The government's attempt to resolve the rising bad debt ratios in the banking system without putting in public money may turn out to be a difficult task, experts said Thursday.
"I am not sure this can be done without any public money involved," said Hubert Neiss, former Asia director of the International Monetary Fund (IMF).
Neiss, who headed the IMF's operations in Asia during the 1997 Asian financial crisis, attended the 2001 Economic and Financial Summit, sponsored by Academia Sinica (
PHOTO: TAIPEI TIMES
The government meanwhile must act soon as any further delay would increase the costs of a solution, economists said.
"Act immediately when some difficulties in the banking system have emerged," said Neiss, now chairman of Deutsche Bank Asia, who offered six lessons for Taiwan using the Japanese experience. "If there are some problems, up front face the need for the use of public funds to rehabilitate the banks."
While experts lauded Taiwan's financial strength, they expressed skepticism over the decision to solve the bad debt problem without using taxpayers' money.
PHOTO: TAIPEI TIMES
Klaus Friedrich, chief economist for Dresdner Bank underscored the need for the government to earmark public funds to clean up the bad debt problem in the banking system -- estimated to be at least NT$600 billion depending upon the method of calculation.
"Somebody has to take the loss," said Friedrich. "My estimate would be that you can't solve the problem without government supporting in some way."
Gerald Corrigan, managing director of Goldman Sachs, also highlighted the need for more measures along with Asset Management Corporations (AMC,
Analysts meanwhile warned of the perils of haphazard mergers in financial institutions, which they say may complicate problems rather than solving them.
The government has put bank mergers as a top policy priority aimed at reducing the number of banks in Taiwan. Finance Minister Yen Ching-chang (顏慶章) said at the summit yesterday to expect more mergers after the Lunar New Year.
"Mergers just for the sake of mergers is doing nothing," said Friedrich. "If a good bank is forced to take over a bad bank, then you are going to have a big bad bank afterwards."
Analysts, however, said solving the problem of over-banking is more complicated than it seems, thanks to its potential social costs, such as rising unemployment rate.
The government has said that it will use AMC's, private institutions, which will help buy non-performing loans from the financial institutions and sell it a sharp discount.
Despite concerns over Taiwan's banking woes, most economists in attendance agreed that Taiwan is far from the brink of any financial crisis, although they believed that Taiwan act fast to avert larger difficulties ahead.
"There are a hundred countries that would wish to have Taiwan's problems," said Dresdner's Friedrich, referring to Taiwan's public debt ratio of 26 percent of the GDP, compared to the average 60 percent level common in Europe.
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