As was the case in the run-up to the 2004 election, hopes have risen in recent weeks that after the next polls in early 2008, whoever wins will focus on reviving Taiwan’s competitiveness. Top priorities should be liberalising the financial sector and strengthening ties with China.

Given its wealth, Taiwan may never match the growth rate of poorer, larger neighbours like China or India. It will be similarly difficult for the Taiwanese stock market to outperform its emerging-market peers, as its valuations are not yet deeply discounted. Policy paralysis and slow progress on the reform front raises the risk of Taiwan’s becoming a permanent regional also-ran. That would once again dash foreign investors’ hopes of another boom.

The writer is head of emerging markets at Morgan Stanley Investment Management Newsweek