Fri, Oct 03, 2008 - Page 12 News List

Wealth fund debate continues

OPPOSING VIEWS While professor Thomas Lee opposed the creation of such a fund to buoy the market, his colleague, professor Norman Lin, backed the proposal

By Crystal Hsu  /  STAFF REPORTER

The debate over whether to set up a sovereign wealth fund continued yesterday as academics and government officials disagreed on whether it was necessary, but all agreed on the need to create an institution to oversee and act to stabilize financial markets.

Thomas Lee (李桐豪), who lectures in banking and finance at National Chengchi University, said he opposed the idea of creating a sovereign wealth fund with the nation’s foreign exchange reserves to buoy the stock market. He said the government should explain more clearly why it wants to create the fund, which is normally used to invest overseas rather than domestically.

“Some countries use the funds to restructure their domestic industry and others use them to secure strategic resources overseas,” Lee said by telephone. “The government has yet to spell out its plans. It cannot set up a fund simply because it has become a popular thing to do.”

Vice President Vincent Siew (蕭萬長) on Tuesday asked the Cabinet to look into the idea after the local bourse plunged 210.35 points, or 3.55 percent, on the back of Wall Street’s woes.

On Wednesday, central bank Governor Perng Fai-nan (彭淮南) voiced reservations about creating the fund using the nation’s foreign currency reserves, while the Council for Economic Planning and Development said later the same day that there was no urgent need to address the matter.

Lee said he failed to see how Taiwan could avoid the financial unrest caused by international factors by creating a sovereign wealth fund.

What the country really needed was a regular government-owned corporation, such as Singapore’s Temasek Holdings, to better manage state assets and enterprises and ease the impact of overseas investors on the local financial markets, Lee said.

He said the government should establish an investment institution using NT$1 trillion (US$31 billion) from the postal savings fund, which has NT$3 trillion in assets.

However, Norman Yin (殷乃平), another banking and finance professor from National Chengchi University, supported the creation of a sovereign wealth fund.

Yin said a sovereign wealth fund was a state-owned financial instrument that could be used to advance domestic or overseas ambitions, but that it should not be funded from foreign exchange reserves. Yin said such a fund was desirable when looking to stabilize local markets and building the nation into a regional asset management center.

“Small and shallow, our financial markets are susceptible to unexpected flows of foreign capital,” Yin said in a telephone interview. “The fund would provide the government with a means to control the exchange rate and market liquidity.”

The academic said the NT$500 billion National Stabilization Fund was an ad hoc measure intended to be used in emergencies and that the central bank was insufficiently equipped to play a stabilizing role.

Earlier in the day, Minister of Finance Lee Sush-der (李述德) told a legislative hearing that he supported setting up a sovereign wealth fund that would draw its funding from surplus budgets or other medium and long-term state funds.

Financial Supervisory Commission Vice Chairwoman Lee Jih-chu (李紀珠) echoed Lee’s views, saying it was advisable for a small and democratic country like Taiwan to create a sovereign wealth fund to benefit its economy and oversee investments.

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