TAIPEI (BLOOMBERG) - Taiwan plans to increase infrastructure investments and corporate credit to boost economic output after the government cut its growth forecast amid an exports slump.
The government is studying a plan to help banks provide NT$500 billion (S$21.6 billion) in loans to larger firms by offering guarantees, the National Development Council said in a statement on Monday. The Export-Import Bank will raise NT$20 billion in three years to build a loan platform. Details of infrastructure investment will be announced later, NDC Minister Woody Duh said at a briefing in Taipei.
Taiwan is seeking to revitalize an economy battered by five months of declining exports while upgrading its industries amid stiffer competition from regional rivals such as China. The territory needs to boost competitiveness and reduce its reliance on low-margin contracting businesses, the NDC said.
"We are positive about the plan, but the short-term effectiveness will be limited," said Cary Ku, an economist at Jih Sun Securities Co. in Taipei. "Some of the effects will only be seen in the medium- to long-term. In the short run, the plan's mostly about boosting market confidence."
The government will seek to upgrade local industries, expand the services sector and create a fund to facilitate mergers, the NDC said. Taiwan will also integrate its state pension and insurance funds to raise investment efficiency and study the establishment of a sovereign wealth fund, it added.
A report on Friday is forecast to show growth slowed to 2.55 per cent in the second quarter, the lowest in seven quarters. The statistics bureau cut its 2015 growth projection to 3.28 per cent in May, compared with 3.78 per cent in February. Exports account for about 70 per cent of the economy and are dominated by contract production of electronics components.
The central bank said this month the island's US$421 billion (S$577.1 billion) in foreign-exchange reserves shouldn't be used as part of the fund. Overseas examples show sovereign funds don't have to use the reserves, Mr Duh said.