Introduction

Since August 2007, the U.S subprime mortgage crisis has not only threatened the U.S. economy into a recession, but affected the global financial system. The spread of the U.S. financial storm triggered a global credit crunch and tipped Western economies into recession. World GDP growth decrease from –1.7 per cent in 2007 to –2.9 per cent in 2008 (World Bank 2008). Many countries responded by launching massive public investment programmes and employing expansionary fiscal policies to weather this once-in-a-century financial tsunami. In the United States besides the well publicized US$100 billion approved by Congress, the Federal Reserve attempted to bail out institutions and markets with about $1.3 trillion in investments in various risky products. In addition, many developed and developing countries also provided astronomical amounts to rescue the economy.

This chapter reports on how the Taiwanese Government rescued its economy during the financial crisis, with particular focus on small and medium enterprises (SME). During the financial crisis, Taiwan's economy also dipped to the bottom. While its GDP growth was recorded as 4.2 per cent, 4.8 per cent, 5.7 per cent, and 1.9 per cent from 2005 to 2008, the expected GDP growth rate in 2009 was –4.0, a record low in history since 1980. To safeguard the stability of Taiwan's economic growth by stimulating domestic demand as a means of sustaining the economic growth momentum, the government adopted the short- and long-term policies to revitalize the economy. With respect to the short-term policies, the government issued consumption vouchers for an immediate stimulus measure in January 2009. It also announced the “three-pillar support policy” to restore the confidence of the Taiwanese people. This “three-pillar support” means that the government would support banks, bank would support enterprises, and enterprises would support their workers. For its long-term policies, the government adopted a four-year project (2009– 12) to expand and accelerate the implementation of public works, with the aim of creating a second wave of economic revitalization effect to augment the benefits generated by the consumption voucher scheme.