TAIPEI: Taiwan rejected imposing Brazil-style taxes on overseas-capital inflows after its currency reached its strongest level in 16 months against the US dollar.

Such a move would be "too slow to curb hot money, because the government needs to enact a law before it can impose taxes," Taiwan's "Deputy Finance Minister" Chang Sheng-ford said in a telephone interview yesterday. "Hot money comes and goes quickly. The government should use administrative measures" instead, he said.

Taiwan's central bank sparked speculation it may take additional steps to curb inflows after it issued a statement on Monday highlighting the benefits of capital controls. That followed the local currency touching NT$31.715 per dollar in intra-day trading, the strongest level since September 2008.

Money is pouring into Taiwan as strengthening trade and investment ties with the mainland spur the island toward recovery from a recession. Exports jumped 46.9 percent in December from a year earlier, the most in more than 14 years. Overseas shipments make up about two-thirds of the island's gross domestic product.

Brazil imposed a 2 percent tax on purchases by foreign investors of real-denominated, fixed-income securities and on stocks in October, after the local currency gained 35 percent since the beginning of the year. It was the best performer among the 16 most traded currencies tracked by Bloomberg.

In the statement on Tuesday, Taiwan's central bank cited Nobel Prize-winning economist Joseph Stiglitz, who has said emerging-market nations may need to consider controlling capital inflows, and Ajay Chhibber, United Nations Development Program regional director for Asia and the Pacific, who says Asian countries may need to follow Brazil in imposing taxes on them.

The central bank said January 5 it had set a one-week deadline for funds from overseas to be used for their stated purpose or be repatriated. The bank announced a day earlier that foreign investors with "excessive" holdings of the island's currency had been reported to the appropriate regulator for investigation. The government prohibited them from placing funds in time deposits in November.

Taiwan's currency traded at NT$31.803 per dollar at the midday break in Taipei yesterday, little changed from NT$31.79 at Monday's close, according to Taipei Forex Inc.

China Daily/Bloomberg News

(HK Edition 01/14/2010 page2)