In an attempt to save the credit units of farmers' and fishermen's associations, Taiwan Agro-fighters United (TAU,
First, whether such an agricultural cooperative, with a capitalization of a mere NT$20 billion could survive in today's liberal financial environment is highly questionable.
Second, in addition to policy-oriented agricultural loans, the new national cooperative would be allowed to provide other services stipulated in the Banking Law (
Past experience at the Taiwan Cooperative Bank (TCB) tells us that the new cooperative will have to focus on commercial banking in order to survive in the market, thereby losing the characteristics of an agricultural bank.
Third, the TCB is experienced in handling agricultural loans. If we must establish an agricultural cooperative, we should make restructuring the TCB a priority. There is no need to waste funds.
The fundamental problem with setting up a new agricultural cooperative is that it is just an excuse to allow the credit units of farmers' and fishermen's associations to continue to exist. Because the proposed cooperative would be established with additional capitalization from the credit units, those units would have to continue to exist. There is simply no way to stop further deterioration of these troubled credit units.
When the rural farming economies were thriving, the credit units were able to conceal their defects behind their strong performance figures.
But now the value of Taiwan's agricultural production is less than 2 percent of GDP and the actual farming population is a mere 700,000. Obviously, the credit units cannot continue to operate with such a realtively small production value and farming population.
The Financial Restructuring Fund has already put up NT$80 billion to take over 36 credit units. The fund plans to spend another NT$400 billion.
If the government -- having put up such a massive amount of money just to help the credit units clean up their mess -- allows them to continue to exist (in other words, to continue to incur losses) and goes as far as to put up capital to set up a bank that is doomed to fail, then a charge that the government is wasting public money will be a gross understatement.
It may still be excusable for the government to spend money on ordinary farmers, but according to Taiwan Ratings' statistics on the credit units, the overall non-performing loan ratio for loans less than NT$1 million (ie loans borrowed by small farm operations) is only 5.3 percent.
In contrast, the overall NPL ratio for loans more than NT$1 million (ie loans borrowed by "contributing members" who run industrial or agricultural firms) is a staggering 94.7 percent.
In other words, NT$94 out of every NT$100 dollars paid out from the Financial Restructuring Fund is used to clean up the mess left by large borrowers.
The credit unit executives repeatedly claim that their units exist for the benefit of ordinary farmers, a claim which clearly does not hold water.
Those executives and some agricultural economists continue to stress that the credit units are the heart of the farmers' and fishermen's associations. They say that the associations cannot be maintained if they are not supported by profits from their credit units.
But the reality is that the credit units are simply unable to support the other functions of the associations because the combined profit of all credit units nationwide is less than NT$140 million.
Most of the associations are now simply moving and spending deposits from their credit units. They are not using profits to meet their expenses.
If the "heart of the associations" means this kind of abnormal system, we can do without such a heart.
It would be preferable for all the credit units to cease operations and for the government to fully subsidize the main business of the associations -- agricultural production, shipping, sales and insurance.
In that scenario a mere NT$3 billion would be needed for the 300 associations nationwide.
In stark contrast, if we allow the credit units to continue to exist, we lose NT$100 million every three days. We spend NT$10 billion in tax payer's money each year to reconstruct them. This does not include the losses that will be incurred by the proposed agricultural cooperative.
It is clear which option is preferable.
Neither the TAU nor the government can fail to understand such simple logic. But with its capacity to mobilize 100,000 supporters, the TAU can afford to blackmail the government.
Fearful of that capacity, the government is willing to be generous with taxpayers' money. If we allow this to happen, heaven knows what depths Taiwan society will continue to plumb.
Lin Cho-shui is a DPP legislator.
Translated by Francis Huang
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