Lee attacks plan to reform institutions that lend to farmers

Former President Lee Teng-hui (李登輝) yesterday attacked the Ministry of Finance's (MOF) new plan to reform the financial institutions of farmers' and fishermen's associations, saying that the plan would wipe these institutions out of the market.

Lee suggested that the government create a national farmers' bank, coordinating all the financial institutions of the farmers' associations. He said that these financial institutions should not be turned into business banks.

"The new mechanism places too many limitations on farmers' and fishermen's associations. I don't know how those policymakers use their brains," Lee said.

Lee explained that, in the current sluggish economy, agriculture is one of Taiwan's few industries that can offer jobs to many unemployed citizens, which is very important for Taiwan's future. "But what the government is doing now would make Taiwan's farmers helpless," Lee said at the national conference of the managers of farmers' and fishermen's associations.

"The government's new measure will be harmful to Taiwan's economic upgrading," he added.

The associations' financial institutions were created in the 1960s to offer loans to help farmers purchase seeds and agricultural machinery.

But after many cases of political corruption involving these associations during the past decade, farmers' credit institutions now have the highest non-performing-loan (NPL) ratio -- 21.5 percent -- compared to the 17.5 percent of fishermen's associations and the 7.5 percent of domestic banks.

To lower the nation's NPL ratio, the MOF Monday announced its three-tier risk-control mechanism that prohibits credit cooperatives with an NPL ratio of more than 10 percent from absorbing new savings from non-members. The mechanism also prohibits these cooperatives from offering interest rates on savings that are higher than that of Taiwan Cooperative Bank (合作金庫) and from granting unsecured loans, or loans to their own board members, in order to prevent "moral hazards."

The mechanism also forbids credit units whose NPL ratio is between 15 and 25 percent from granting new loans of more than NT$5 million, while those whose NPL ratio reaches more than 25 percent will not be allowed to provide extensions on old loans or establish new branches.

Many of the associations' managers, however, have complained that the new mechanism would just make their survival more difficult.