Lawmakers halt second stage of banking reforms

"The government must stop selling, swapping or transferring its stakes in state-run banking institutions immediately."

Fei Hung-tai, KMT legislator

The contentious second stage of the government's financial reforms could be stalled after lawmakers yesterday passed a resolution demanding that the government immediately stop disposing of its stakes in state-run financial institutions.

This would mean that one of the financial reform goals laid out by President Chen Shui-bian (陳水扁) late last year -- halving the number of state-run banks by the end of the year -- is likely to fail.

The resolution was passed yesterday afternoon by the legislature's financial committee as a result of the absence of Vice Premier Wu Rong-i (吳榮義), who also serves as convener of the task force in charge of promoting financial mergers.

The proposed financial reforms have been met with suspicion and accusations that they have been tailored to benefit benefit private business conglomerates. The legislature's financial committee had convened yesterday's meeting so that Wu, Council for Economic Planning and Development chairman Hu Sheng-cheng (胡勝正), Minister of Finance Lin Chuan (林全) and Financial Supervisory Commission (FSC) chairman Kong Jaw-sheng (龔照勝) could debate the policies.

Wu's absence prompted a reprimand from lawmakers, who accused the vice premier of defying the legislature's oversight and shirking his constitutional obligations to report to the legislature.

"I severely denounce Wu's disregard of the legislature," said Chinese Nationalist Party (KMT) Legislator Fei Hung-tai (費鴻泰), who chaired yesterday's meeting.

Describing the finance minister and FSC chairman as "puppets" who had been manipulated by Wu to implement the reforms, Fei said the committee decided that the second stage of banking reforms should be suspended until the vice premier has clearly explained who set up the reform goals, how the goals were decided and why.

"The government must stop selling, swapping or transferring its stakes in state-run banking institutions immediately," he read from a written statement, adding that the government should take the initiative to establish state-controlled financial holding companies.

Market analysts said this decision comes as no surprise, as investors have been pessimistic about the reforms all along.

"Financial shares have dipped recently, reflecting their lack of confidence in the government's reforms," said Joseph Wang (汪彥銘), associate manager of the investment and research department with First Taisec Securities.

It will be worth noting whether the government's response will help boost investments, he said.

Shirley Yang (楊慶祺), a fund manager at Invesco Taiwan Ltd, said the resolution would not have much of an impact on the banking sector, although share prices may decline in the short term.