Experts criticize Cabinet's plan to loan out reserves

Pundits and industrialists yesterday criticized a Cabinet plan to earmark part of the nation's foreign exchange reserves for loans to businesses, saying the proposal will not help local enterprises.

During its regular weekly meeting on Wednesday, the Cabinet decided to divert more than NT$10 billion in the nation's foreign reserves to help companies finance equipment purchases from overseas and pay for intellectual property rights.

The plan, if implemented, is expected to help cap a gain in reserves. But it would also help cushion the pressure of local currency appreciation and to spur on domestic investment, because excess reserves may force the New Taiwan dollar to appreciate and hurt the competitiveness of exporters, according to the Cabinet.

"But capital is not the main issue for businesses," said Steve Lin (林祖嘉), an economics professor at National Chengchi University. "The government should put some effort into improving the nation's investment environment instead."

Lin did not think that the government's remedy suited the illness.

"The lending rate is already low now, but the reason that companies are reluctant to borrow money from banks is simply because they see no business opportunities here, not because they are short of cash," Lin said.

Taiwan's foreign reserves, the third-highest in the world, surged to US$196.6 billion in October, the nation's central bank said last month. The reserves are widely expected to rise to more than US$200 billion by the end of the year.

But regardless of the money issue, there is just no legitimate reason for the Cabinet to expand loans through such a channel, Lin argued.

"Traditionally, governments can issue bonds or allocate budgets to increase loans for businesses," he added.

Lin's counterpart at the Taiwan Institute of Economic Research (台經院) said the proposed plan might be a good idea for keeping the appreciation of the NT dollar in check.

"It might be a good idea to flexibly utilize the unused money and avoid appreciation at the same time," said Chen Miao (陳淼), "but I'm not sure if the measure will help boost domestic investment."

The Cabinet's plan more or less provides an incentive for companies to take loans, said George Lin (林添貴), deputy secretary-general of the Chinese National Association of Industry and Commerce (工商協進會). He expected businesses would benefit from such loans for future expansion.

The Cabinet hopes the plan can help subsidize borrowing costs for businesses.

It has assigned both Ministers without Portfolio Hu Sheng-cheng (胡勝正) and Tsai Ching-yen (蔡清彥) to come up with a concrete proposal after the Lunar New Year holiday at the earliest.

Neither Hu nor Tsai were available for comment as of press time yesterday.

But small and-medium sized enterprises may not have the same luck as larger businesses.

"The banks already have tons of loans to be granted, but with strict mortgage qualifications, many local small and medium companies can hardly obtain a loan," said Day Sheng-tung (戴勝通), chairman of the National Association of Small & Medium Enterprises (中小企業協會).

Day suggested the Cabinet spend foreign cash on marketing and brand-name establishment research for companies with overseas operations.

"This is the right basket in which to put the extra money, and will also strengthen local companies' capability to sell their products to all over the world," Day said.