The summer of 2009 was stormy for Taiwan, both literally and figuratively. While still struggling with a weak (albeit apparently stabilizing) economy, the island was hit by the most destructive typhoon in 50 years. Typhoon Morakot was a catastrophic event that also had powerful political ramifications. The political aftermath of the typhoon spilled over into the defense arena in the form of leadership changes and new mission priorities at the Ministry of National Defense (MND). In the meantime, the effects of Taiwan’s fiscal realities are beginning to show, with a significant tightening of defense spending in the FY2010 government budget.

This quarterly report will review the major political events that transpired during the third quarter of 2009, along with the significant defense and national security developments over this period. The report will also cover defense spending and budgetary issues, along with the normal look at the status of select programs.

Taiwan continues to experience economic distress and ongoing internal political woes. In contrast, Taiwan’s relationship with China continues to show steady improvement, and the long-term prospects seem positive. Against this backdrop, President Ma Ying-jeou has decided to consolidate his influence over the ruling Kuomintang (KMT) party. It is a first step towards addressing the major economic and political challenges facing the island, as well as a means to help realize the promises of improved cross-Strait relations.

The outlook for Taiwan’s fiscal performance for the year remains bleak, which could have profound implications for the FY2010 government budget and spell serious trouble for defense spending. Meanwhile, Taiwan’s military begins a process of painful soul-searching, in a campaign to root out corruption.

This report will highlight the significant political and economic developments in Taiwan during the second quarter of 2009. It will also examine the notable defense and national security issues during the past three months, and offer updates on select weapons procurement programs.

The economy and cross-Strait ties continued to take center stage in Taiwan during the first three months of 2009. However, as Taipei moves beyond the rapid progress and relatively easy deliverables of its initial dealings with Beijing, there are signs that President Ma Ying-jeou’s government may have also begun to give greater consideration to defense and other national security agenda items. With the new U.S. Administration of President Barack Obama now in office, this could set the stage for a process to refine and possibly re-define U.S.-Taiwan relations in the months and years to come.

This report will offer a brief survey of the major political events of the past three months, together with an overview of the significant defense and national security developments during this period. The report will also provide an update on Taiwan’s defense budget, as well as an update on the procurement progress for select weapons systems.

At the beginning of 2008, many held hopes for an eventual peaceful resolution of the Taiwan “problem”, and the year even delivered on some of its early promises to lower tensions in the Taiwan Strait.

The first part of the year saw the election of President Ma Ying-jeou and the start of a new Legislative Yuan (LY) session controlled by Mr. Ma’s Kuomintang (KMT) party. This KMT majority within both the executive and the legislative branches helped pave the way not only towards ending the longstanding and frustrating deadlock in the LY, but it also served to effectively and actively thaw relations with Beijing.

Challenges remain, however, even as Taipei tries to rebuild trust with its major ally the U.S. – also undergoing a change in government – while at the same time working to improve ties with its principal and often elusive adversary, China. National security is increasingly being viewed in the context not just of traditional military balance, but also as a part of a highly complex network of competitive economic integration between China and Taiwan. This complex relationship poses new problems for Taipei in terms of defense and national security strategy, the long-term implications of which are still far from clear.

This annual report provides a brief overview of significant developments in 2008, as well as some of the more systemic factors that influenced the course of events during the past year. We will also examine the 2009 defense budget and provide an update on select systems.