OCTOBER 16, 2000 VOL. 156 NO. 15

Simon Kwong/AFP. Chang Chun-hsiung is sworn in as Taiwan's new Premier after the Oct. 3 resignation of Tang Fei.

Under the Gun
With the departure of his veteran Premier, Taiwan President Chen Shui-bian faces an economic and political crisis of confidence
By NISID HAJARI

By all accounts the fighter pilot and the farmer's son never quite understood each other. So when Tang Fei, a former air force general, stepped down as Taiwan's Premier last week, he cleared the way for President Chen Shui-bian to tap an intimate to run his cabinet. The urprise resignation did Chen no favors, however, bringing into stark focus the fragility of an administration that has been stymied legislatively and plagued by public-relations snafus ever since the President's inauguration in May. Tang's departure pushed the stock index to a 20-month low, while Chen's approval rating—which stood at a white-hot 77% in June—fell to 37%. A cabinet reshuffle, which brought in party loyalist Chang Chun-hsiung as Premier and a few additional economic heavyweights, has quieted the furor for now. But voices across the political spectrum say last week's turmoil signals further instability to come. "We could be in for a long period of political turbulence," says Bertrand Tsai, a political scientist and former cabinet member.

Ironically Tang, 68, had been chosen as a peacemaker who could build bridges to the opposition after Chen's stunning victory in March. (Chen and his new Premier are members of the Democratic Progressive Party, or DPP; Tang is from the Kuomintang, or KMT, which had dominated politics on the island for five decades.) But the former Defense Minister never did figure out how to reach out to the KMT-controlled legislature, and Chen didn't make the job any easier. Although the President won only 39% of the vote, and his party holds less than a third of parliament's seats, he has refused to enter into a coalition government. That has led to months of legislative gridlock. Tang, who had surgery to remove a benign tumor shortly after accepting the job in April, had offered to step down at least three times, ostensibly on grounds of ill health.

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Chen finally accepted Tang's resignation for what may have been partisan reasons. The government was meant to decide this month on whether to continue construction of a $5.6 billion nuclear power plant on the island's northeastern coast. Tang, the KMT and the business community want the project to go ahead; social activists and the DPP, which has long insisted upon a "green, nuclear-free Taiwan," oppose it. Already under fire from his core supporters for toning down his statements on Taiwan independence, Chen could ill afford to alienate his followers further. Tang left the scene before the showdown.

His departure, though, leaves a host of other problems. Some $2.8 billion has already been spent on the plant, and halting construction will cost $2.9 billion in penalties. Analysts worry that the energy-starved north will face shortages after a high-tech park in southern Tainan county becomes fully operational in 2005. The DPP has put forth only vague suggestions about meeting the need with natural gas plants—though Taiwan Power Co. officials say ministers have failed to consider the additional $322 million per year this would involve. That kind of ineptitude is fueling a dangerous crisis of confidence in Chen's government. According to a Morgan Stanley Dean Witter report, an estimated $10 billion in foreign capital may have fled Taiwan in the six months since Chen's election. "The problem is not only the amount of power supply, it's also the lack of direction in government policy," says Charles Kao, vice president of Nanya Technology, Taiwan's largest memory-chipmaker. "There's no continuity. How do you think this looks to foreign investors? Are they going to want to put money into the stock market?" The President tried to address investors' concerns with the cabinet reshuffle, promoting veteran (and KMT member) Yen Ching-chang to head the Finance Ministry and bringing in a Harvard-educated financial expert and former grand justice, Lai In-jaw, as Vice Premier. Share prices rebounded somewhat on the news.

The economy, though, needs more help than that. The island's vaunted tech sector has been hit by a worldwide slump; in more traditional sectors the outlook is worse. A real-estate bubble has been growing for the past decade: in the southern city of Kaohsiung, perhaps 90% of new homes remain vacant. (The average house costs 15 times the average family's annual income.) This has terrifying implications for Taiwan's ailing banking system, which is dominated by small and often corrupt local institutions that are teetering under an estimated $30 billion in bad loans. "The biggest problem the government is facing now is the banks," says Norman Yin, professor of banking at National Chengchi University in Taipei. "They could explode any time."

Chen will now have an even harder time pushing through much-needed reforms of the sector. "The only way to stabilize the political situation is to let the leader of the majority party in the parliament serve as Premier," says KMT legislator Lee Shang-ren. The appointment of Chang, he adds, "will lead to a very serious struggle between the legislative and executive branches." Chang's supporters say his experience in parliament should help him forge deals with opposition pols. But the best bet is for a continued stalemate. The President's political options may boil down to painting the KMT as obstructionist in hopes of gaining a majority in December 2001 elections, or simply sidestepping controversial issues as much as possible.

The same logic should keep Chen from riling the uneasy calm that prevails over the Taiwan Strait. Beijing has kept relatively quiet over the changes in Taipei. Tang, who was born in China's Jiangsu province and advocates eventual reunification with the mainland, was chosen in part to put minds at ease in Beijing and the Taiwan military. The President may have decided that he no longer needs such a buffer as long as he doesn't alter his stated position (he has promised not to declare independence unless Beijing attacks). "The most awkward and difficult part is over," says Julian Kuo, a political scientist close to the DPP leadership. One opposition legislator, the New Party's Lai Shih-pao, says Chen is now "dismantling the bridge after crossing the river." His embattled administration, however, still has plenty of hurdles to surmount.

Reported by Cybil Chou, Macabe Keliher and Don Shapiro/Taipei

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