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Chris Stowers for Asiaweek.
Having just lost his principal shield against opposition attacks, Presidents Chen now has to deal with the prospect of prolonged political instability as well as a growing pessimism among investors.
Political Earthquake
Tang Fei quits as premier — and triggers a crisis of confidence. Can Chen Shui-bian cope?

Taiwan's political pundits knew that Premier Tang Fei was politically expendable, but few expected him to be expended so quickly. A former four-star general, senior Kuomintang cadre and President Chen Shui-bian's shield against opposition critics, Tang should have served as the head of Taiwan's government at least until year's end. That would have given Chen and his Democratic Progressive Party enough time to win its administrative spurs — and perhaps a coveted majority in the island's legislature after elections in December next year.

At least that was Chen's original plan. Tang would be a conduit to the opposition Nationalists, Taiwan's longtime rulers, and help smooth differences with the KMT-dominated legislature. But instead he was allowed to resign on Oct. 3. Tang had offered his resignation three times before and was rebuffed by Chen. This time, Chen accepted it. The next day, DPP stalwart Chang Chun-hsiung, 62, was named the new premier. His first task will be to form a new cabinet, one that is likely to consist almost entirely of DPP members.

The sudden turn of events plunged Taiwan into crisis. Doubts mushroomed about the ability of Chen and his inexperienced DPP to rule effectively. The opposition is expected to intensify its efforts to stymie government initiatives in the legislature. Investors were also shaken. Despite government intervention, the stock market was in steep decline, hitting a 20-month low the day after Tang's departure. Nerves were further frayed by a burgeoning financial crisis, triggered by years of inept central bank policies and corrupt banking practices. According to an estimate by Morgan Stanley Dean Witter, Taiwan has suffered a capital outflow of $10 billion since Chen's election in March.

Tang, 68, said he was quitting because of his frail health. Four months ago, he had undergone surgery to remove a benign tumor located between his lungs. But few believed health was the chief reason for Tang's decision. In recent weeks, it had become increasingly clear that the premier disagreed with Chen and the DPP on major issues relating to Taiwan's future. The flashpoint was the tussle over whether to construct the island's Nuclear Power Plant No. 4, which is strongly backed by the business community and the KMT. But the DPP, environmentalists, social activists and labor groups firmly oppose the $5.6-billion project. The plant is already one-third built, but heavy lobbying by conservationists had stalled it. In some ways, the furor symbolized a broader battle between hardline social and political activists seeking an "independent" identity for Taiwan, and the old elites who had made the island an economic powerhouse at the expense of indigenous rights.

Ever the pragmatic politician, Chen had tried to ride both forces. But now he has clearly been pulled back into the fold by DPP chiefs. "Letting Tang Fei go was a very difficult decision for him," says Andrew Yang, a prominent political commentator. "Chen is now a limping president. He has been surrounded by DPP hardliners, and he's unwilling to betray them. We have to live with his decision."

For months, DPP members have been blaming Tang for failing to smooth over differences among cabinet members and thus making the president look foolish. Problem is, Chen won the presidency with a mere 39% of the vote. That, plus the DPP's lack of experienced administrators, meant the cabinet had to draw on KMT talent to govern effectively. The deep ideological and policy differences between the two parties guaranteed friction. Tang also faced the virtually impossible task of running a government full of ministers who often bypassed him and directly dealt with the president.

As a founding member of the DPP and a trusted friend of Chen's, new Premier Chang will have an easier time from his party colleagues. But he is almost certain to face more trenchant criticism from both the KMT and the People's First Party, founded by former Nationalist heavyweight James Soong Chu-yu. The two parties, says analyst Yang, "will be a formidable opposition."

One reason for the DPP's adamant opposition to Plant No. 4 is that it does not want to stray from its longstanding "pro-green" platform. "If the party changes its position, it might alienate its traditional supporters and that could cause a defeat in next year's election," says Philip Yang, a politics professor at National Taiwan University. Adds Linda Gail Arrigo, a DPP founding member and environmental activist: "The [halting of] Plant No. 4 seems to indicate that Chen is serious about his campaign promises, but I wouldn't expect extreme populist measures from him."

In fact, Arrigo believes that Tang's resignation will have minimal repercussions. The party, she predicts, will win a majority in next year's election, when all the legislature's 225 seats will be contested. Arrigo thinks that the DPP is making progress in its governance: "Some of my friends in middle-to-high positions in the new administration say that their jobs are gradually getting less hectic and more controlled, even though the bureaucracy below them balks. The Kuomintang is no longer an organized force capable of resisting change or coming back into power. And Soong's party, though it may grow to become the major opposition party, is not all put together yet."

Not everyone agrees. Wei Wou, dean of the College of International Studies at Tamkang University and a senior KMT member, says Taiwan's problems will only intensify in the months ahead. "This is a crisis of trust," says Wei, referring to the stock market's sustained dive from 10,000 points to below the 6,000 level during the past six months. "President Chen cannot be trusted" with the management of the economy, he adds.

Economically, Chen faces a sea of troubles. Analysts say that Taiwan's economy is segmented into two parts. One consists largely of a highly efficient, globally competitive electronics sector that is the envy of all Asia. But the other — essentially the rest of the economy — has been in a recession for the better part of a decade. Indeed, only the huge growth in electronics has kept Taiwan chugging along. But while high-technology companies continue to power ahead, traditional industries such as banking and real estate are sinking ever deeper into trouble.

However, Wei believes that the fallout from Taiwan's political and economic crisis will produce at least one "beneficial" side effect. "Because Chen is facing such a difficult time at home, he will be much more flexible on cross-strait issues," says Wei. He goes so far as to predict that Chen would accept a form of Beijing's cherished "one-China" principle in the coming months in order to minimize frictions with the mainland. That, Wei adds, would allow the president to concentrate better on his domestic challenges.

For the moment, China has refrained from commenting on the latest developments in Taiwan. But analyst Yang notes that Beijing certainly will be watching events closely and may even seek to use Chen's woes to its own advantage. In order to not be forced into a weak bargaining position with China, Chen may have to distance himself from the DPP's hard-line members and supporters. "This will be a major challenge for him," says Yang. "If Chen can do this, he can become a real president — one who represents all of Taiwan. If not, he may turn into a lame duck." He may already be one.

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