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Government activates National Stabilization Fund

The government decided to activate the state-owned National Stabilization Fund (國安基金) yesterday, an overnight change made ahead of the stock market opening, but it refused to reveal details of how the fund would act.

“The economic fundamentals of this country are still stable, but in view of the sharp decline in the US stock market on Sept. 17 and possible volatility in international financial markets … conditions are right for the fund to enter the stock market,” the fund’s management committee said in a statement.

The press release was issued at 10:10am, just over an hour after the TAIEX had opened down 242.82 points from its close on Wednesday, a drop of 4.19 percent. The benchmark index gained as the day progressed, ending 158.92 points down from Wednesday at 5,641.95, a drop of 2.74 percent.

At a press conference following the Cabinet’s weekly meeting yesterday, Minister of Finance Lee Sush-der (李述德) cited the Regulation on the Establishment and Management of the National Stabilization Fund (國家金融安定基金設置及管理條例) to justify the decision to use the fund.

“Paragraph 1 of Article 8 of the regulation authorizes the government to use the National Stabilization Fund when confidence of investors might be shaken by major incidents in the country and abroad, or by significant international capital movement that would result in disorder in the capital and financial markets and could hurt the nation’s stability,” he said.

The decision was made at a meeting of the fund’s management committee yesterday convened by Vice Premier Paul Chiu (邱正雄), the second day in a row the committee has met to discuss the turmoil sparked by the US’ financial woes.

Lee, however, failed to give a clear explanation of why the government decided to activate the fund after the management committee decided on Wednesday that the fund should remain inactive for the moment.

Lee said the committee had made the most appropriate decision based on the economic and financial situation in domestic and overseas markets. But he did not say what specifically had sparked the shift.

“Members of the management committee said that Taiwan’s share prices had dropped below the level they are supposed to have, compared with global stock markets,” Lee said. “An important reason to use the fund was that the impact of international financial incidents on the country is likely to last for some time.”

Lee’s remarks appear to contradict Chiu’s statement on Tuesday, when he said the US financial trouble was expected to end soon as “it usually takes one-and-a-half years to get through an economic downturn,” a reference to the start of the US sub-prime mortgage crisis the summer of last year that triggered the current crisis.

Activating the National Stabilization Fund, which has NT$500 billion in capital, was one of a spate of measures the government has adopted to sustain Taiwan’s stock markets.

Lee refused to discuss details of the fund’s transactions, saying that the fund’s management committee would make the best decision on which shares to buy, the amount and the prices as a general investor.
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