Thu, Dec 25, 2014 - Page 8 News List

State tightens grip on private sector

By Lu Shih-hsiang 盧世祥

The election for Chang Hwa Bank’s board of directors on Dec. 8 was a big victory for the Ministry of Finance, which managed to secure a majority on the board. However, the ministry is now being sued by the bank’s main private shareholder, Taishin Financial Holding Co, which has also lodged a complaint with the Control Yuan over the matter. This outcome came as a shock to foreign investors such as the Soros Asian Fund.

The most controversial aspect is that the ministry, holding just 18 percent of the bank’s shares, could score a major win against Taishin, which has a 22.5 percent stake. The ministry achieved this by persuading small shareholders to sign instruments of proxy allowing it to use their votes, thus enabling it to gain control over the private corporation. This incident is being described as an astonishing phenomenon in Taiwan’s capital markets, while others say it is the first time such a thing has happened in a democracy.

When Taishin Financial Holding acquired a controlling stake in Chang Hwa Bank in 2005, the ministry pledged to help it secure a majority on the board. However, at the Dec. 8 shareholders’ meeting Taishin found itself up against Joanne Ling (凌忠嫄), director-general of the National Treasury Administration, which is subordinate to the ministry. Ling took personal command of the operation at the meeting. Feeling tricked and robbed, Taishin sued the ministry for breach of trust.

The ministry’s unprecedented actions have sparked accusations that it broke its promise to Taishin and the incident is a big step backward in the privatization process. It is worth considering why government departments still play such a strong guiding role in economic activity even after Taiwan has been promoting liberalization for decades.

This kind of thing does not just happen with banks. It is even more true of financial markets that the government always calls the shots. In securities markets, the government can wield its “four big funds” — the Postal Savings Fund, the Labor Insurance Fund, the Labor Pension Fund and the Civil Servants Pension Fund — and intervene through state-run financial institutions. If necessary, the National Stabilization Fund can also intervene in the market.

State intervention is even more blatant in the foreign exchange markets, where fluctuations in the value of the New Taiwan dollar are controlled almost entirely by the central bank with its huge foreign currency reserves.

What harm is there in having a government that takes charge of everything? Taking the foreign currency market as an example, former deputy central bank governor Shea Jia-dong (許嘉棟) summed it up when he criticized the monetary authority for always trying to stop the NT dollar from appreciating, but not from depreciating. He said the central bank releases NT dollar reserves by buying foreign currencies, but does not sterilize its intervention. This has led to high capital liquidity and kept interest rates low for a long time, which in turn encourages the price of real estate and other assets to rise.

This policy has a very tangible effect on ordinary people. They feel it when they change money to go abroad and when they buy imported goods, including everyday necessities such as flour and gasoline. Given this, people often ask why it is necessary to use currency rates to subsidize manufacturers and exporters, when they are the ones who always want the NT dollar to lose value.

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