Supervisory role for COA confirmed

Despite strong opposition from academia, the Executive Yuan has decided to charge the Council of Agriculture (COA) with supervising farmers' and fishermen's credit cooperatives, Vice Minister of Finance Susan Chang (張秀蓮) said yesterday.

"In order to consolidate the nation's agricultural development and finance under the same regulatory umbrella, the COA will replace the Ministry of Finance [MOF] and play a key role in grassroots financial reforms," Chang said at a hastily called press conference yesterday afternoon.

Chang said that the MOF will help draft a new agricultural financial law (農業金融法) and revisions to other laws to facilitate the transfer of power. A timetable may be finalized after President Chen Shui-bian (陳水扁) convenes a national agricultural sector reform meeting scheduled for next Saturday, she added.

The MOF's three-tier risk-control mechanism, which was implemented in early September to tighten regulation of the cooperatives' lending and saving practices, was abruptly suspended on Sunday, stifling the ministry's hopes of resolving the problem itself.

The government's U-turn comes ahead of a planned protest in Taipei on Saturday by tens of thousands of farmers and fishermen opposed to the just-suspended measures.

However, Chang was hard-pressed to clarify the Cabinet's new position at yesterday's press conference, creating more confusion.

Because of a lack financial expertise, the COA will tackle the task by hiring new government regulators to handle the agricultural sector's financial affairs, Chang said.

When questioned by the media whether the Cabinet's policy reversal contradicted its plan to establish a Financial Supervisory Board (FSB) to centralize regulation of the nation's banking sector, Chang said only that the credit units would be independent from the yet-to-be-established FSB's supervision.

Nevertheless, Chang said that the Financial Restructuring Fund (金融重建基金) would still be available to help bail out ill-performing credit units, pending approval from the fund's committee, which is under the MOF.

Citing the example of Japan's Norinchukin Bank Ltd -- the central bank for Japan's agricultural cooperatives -- Chang said that Taiwan will set up a national agricultural bank to absorb the nation's 278 agricultural lenders.

"The new agricultural bank will have capital of at least NT$10 billion and 20 percent of its shares can be purchased by the government," Chang said.

Analysts criticized the government's new plan yesterday, saying that the COA, short of financial talent, experience and objectiveness, would worsen the non-performing loan (NPL) problem.

"The COA is good at promoting agriculture, but not good at monitoring financial institutions. The government's policy will make things worse because the COA is void of financial talent," said Hsu Chen-min (許振明), professor of the Economics Department at National Taiwan University.

Hsu said that financial issues should be in the hands of Ministry of Finance, otherwise, "The government's financial management will head in different directions."

"The government's policy will make the COA both the player and referee and undoubtedly send the NPL ratio skyrocketing again," he said.

The average NPL ratio at Taiwan's grassroots financial institutions is 21.5 percent.

An analyst from ABN Asset Management said the COA is not capable of monitoring these units because it has no expertise in dealing with NPLs.