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Officials lash out at Nomura report

The nation's finance chief strongly defended Taiwan's financial sector yesterday, saying a report by a Japanese research organization over the weekend was outdated and inaccurate.

"The Nomura report was based on out-of-date information, as Taiwan's financial institutions are safe and sound. The situation described in the Nomura report does not exist here in Taiwan's financial system," said Minister of Finance Yen Ching-chang (顏慶章).

The Nomura Research Institute reported that Taiwan's banking system was inferior to South Korea's and that it is experiencing a scaled-down version of the Asian financial crisis that plagued southeast Asia in the late 1990s.

According to Nomura, instead of adopting sweeping structural reforms to cope with the financial crisis, the administration has followed a strategy similar to Japan's, with its government spending huge sums of money to "fight against market forces."

The strategy, Nomura said, has further undermined Taiwan's banking system, now even more vulnerable than the weak South Korean system.

The report also stressed that Taiwan's bureaucracy and politicians have made a string of mistakes which are the major cause of the local financial system's problems.

Taiwan's head of economic planning also joined the fray, saying that although he hadn't actually read the report, things couldn't be as bad here as they are in South Korea.

"As to the problems in Taiwan's financial system, indeed the pace of financial reform is not fast enough, but it could not be worse than the South Korean financial system," said Chen Po-chih (陳博志), chairman of the Council for Economic Planning and Development.

According to Nomura's report, Taiwan's problems are primarily the result of the over-extended credit situation at domestic banks.

Corporations, individuals and the banking sector have all over-extended their credit, putting far too much capital into the stock market. The financial system, as a result, has become too dependent on the performance of the stock and real-estate markets as well as traditional industries.

The Nomura report also pre-dicted that the sluggish domestic economy would not see a turnaround until the fourth quarter. According to the report, the government's current efforts to accelerate public spending with a view to expanding domestic demand would only have limited effects.

Taiwan boasts a better economic structure than South Korea, Japan and China, the report said, and the electronics industry does not heavily rely on bank loans nor does it require a restructuring.

As for traditional industries, the report said Taiwan should allow labor-intensive industries to relocate to China even though a mass exodus of those industries may lead to an hollowing-out of the sector.

The report warned that Taiwan seems to be making the same mistakes as Japan, adding that Japan's current economic woes are a direct result of continued market manipulation by past generations of politicians and bureaucrats, coupled with numerous errors by current politicians.
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