Search

 

Cablegate: Taiwan Minister of Finance On Government Deficit

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 TAIPEI 003495

SIPDIS

SENSITIVE

STATE PASS AIT/W AND USTR
STATE FOR EAP/RSP/TD, EAP/EP AND EAP/IFD/OIA
USTR FOR SCOTT KI
USDOC FOR 4420/USFCS/OEEA/EAP/LDROKER
USDOC FOR 3132/FCS/OIO/EAP/ADAVENPORT
TREASURY FOR OASIA/ZELIKOW ADN WISNER
TREASURY PLEASE PASS OT OCC AMCMAHON
TREASURY ALSO PASS TO FEDERAL RESERVE BOARD OF GOVERNORS,
AND SAN FRANCISCO FRB/TERESA CURRAN

E.O. 12958: N/A
TAGS: EINV EFIN ECON TW
SUBJECT: TAIWAN MINISTER OF FINANCE ON GOVERNMENT DEFICIT

REF: TAIPEI 3444

1. (SBU) Summary: Finance Minister Lin Chuan discussed
financial reform, taxation, and public finance during a
courtesy call by AIT/T/DDIR Keegan and EAP/TC/DD Levy on
October 28. Lin said that the government budget deficit was
the most time-consuming of his responsibilities. He asked if
there were opportunities for Taiwan tax officials to
participate in training or exchange programs with U.S. tax
officials (action request para 11.) End summary.

Budget Deficit the Biggest Worry
--------------------------------

2. (SBU) During a &familiarization8 call by AIT Deputy
Director Keegan and EAP/TC Deputy Director Levy, Taiwan
Finance Minister Lin Chuan said that the central government
budget deficit was a constant worry. Lin noted that
Taiwan,s central government had suffered budget deficits
since the early 1990,s for various reasons, including the
relocation of labor-intensive industries offshore and
economic recession in 2001. The integration of corporate and
personal income tax into a single return in the late the
1990s resulted in significant losses of tax revenue. Lin
observed that since President Chen was elected in 2000, the
opposition-controlled Legislative Yuan (LY) set numerous
restrictions to prevent the planned sales of equity shares in
state-owned companies*- a major source of revenue for
previous administrations.

Tax Reform Key, But Difficult
-----------------------------

3. (SBU) Lin said that the Ministry of Finance (MOF) hopes
tax reform can help address the budget deficit issue, but
reaching consensus among government agencies and legislators
on tax issues was difficult.

Local Government Funding
------------------------

4. (SBU) Minister Lin noted that many of Taiwan,s local
governments are also having fiscal problems. Taiwan,s local
governments are popularly elected, and have authority to
spend, but lack authority to impose taxes and must rely on
funds from the central government. Competition for funds
between Taipei City and other municipalities in Taiwan has
become more intense. The MOF has developed a more
transparent and equitable formula to allocate central
government funds, but has assured Taipei City that its
funding will not decrease.

Financial Reforms Can Also Reduce the Deficit
---------------------------------------------

5. (SBU) Minister Lin thought the budget deficit could also
be remedied by continuing the financial reforms already
underway and developing service sector industries,
particularly financial services, to replace lost
manufacturing jobs and tax revenues. Lin hoped that along
with expansion of the financial sector would come a more
sophisticated approach to taxation and a better understanding
of new financial products. However, he noted that primary
responsibility for financial reform had shifted from the MOF
to the new Financial Supervisory Commission (FSC) that was
established in July. (Note: The FSC was established to
consolidate regulatory control of banking, insurance, and
securities products from the three agencies previously
responsibile for these areas. A single regulatory agency was
supposed to provide better supervision and better risk
management, and be more in line with international trends.
End note.)

First Phase of Financial Reform Complete
----------------------------------------

6. (SBU) Minister Lin said that when reforms started in
2001, increased transparency in the banking sector brought
hidden problems to light. In 2002 the average non-performing
loan (NPL) ratio shot up above 11% (using the internationally
accepted definition of NPLs-- i.e., loans with principle or
interest payments more than three months overdue. Up to now,
Taiwan has only treated loans six months overdue as
non-performning.) To address this problem, Taiwan required
that banks write off bad debts or sell problem assets. He
said that under the first-stage financial reform, the NPL
ratio had dropped to below 5%.

