Funds to support TAIEX are taking a severe beating

Government intervention in the nation's stock market has generated cumulative losses of approximately NT$30 billion since the current administration took office on May 20, and the government may not be able to support the stock market much longer, reports say.

With over NT$335.7 billion invested in the stock market and the TAIEX having dropped over 10 percent since Chen Shui-bian's (陳水扁) inauguration, the four major Taiwan state-owned pension and insurance funds have seen their investment drop by 10 percent, or some NT$30 billion in book value, according to a national newspaper report.

The four funds -- used at the discretion of central government officials -- pumped over NT$113 billion into the stock market between May 20 and Aug. 2, while the TAIEX dropped more than 900 points during the period, the report said.

According to People First Party (PFP) legislator Chen Chao-jung (陳朝容) the funds were in danger of exhausting their financial resources in as little as 10 days as only NT$86.8 billion is left. The four funds have reportedly been pressured to buy stocks in companies favored by President Chen, the legislator said.

But according to Vice Minister of Finance Sean Chen (陳沖), fund capital was "sufficient," given that only non-economic factors are influencing the market.

Meanwhile fund representatives indicated government portfolios were healthy, but declined requests by PFP legislators to reveal the current return on the government's investment.

With a NT$422.5 billion ceiling stipulated by the four funds' rules and regulations for use by the government to influence stock market prices, spending by the new administration -- in less than three months -- has eaten up 50 percent of fund capital trying to fend off market volatility.

Among the funds' regular targets are companies in traditional non-technology manufacturing industries.

"[Based on the current ceiling], the government will not be able to support the stock market for long," said Norman Yin (殷乃平), a professor of finance at Chengchi University. "After they use up all their ammunition, when the market drops, what will the new administration do to support the market then? ... Also remember they are using people's money to defend the market."

In order to accumulate more "ammunition" for the future, the Ministry of Finance (財政部) has been trying to raise the ceiling for the four funds that can be put into shares. Ministry officials said it only needs to amend the rules and regulations of the four funds to raise the ceiling.

Not every government fund supports the ministry's proposal to raise the ceiling.

During a meeting held by the Supervisory Committee of the Labor Pension Fund recently to discuss raising its contribution ceiling from 30 percent to 40 percent, some members were against the move. They said the current administration has been neglecting laborers' benefits and rights and disrespecting the market mechanism while supporting the stock market with the fund's money.

Executives of the Civil Servant Pension also questioned the legitimacy of the amendment and said their ceiling has already been raised to 50 percent and that they would not raise it any higher.