TAIWAN CLAMPS NEW CONTROLS ON CURRENCY INFLOWS

  Taiwan's new controls on currency
  inflows, implemented today, are a desperate bid to stem a flood
  of speculative money prompted by the local currency surge
  against the U.S. Dollar, local and foreign bankers said.
      The central bank now has to clear remittances exceeding one
  mln U.S. Dlrs earned from exports, shipping and insurance and
  bank lending plus remittances of more than 10,000 dlrs from any
  other source.
      Petitioners have to show their remittances relate to
  genuine commercial transactions.
      Meanwhile, traders are no longer required to report all
  outward payments concerning invisible trade, including freight,
  insurance and royalties, to the central bank.
      But bankers said they believed the new controls would be
  ineffective since businessmen could split up remittances into
  smaller units or simply remit money through Taiwan's
  flourishing currency black market.
      The bankers said the controls, announced on March 6, are a
  panic reaction to U.S. Pressure, which has intensified over the
  past week, for a faster appreciation of the Taiwan dollar to
  slow the growth of Taiwan's exports to the U.S.
      The government has denied local press reports Washington is
  pressing for an exchange rate of up to 28 dlrs.
      The Taiwan dollar opened four cents up today at 34.70.
      "I don't think the central bank has a final target," said an
  executive with a U.S. Bank. Other bankers and economists said
  they are wary of making any firm predictions about how far the
  Taiwan dollar will rise.
      Taiwan's trade surplus with the U.S. Hit 13.6 billion U.S.
  Dlrs last year against 10.2 billion in 1985. The surplus
  widened in the first two months of the year to 2.35 billion
  dlrs from 1.87 billion in the same period last year.
      Economists estimate up to five billion dlrs in speculative
  money flowed into Taiwan in 1986.
      This inflow helped boost foreign exchange reserves to more
  than 51 billion dlrs from just under 25 billion this time last
  year and provided further upward pressure on the currency.
      The Taiwan dollar has appreciated by almost 15 pct against
  the U.S. Currency since September 1985, further encouraging
  speculators.
      Central bank governor Chang Chi-cheng said last week
  Washington's pressure plus rising foreign exchange reserves
  meant a further strengthening in the currency is inevitable.
      Many local bankers argue the only effective solution to the
  currency problem is to drop foreign exchange controls and allow
  the local dollar to find its own level.
      "Lifting exchange controls is the final answer, but the
  central bank is not prepared to do it. It simply does not want
  to take the risk," said one local banker.
      He said he believed the new restrictions are a temporary
  measure designed to buy time as the central bank grapples with
  the exchange rate problem.
      The restrictions are a bureaucratic imposition and skirt
  around the real issue, he said.
      Taiwan needs a fundamental restructuring of foreign
  exchange controls, said an executive with a western bank.
      "The controls will create more paperwork, but the extra bank
  charges will not outweigh the profits of speculation," said the
  manager of a European bank.
      Economists criticised the controls, saying they could
  antagonise Washington, which is pushing for further economic
  liberalisation in Taiwan.
      "Instead of liberalising outflows, the government has
  restricted inflows," said Kate Newman, an economist with Vickers
  da Costa.
      A local banker, who declined to be named, said, "It's
  basically ridiculous. It's a backward movement and goes against
  the government's liberalisation programme."
      Taiwan last year eased some of its financial regulations to
  enable Taiwan nationals to invest in foreign government bonds,
  treasury bills and certificates of deposit and to allow
  individuals to take 5,000 U.S. Dlrs in cash out of the country
  each year.
  

