Taiwan election likely to breathe life into economy

By Lee Chyen Yee

TAIPEI (Reuters) - When Taiwan votes for a new president on Saturday, many will likely ignore pro-independence rhetoric in favor of bread-and-butter economic issues.

Stagnating wages, rising inflation and a widening wealth gap have taken centre stage as election issues over Taiwan's fragile ties with China, which sees the island a renegade province and has never renounced the use of force to bring it under its fold.

Taiwan's more than 17 million voters hope the next president will promote warmer ties with China, which could boost jobs and investment and help cushion the island from the impact of a weakening U.S. economy.

The Taiwan dollar already reflects such optimism. It has rallied strongly since the opposition Nationalist Party (KMT), seen as more pro-China than the ruling Democratic Progressive Party (DPP), won a landslide victory in legislative elections in January.

The presidential race comes down to Ma Ying-jeou of the KMT, a former mayor of Taipei, who has promised to fulfill ambitious growth targets, and Frank Hsieh of the DPP, who has sketchier economic plans.

The KMT favors closer trade ties with China than the incumbent and independence-leaning ruling party. It wants to relax various restrictions on business with China, boost flights across the Taiwan Strait and open the island to more Chinese tourists, believing such moves will breath life into the economy.

"On the whole, Ma Ying-jeou has a more rounded economic agenda," said Tony Phoo, an economist at Standard Chartered Bank in Taipei. "Hsieh is trying to focus on the quality of the economy so he's not quantifying it."

Many blame incumbent President Chen Shui-bian for neglecting the economy and putting too much focus on fiery language during his eight years in power, which rattled investor confidence and slowed economic reform.

Analysts say a win for either candidate on March 22 should usher closer trade ties with China, Taiwan's top trading partner.

But the KMT's Ma had a significant lead over his rival in opinion polls conducted by local media last week.

"This election is a wake-up call for the new president to pay more attention to economic issues," said George Hou, president of JPMorgan Asset Management.

FATTENING TAIWANESE WALLETS

Ma has proposed a plan known as "633", which is to achieve economic growth of 6 percent, a jobless rate of 3 percent and per capita GDP of $30,000. Ma hopes his China platform will help him hit the targets.

With Taiwan's economic growth averaging 4.9 percent over the past 5 years, several analysts said a 4 to 5 percent target would have been more realistic over the next few years as the world economy, hit by the credit crisis, looks set for a slowdown.

Standard Chartered's Phoo said that lowering the jobless rate below its current level at about 4 percent, relatively high compared with a decade ago, would be difficult without boosting employment in the services sector.