‘New rules needed’ for sovereign wealth fund

Fielding questions from lawmakers at the Legislative Yuan about government investment operations, Perng said Taiwan already has the SWFs.

He categorized the existing National Development Fund and the four major investment funds run by the administration (formed with the public servants retirement fund, labor retirement fund, labor insurance premium fund and deposits at the postal banking system) as SWFs in nature, since they are all state-owned investment funds.

“The best policy here and now is to integrate the Four Major Funds and National Development Fund into a larger one, instead of establishing a new SWF,” Perng said.

In response to ruling Kuomintang Legislator Lai Shyh-bao’s question on whether the CBC favors the way that Singapore has established its SWF, Perng said, “the Singaporean model is a good one to emulate.”

He added that prior to establishing its SWF, Singapore first enacted a relevant statute. The Singaporean government then established an SWF with funds raised via issuing state bonds, and in turn used the SWF to invest overseas, he said.

Perng explained that if the government decides to lump the existing funds into a bigger SWF, it should float bonds and then sell them to the postal banking system, or use other ways to raise funds rather than tapping directly into the nation’s foreign exchange reserves.

There should be no “allocation or diversion” of funds from the nation’s forex reserves through executive decrees or other arrangements.

When the SWF needs foreign currencies for investments abroad, it should become a market player to purchase the currencies on the forex market, Perng said.

The CBC governor added that both the establishment of SWFs and the funds’ overseas investment should be in line with International Monetary Fund (IMF) regulations.

Perng dismissed earlier media reports which alleged he had categorically ruled out using the country’s foreign exchange reserves to establish a new SWF.

The whole issue is still under study, he said.

He agreed with some lawmakers’ opinions that Taiwan already has too much excess savings.

Perng said that during the past decade, Taiwan possessed a high savings rate of 28 percent compared with a 22 percent investment rate. The 6 percent excess ravings rate means as much as NT$6.5 trillion has been parked at banks or post offices.

Saving is a good virtue for the individual, he said.

But for the nation, too much excess savings with continuously rising idle funds could drag down overall economic growth, he said.

The government should implement effective measures to offer investment incentives concerning land, labor service, supply and other fields to attract capital from the private sector, he said.

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