The Ministry of Finance yesterday strongly questioned a report conducted by Heather Montgomery, a researcher with the Asian Deve-lopment Bank Institute, reiterating that Taiwan will never face the type of financial crisis that is described by the researcher in her report.
In her report, which was delivered to a conference called "Asian Crisis" on Thursday, Montgomery said Taiwan will soon face a financial crisis similar in type and scale to that which hit Japan in 1997.
The ministry said Montgomery's report is inaccurate and her research model only applies to smaller open economies and to countries using fixed foreign-exchange rates. Therefore, her research model is an inappropriate tool for evaluating Taiwan's banking sector, said Gary Tseng (曾國烈), director general of the ministry's Bureau of Monetary Affairs.
Government officials were angered by Montgomery's report and spent much time refuting her assumption during the past two days. The reaction was led by Central Bank of China Governor Perng Fai-nan (彭淮南) and Minister of Finance Lee Yung-san (李庸三) who respectively expressed strong opposition against Montgomery's report in brief statements.
Tseng yesterday launched his own reaction, with longer statements and detailed comparative studies between Taiwan and Japan at a press conference.
Tseng said that Japan's property market, on average, has declined by 60 percent in six major cities, which hasn't happened in Taiwan yet, adding that Taiwan's economy has already bottomed out of the recession.
Fiscally, Japan's outstanding public debts account for 130 percent of its gross domestic product (GDP) while Taiwan's only account for 29 percent of the GDP, Tseng added.
The senior finance official also described in detail the nation's financial measures, which had been adopted over the past 10 years, to prove that questions surrounding the nation's banking sector have been seriously addressed.
The measures include credit controls that were initiated in 1989 -- to avoid over-expansion of financial-assets credit -- and the lowering of the five-percent financial business taxes to a current two percent in 1999 -- as a means to encourage banks to write off bad loans as soon as possible.
Tseng said that local banks had used these measures to successfully write off a total of NT$770 billion in bad loans as of last year -- and sour loans under observation have been on the decline for five consecutive months.
In addition, mechanisms like asset management companies (AMCs) and the use of the Financial Restructuring Fund (金融重建基金) as bailouts after bank failure -- and the upcoming implementation of financial assets securitization -- will soon help the government to complete financial reform, Tseng said.
Meanwhile, the ministry yesterday officially authorized state-owned Land Bank of Taiwan (土銀) and Taiwan Cooperative Bank (合作金庫) to take over seven grassroots financial institutions whose assets turned negative, according to a list the Central Deposit Insurance Corp (CDIC, 中央存保) concluded in mid July.
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