Fri, Nov 29, 2002 page8

• Editorial: Salvaging a reform fiasco

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  The newly appointed Minister of Finance Lin Chuan (林全) and Council of Agriculture Chairman Lee Chin-lung (李金龍) deserve applause for accepting the jobs in the wake of a political crisis caused by last Saturday's massive protest by farmers and fishermen. But their honeymoons on the job will be extremely short. They will face a tough ordeal at tomorrow's agricultural financing meeting. Farmers and fishermen do not want to hear about officials' high ideals -- they want, and need -- practical solutions.

  The executive branch has ordered a halt to the three-tier risk-control mechanism imposed on the credit units of farmers' and fishermen's associations. It has also promised to shift authority for the credit units from the Ministry of Finance to the Council of Agriculture. It is drafting an agricultural finance law, under which a new national agriculture bank or a national cooperative would be set up to manage the credit units.

  The farmers and fishermen have deep fears that the government may annihilate the credit units and deprive them of credit channels. To ease their fears is now the most pressing job for the financial reforms. The government should maintain the credit units' present organizational structures but restrict them from lending to non-farmers.

  The idea that the credit units can generate profit, maintain their staffs and subsidize the promotion of agriculture is a delusion that must be quickly eliminated. The credit units did turn a profit before the banking sector was liberalized. But they have been incurring massive losses and are now a major burden on the farmers' and fishermen's associations as well as a roadblock to agricultural development. They have neither financial expertise nor economies of scale. In fact, their expanding financial losses could gobble up the government's limited agricultural budget. They also lack effective oversight by impartial monitors -- making it easy for politicians and others to interfere in their operations and even embezzle funds.

  According to the Joint Credit Information Center's statistics on 152 credit units, as of September, small-loan borrowers (under NT$1 million each) accounted for 51.7 percent of borrowers. The non-performing loan ratio in that range is only 5.3 percent. In contrast, big borrowers (over NT$10 million apiece) make up 1.89 percent of the total and their NPL ratio is 45.9 percent. The large NPLs generally result from non-agricultural loans handed out to donor members.

  The government can lower the NPL ratios to 8 percent or lower by forbidding the credit units from lending to non-farmers and by setting an NT$5 million ceiling for a single loan. If a farmer or fisherman needs a bigger loan, they can go to the Farmers Bank, Land Bank or Taiwan Cooperative Bank. If the farmers or farming enterprises do not have enough collateral, they can seek help from the Agricultural Credit Guarantee Fund. So there is no need at present to set up another agricultural bank.

  If the credit units can maintain their present structures, agricultural financing will be able to continue and the backlash from farmers and fishermen will be minimized. If the credit units are managed by financial professionals and strict limits are set on the amount of loans and clients, the NPL ratios could be lowered to acceptable levels. The government could allocate money to support the agriculture sector and some to develop agro-tourism, improving and production and sales techniques, agricultural insurance and so forth. These will bring solid improvements to the livelihoods of farmers and fishermen.
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