An island republic struggles to revive economic miracle

The Republic of China is going through a transition period as delicate as silk.

In just a few decades this country has been transformed from a small agricultural island into a modern industrial state.

But many of the forces that helped shape this Asian economic miracle -- such as an abundance of cheap labor -- no longer exist.

Today the country faces the task of reviving its once-robust economy and ushering in a new era of modernization without spawning political upheaval.

This could mean potentially far-reaching corrections in economic policy, including perhaps a bigger role for the private sector and greater emphasis on ''brain-oriented,'' high-technology industries.

''It's no easy job to completely change the face of our industry and economy, '' sums up T. Wu, Taiwan's vice-minister for economic affairs. ''Very brave measures, however, have got to be taken because our very survival is at stake.''

Trying to implement the solutions at this time, however, won't be easy. This year finds the small island republic in difficulties.

Says Mr. Wu: ''Production down, exports and imports down, employment down, corporate investment down.''

Headlines in the local press reinforce this: ''Corporate Profits Slump 53 Percent in First Quarter'' . . . ''Unemployment Shows Signs of Increasing'' . . . ''Export Prospects Gloomy'' . . . ''Handbag Industry Goes From Boom to Bust'' . . . ''Bicyclemakers Find Exporting an Uphill Ride'' . . . ''Phone-equipment Industry Faces Severe Competition.''

Considering Taiwan's overwhelming amount of trade in comparison to its gross national product (exports alone account for more than 50 percent), the difficulties are understandable.

A large percentage of companies in the manufacturing sector rely almost exclusively on exports. The impact of a world economic recession is immediate -- especially as the Taiwanese emphasis has been on the production of nonessential consumer products.

And the belief here is that the situation is going to get worse before it gets better. The backlog of orders held by many of the country's most important export industries has shrunk significantly.

Some companies have received no orders whatsoever for the second half of the year. There is considerable nervousness. Eyes are on the United States and Western Europe, hoping to detect the first signs of economic recovery.

This is a rather unusual situation for Taiwan, and there is considerable concern within the government about how the people will cope. Over the past two decades, the hard-working Taiwanese have seen their economy growing at a rapid clip of 20-30 percent a year.

That may be over for good. Such a performance, government economists admit, was comparatively easy when the comparison base was small. To achieve a comparative performance in the 1980s is considered a tough proposition, if not close to impossible.

Last year, the projection was for GNP growth of 7.5 percent. The actual achievement was just over 5 percent - not bad by most standards.

Robert Chien, deputy governor of the central bank, says: ''We are again looking for 7.5 percent growth. But unless something drastic happens (externally), I think we will be very lucky to get 5 percent.''

As a result, there is considerable belt tightening. The government has decreed austerity. Traditionally it has paid its workers an additional 15 percent a year, but this year there will be a pay freeze. This has affected private-sector wage negotiations as well.

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