Recently, the government's second stage of financial reforms have become yet another cause of fierce political bickering among the major parties. The Legislative Yuan's finance committee even passed a motion last week to suspend disposals of government holdings in financial institutions.
One of the opposition's main criticisms was that the financial reforms will only benefit certain large financial conglomerates in the name of privatization. This has upset President Chen Shui-bian (
The theory goes like this: The government plans to halve the number of state-owned banks to six by the end of this year, and cut the number of financial holding companies by half -- to seven -- through mergers by the end of 2006. As six out of the 14 holding companies are currently under three conglomerates, run by the Wu, Koo and Tsai families, the government's reform plans will create an uneven income concentration. This suggests that the wealth created via the reforms will mostly benefit the rich.
Not only that, but employees of state-owned banks may lose their jobs, so the country will see a higher unemployment rate at a time when the economy is slowing down. Hence the opposition camp said it is time to call it quits on the reforms.
However, it should be remembered that these plans were passed by the Economic Development Advisory Conference in August 2001, meaning that privatization was backed by the opposition parties at the time.
And it is also important to realize that when it comes to bank mergers and acquisitions, large conglomerates are the only ones able to participate. It is entirely impossible for ordinary people to get involved in such financial consolidations.
The problem is, of course, the role the government can play in assuring people that the consolidation will be carried out with efficiency and fairness.
Generally speaking, the DPP government's first stage of financial reforms was one of the few policies applauded by investors, as it helped to improve the financial structure of domestic banks.
The government's second stage of financial reforms therefore are aimed at expanding the scope of domestic financial institutions to enable them to compete in regional or global markets. The government vowed to develop at least three domestic banks with more than 10 percent market share by the end of this year and allow at least one bank to be run by a foreign financial institution by the end of next year.
Opposition lawmakers argued that these targets, and those of halving the number of state banks and financial holding companies make no sense. But the real reason for opposition parties' increasing antagonism to the reforms may most likely be their intention to gain the upper hand over the DPP during the local government elections, if they can force the latter to fail in achieving its goals and so make the DPP lose credibility with investors. It is all about politics.
Although there might be flaws in the process of implementation, the direction of the government's financial reforms is correct and it must be allowed to carry on. To win back public support for the reforms, the government needs to ensure a more open and transparent bidding process for privatization efforts, as well as take into account the interests of banks, their shareholders and employees.
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