7. (SBU) Minister Lin noted that the MOF had also built a
mechanism for problem banks to retreat from the market. The
Financial Reconstruction Fund (FRF), similar to the U.S.
Resolution Trust Corporation, was funded with NT$140 billion
to resolve bad bank debt. However, the fund was almost
exhausted by the problems of small community financial
institutions (farmers and fishermen credit coops) and the
sale earlier this year of the Kaohsiung Business Bank.
Minister Lin believed the MOF had gained much valuable
experience dealing with closing banks that would benefit the
FSC in managing the sale of other problem banks.

Foreign Investors Uninterested in Chung Shing Bank
--------------------------------------------- -----

8. (SBU) Taiwan will auction off the Chung Shing Bank (CSB)
and its 34 branches, now in receivership, on December 9 as
part of on-going efforts to reduce the number of banks and
improve the health of the financial sector (reftel).
Minister Lin said that while foreign investors were permitted
to bid, he did not think they were interested in actually
running the bank. He thought they were only interested in
profiting from dismantling it. Lin noted that the bid winner
can reduce CSB employees substantially, but must provide a
defined severance pay.

The Next Stage of Financial Reform
----------------------------------

9. (SBU) In the next stage of financial reform, Lin said,
the top priority is to reduce the number of financial
institutions. One difficulty is that many of Taiwan's
private banks are family-owned and managed, and the families
resist merging with larger banks. The MOF has developed plans
for the merger of the less efficient state-owned banks.
Under past privatization programs, equity shares in
state-owned banks have been sold and, consequently,
government ownership in many of these banks is already below
50%. Minister Lin said Taiwan hopes to sell 100% of
ownership of one or two healthy state-owned banks to foreign
investors in order to sharpen competition and pressure other
banks to consolidate. One good candidate for such a foreign
sale is the banking part of the Central Trust of China (CTC).
With 26 branches, the CTC,s banking operations are small
but good.

Financial Policy
-------------------

10. (SBU) According to recent draft amendments to the EY
(i.e., executive branch) Organization Statute, financial
policy-making authority will shift from the FSC back to the
MOF. Minister Lin explained that earlier legislation
strictly defined FSC as an independent agency, not subject to
executive branch jurisdiction. Lin believed the shift of
policy authority to MOF is necessary for the executive branch
to retain control of financial policy-making.

Request for Information on Tax Training/Exchange
--------------------------------------------- ---

11. (SBU) Minister Lin asked for information on the
possibility of Taiwan tax officials participating in training
or exchange programs with U.S. counterparts in order to
improve Taiwan,s taxation technical skills. AIT would
appreciate information on whether there are any appropriate
U.S. Treasury programs for training foreign tax officials.
PAAL

© Scoop Media

 
 
 
World Headlines

 



Save The Children: Ukraine: 21 Children Killed Or Injured In Horrific Week Of Violence

At least 21 children have been killed or injured in just a week in an uptick of violence across Ukraine, Save the Children said today... More>>


UN: Visionary ‘Blue Transformation’ Strategy To Enhance Underwater Food Systems

Record levels of fisheries and aquaculture production are making a critical contribution to global food security, the UN Ocean Conference under way in Lisbon, Portugal, heard on Wednesday...
More>>
Abu Akleh Shooting: Fatal Shot Came From Israeli Forces, Says OHCHR
Israeli forces were behind the fatal shooting of Al Jazeera journalist Shireen Abu Akleh in the West Bank - not indiscriminate Palestinian firing - the UN human rights office, OHCHR, alleged on Friday... More>>



UN Ocean Conference: Opens With Call For Urgent Action To Tackle Ocean Emergency
With climate change, biodiversity loss and pollution exacting a devastating toll on the world’s ocean — critical to food security, economic growth and the environment... More>>

World Vision: Deeply Concerned For Thousands Affected By Afghanistan Quake
World Vision is deeply concerned about the deteriorating humanitarian situation in Afghanistan in the wake of a powerful earthquake in the early hours of this morning... More>>



Malaysia: UN Experts Welcome Announcement To Abolish Mandatory Death Penalty

UN human rights experts* today commended an announcement made by the Malaysian government that it will abolish the country’s mandatory death penalty and encouraged Parliament to take concrete steps to pass the agreement into law... More>>