KMT delays proposal to extend restructuring fund

Financial stocks on the TAIEX rose 0.8 percent yesterday as law-makers discussed a proposal by the Ministry of Finance to extend the Financial Restructuring Fund (金融重建基金) for another year.

Although legislators failed to reach a conclusion on the proposal yesterday due to opposition from the Chinese Nationalist Party (KMT), the ministry said it remained confident that the extension will be approved before Friday, when the Legislative Yuan ends its current session.

The KMT caucus yesterday demanded an amendment to the proposed extension bill that would allocate 20 percent of the fund to bail out ailing grassroots financial institutions.

The ministry's Bureau of Mone-tary Affairs is negotiating with the KMT, "which proposed adding clauses to safeguard the bill's coverage on ailing grassroots financial institutions, including credit units of farmers' and fishermen's associations," Chang Ming-daw (張明道), the bureau's deputy director-general, told a press conference yesterday afternoon.

According to People First Party Legislator Norman Yin (殷乃平), the KMT expressed concerns that the bill would no longer cover distressed grassroots financial institutions, which have been under the supervision of Council of Agriculture, rather than the finance ministry, since January.

But William Lin (林蒼祥), a professor of finance at Tamkang University, yesterday called the KMT's clauses "unnecessary and inappropriate."

Lin said that the legislation should address potential moral risks arising from the fund's management, instead of trying to set preconditions for what percentage of the fund should be used to help specific financial institutions.

He said the allocation of funds require professional decisions based on the principle of fairness and openness.

"A failure to extend the fund will be a big setback to the nation's financial reforms," Lin said, adding that this might cause foreign investors to lose confidence in the nation's determination to bring about financial reform.

If the legislature does not pass the extension bill, it would be detrimental to the financial sector's prospects of becoming a value-added industry leader, Lin said.

Chang said that the ministry has already ironed out most disagreements with the KMT legislators, and he expects them to approve the extension bill's legislation before Friday.

He said the bureau is puzzled by the KMT's proposed amendment, since one of the bill's top priorities is to cover the debts of distressed community-level financial institutions.

The government established the fund -- modeled on the US' Resolution Trust Corp -- in July 2001 and allocated NT$140 billion (US$4.25 billion) for the following three years to help clean up the financial sector's bad-debt problems.

The fund, which is scheduled to be terminated on July 9, left a balance of about NT$9 billion after auctioning off the Kaohsiung Business Bank (高雄企銀) for NT$13.4 billion (US$400.7 million) on May 31.

Since a cross-party consensus has been reached to increase the fund's available capital to NT$320 billion from NT$140 billion, the ministry will be entitled to another bail-out budget of NT$180 billion upon completion of the extension bill's legislation.

This means that NT$36 billion will be used to bail out financially distressed credit units of farmers' and fishermen's associations if the ministry accepts the KMT's amendment.