Finance officials were put on the defensive yesterday by an apocalyptic assessment in the London-based The Economist, an influential international weekly, which predicted a banking crisis in Taiwan perhaps as early as January's Lunar New Year holiday.
Responding to the controversial report, Minister of Finance Yen Ching-chang (
"Based on an objective analysis of the situation, we don't think there is any threat of a systemic crisis in Taiwan," he said yesterday at a press conference held to respond to the report, the translations of which made front page headlines on most Chinese language dailies.
The Economist said in its latest issue that the nation's record high bad loans, plunging stock market, and the slowing semiconductor sector combination may push Taiwan's "as-yet healthy" banking system into a liquidity crisis.
"As the Chinese start preparing for the lunar new year -- by ancient tradition a time for debts to be settled -- the money may grow tight," said the report, sending shivers through the nation's economic circles. "And Taiwan could then get its crisis."
Chou Ah-ting (
The article, however, pointed more towards Taiwan's long-standing banking problems, aggravated by financial excesses of the previous KMT government, rather than an East Asian-style meltdown. In 1998, for instance, the KMT government pressured banks to roll over loans when the stock market bubble burst, pushing nearly 30 companies to the verge of bankruptcy, said the report. "Taiwan stood out as a special case during the Asian crisis of 1997," it said. "It doesn't look so special any more."
Despite the government's myriad measures to solve the banking mess, the report said Taiwan's decision not to let bad banks go bust is "reminiscent of Japan." Japan has massive foreign exchange reserves, a relatively robust export sector, and is a net foreign lender, though its banking system suffering from a decade of stagnation.
But finance minister Yen said that the emergency government measures announced during a high-level Cabinet meeting last month are partly aimed to ease the expected demand for money during the Chinese New Year.
The government has eliminated the business tax on financial institutions and extended principle payment on loans from corporations "with normal operations" due within a six-month period.
Yen believes that Taiwan's overdue loan ratio, which jumped to 6.3 percent in September, is far lower than the 15 percent level that is usually seen as a precursor to financial crisis.
Analysts, however, say that loan rollovers may end up delaying the problems, which may drag the economy into a longer period of stagnation. "The mass rollover of short-term debt is a peculiarity of Taiwan's financial system," said Bruce Richardson, head of regional bank research at Indosuez W.I. Carr in Taiwan.
And analysts believe that the plunging stock market, down 35 percent since March, is the biggest culprit, thanks to the close correlation between the health of the banking system and the mercurial bourse.
Meanwhile, Chen Po-chih (
"Taiwan's problem lies in the financial side, especially the recent stock market fall [which was] caused by falling high-tech share prices around the world," he said.
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