Minister defends movesrelated to financial policy

In a hearing held last Friday, Vice Minister of Finance Sean Chen (陳沖) said he does not believe that the financial laws and regulations about to be reviewed in a special legislative session are a cure-all that would automatically revive the ailing domestic economy.

Chen made the comments in a public hearing held by legislators from the People First Party on Friday. Government officials, including Chen and Shi Yi-shiung (徐義雄), deputy governor of the central bank, were invited to the hearing.

"The finance ministry thinks that the six laws and regulations related to finance would be helpful to the financial sector. However, the ministry has never taken the position that amending the regulations would revive the economy," Chen said.

Some of those at the hearing said that without a sound financial supervisory mechanism, financial holding companies could generate more serious problems than those already present in the domestic financial environment.

"Without a strict and comprehensive financial supervisory system, financial holding companies would behave like grouping a lot of rotten apples and create a big-ger problem for the financial system. Since the size of the problem would be too big, when difficulties emerge, the government will not be able to let it fail and would be forced to rescue it. This would be a bigger problem than what we have now," an unidentified visitor said at the hearing.

He also said that "if the government is going to deregulate financial holding companies, it had better prepare comprehensive regulations on the issue before it's too late."

The draft of the Financial Holding Company Law (金融控股公司法) is likely to be passed during the special session of the Legislative Yuan later this week. There are six laws and regulations related to finance scheduled to be reviewed during the session and the government is encouraging the quick passage of the new rules in an effort to modernize the system.

Chen did not agree with the visitor's opinion.

"Among the countries that use financial holding companies, only the UK set up a financial discipline committee in 1997," Chen said. "Other countries, such as Switzerland and the Netherlands don't use such supervisory mechanisms."

"As long as the finance ministry coordinates the situation properly, any problems that crop up can be resolved. The ministry already has a coordination task force for financial supervision, and this mechanism has existed for a long time. It is quite capable of overseeing financial systems," Chen said.

Other visitors questioned the seriousness of the banking sector's bad loan problems.

"Taiwan's bad loan problem could duplicates Japan's in the 1990s as a result of the speculative bubble in the real estate market. The banking sector is unable to solve the problem. Many banks that are supposed to provide liquidity for the market have become real estate companies since they are also major property holders," another unidentified speaker at the hearing said.

One person suggested that the government ask the central bank to solve the bad loan problem. A central bank official did not agree with the suggestion.

"The central bank can not simply print money to solve the [bad loan] problem," the bank's deputy governor said.

"There is currently no foreign exchange policy for the central bank. If there were any, the foreign exchange rate would only be used as a policy tool. The exchange rate is determined by the market," Shi said.