TAIWAN PARLIAMENT BACKS FREE CAPITAL OUTFLOWS
Parliament approved a proposal to drop
all controls on capital outflows, raising the prospect that
Taiwan's 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 Taiwan's foreign exchange
reserves, which stand at about 60 billion U.S. Dlrs and have
led to runaway growth in money supply.
    The reserves, the world's third largest after Japan and
West Germany, also draw attention to Taiwan's 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 don't think we're going to see a big bang," John Brinsden,
the Taiwan manager of Standard Chartered Bank told Reuters 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 don't
think it's 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.
 REUTER
