While the dominoes were falling across Asia, Taiwan weathered the Asian financial crisis relatively well. The island’s economy did slow from 6.7% growth in 1997 to 4.6% in 1998, but that was by far the highest of any of its Asian neighbours – most of which slumped into recession. The central bank was forced to release its grip on the currency, and inflated stock prices took an initial tumble in the 1997 rout, but recovered relatively quickly. In the 12 months to June 1998, the stock price index fell 16%, versus more than 40% in Singapore and Hong Kong, and more than 60% in South Korea.
Foreign banks had only a 3.2% share of Taiwanese loans, and the central bank’s close control of international exposure meant that local lenders were almost immune to the turmoil elsewhere.
Paul Yang, who was country head for BNP Paribas at the time, remembers having to reassure head office in Paris that their Taiwanese book was not at risk.
“I told my boss, ‘you know, things here look ok’, and he would say ‘Really? It all looks pretty bad from where we are!’”
The dominance of local banks, funded by local deposits and local currency debt, was crucial in protecting Taiwan from the pressures that affected many of Asia’s other emerging markets.
Taiwan also benefited from a strong and flexible SME sector, in contrast to markets like South Korea where the failure of a single big conglomerate could create a systemic crisis.
“The first lesson I learned was to pay attention to the fundamentals,” said Yang, who is now based in Hong Kong as BNP’s chairman and regional head for Greater China. “When you look from afar everything seems the same, but when you’re closer you can see the differences.”
Other theories for Taiwan’s resilience cite the island’s history of economic and diplomatic crises, including the bursting of an asset price bubble in the 1980s that had reduced appetite for risk.
Indeed, Taiwan has never been far from an economic crisis, and its technology sector went on to take a big hit from the dotcom bust a few years later.
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