The American and European Chambers of Commerce in Taipei issued a joint position paper yesterday, calling on the government to exercise caution when formulating the personal bankruptcy law in a bid to prevent possible side effects from slowing down economic growth and scaring foreign investment away.
The proposed legislation is aimed at bailing out the nation's debt-ridden cardholders, but the chambers warned that inadequately prepared bankruptcy systems may be open to abuse by debtors.
"Proper conditions, limits and safeguards must be adopted to prevent moral hazard -- the inadvertent encouragement to consumers to avoid paying their debts," the chambers said in a statement. "Mechanisms should be built to encourage debtors to resolve their debts instead of going into bankruptcy."
Poorly written legislation may lead to a credit crunch and higher prices for credit usage, and tightened credit would dampen private consumption and slow down overall economic growth, the chambers said.
"Foreign and domestic investment in Taiwan's financial sector would be discouraged by the uncertainty over banks' revenue prospects," they said.
Therefore, the chambers suggested that "Taiwan should require all debtors to go through the already-generous consumer debt negotiation mechanism, while setting a timetable to review and amend the bankruptcy law over the next three years."
Debtors must be made aware that they should not hold out for this final result, as it would carry a cost and a stigma. Bankruptcy must be seen as a last resort -- not an immediate, easy quick fix, they said.
The position paper has been sent to Kong Jaw-sheng (龔照勝), chairman of the Financial Supervisory Commission, the nation's financial regulator, to make sure the authorities are aware of their concerns.
In response, the commission said that it recognized the need for prudence when looking at the proposed personal bankruptcy law and to come up with thorough bankruptcy management support measures.
The financial watchdog would pass on foreign business community's concerns to the Judicial Yuan, the body that is governing the formulation of the personal bankruptcy law, and provide professional advice if the judicial authority asked for it, commission spokesman Lin Chung-cheng (林忠正) told a press conference yesterday.
The commission again urged indebted cardholders to enter the card debt negotiation platform as soon as possible for tailored preferential repayment schemes that offer reduced interest rates and longer payback periods.
Since it started operation on Jan. 1, the mechanism has received 45,522 applications and successfully wrapped up 28,532 cases, amounting to debts of NT$47.5 billion (US$1.46 billion) up to March 24, according to the commission.
The number of indebted credit and cash cardholders is estimated at around 500,000 people, with debts of around NT$330,000 each as of January, the commission said.
In an attempt to bail out debt-ridden cardholders, lawmakers have been proposing to lower the interest rate cap and push the progress of bankruptcy legislation, which has sparked concern from banks and investors over moral hazards that could further dampen the nation's banking sector.
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