VZCZCXRO0124
RR RUEHGH
DE RUEHIN #1733 2150641
ZNR UUUUU ZZH
R 030641Z AUG 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 6236
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3788
RUEHBJ/AMEMBASSY BEIJING 7092
RUEHUL/AMEMBASSY SEOUL 8808
RUEHGP/AMEMBASSY SINGAPORE 6964
RUEHKO/AMEMBASSY TOKYO 8966
RUEHML/AMEMBASSY MANILA 0121
RUEHJA/AMEMBASSY JAKARTA 4118
RUEHKL/AMEMBASSY KUALA LUMPUR 3796
RUEHHI/AMEMBASSY HANOI 3365
RUEHBY/AMEMBASSY CANBERRA 4575
RUEHWL/AMEMBASSY WELLINGTON 1850
RUEHHK/AMCONSUL HONG KONG 8340
RUEHGH/AMCONSUL SHANGHAI 1262
RUEHGZ/AMCONSUL GUANGZHOU 0440

UNCLAS TAIPEI 001733 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR ALTBACH AND STRATFORD 
USDOC FOR 3132/USFCS/OIO/EAP 
TREASURY FOR OASIA/TTYANG 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, SAN FRANCISCO FRB/TERESA CURRAN, AND NEW YORK FRB MARI 
BOLIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT: Taiwan Adopts Price Stabilization Measures 
 
¶1.  SUMMARY:  In response to recent price rises, Taiwan authorities 
have adopted a series of measures, including import duty cuts for 
grain, an export ban on waste paper, enhanced vigilance on price 
hike collusion, and new gasoline price subsidies (septel).  Although 
Taiwan's annualized inflation rate remains at 0.6%, authorities are 
concerned about potential inflationary increases, and are therefore 
trying to keep a lid on prices.  Economic forecasters and 
businesspeople comment that these measures will be unlikely to 
harness growing inflationary pressure.  Predictions for future 
inflation rate are a 13-year quarterly high of 3.8% in the last 
quarter of this year.  END SUMMARY. 
 
Six Measures 
------------ 
 
¶2.  After its weekly cabinet meeting on August 1, the Executive Yuan 
(EY) announced six price stabilization measures.  The Ministry of 
Economic Affairs (MOEA) will change the weekly gasoline price 
adjustment system to keep prices lower, in addition to the gasoline 
price subsidies for buses and taxis adopted in late July (septel). 
For the next six months, the Ministry of Finance (MOF) will cut 
import duties for grain products in half. 
 
¶3.  The MOEA and the Fair Trade Commission (FTC) will conduct 
enhanced monitoring of price collusion.  Premier Chang Chun-hsiung 
suspects, for example, that price collusion may affect corn, whose 
price has recently increased by 4.7% in Taiwan, versus a 17.1% 
decline in international prices. 
 
¶4.  Concerned that higher prices offered by foreign buyers are 
driving up domestic prices, the MOEA will temporarily limit exports 
of such products as iron & steel, gasoline, diesel fuel, waste 
paper, and sand & gravel.  On a broader level, the MOEA also plan to 
launch an energy conservation campaign and promote renewable energy 
development. 
 
Monetary Instruments 
-------------------- 
 
¶5.  Our contact of the Central Bank of China (Taiwan) (CBT) 
confirmed press reports that during the cabinet meeting, CEPD 
Chairperson Ho Mei-yueh proposed that the EY include the NT$ 
exchange rate and monetary instruments among the price stabilization 
measures.  CBT Governor Perng Fai-nan refused, however, and said the 
NT$ exchange rate should not be used as a price stabilization 
instrument.  According to Perng, the CBT has done its part in 
fighting inflation by raising benchmark interest rates every quarter 
over the past three years.  Perng also indicated that the CBT has 
stepped up its open market operations, thereby reducing money supply 
growth. 
 
Comment 
------- 
 
¶6.  These price stabilization measures are likely to be ineffective 
as the current inflation threat stems primarily from import cost 
hikes beyond Taiwan's control.  The Wheat Importers Association, for 
example, notes that the duty cuts are not enough to offset wheat 
import cost increases.  Local economic forecasters, therefore, still 
anticipate that the inflation rate will increase from below one 
percent in the first half of this year to over three percent in the 
second half, with the Taiwan Institute of Economic Research's 
forecast rate reaching a 13-year quarterly high of 3.8% in the last 
quarter of this year. 
 
YOUNG