dispute. The Vice Premier promised to relay the Director's concerns to the Ministry of Finance and the other agencies involved in the Tyco case. ¶8. (C) COMMENT. The Vice Premier appeared preocuppied by the unexpectedly rapid deterioration of the economic situation, but acknowledged the importance of addressing the beef and pork trade irritants in particular. END COMMENT. SYOUNG