Janet Li, Watson Wyatt’s head of investment consulting for Taiwan says the country has some hard choices ahead, but embedded corruption and a lack of accountability mean the situation is unlikely to improve in the foreseeable future.
“Taiwanese are culturally afraid of change,” says Li, “and a culture of bribery makes it difficult to work towards global best practice.” The recent investigations into illegal payments, price fixing and vote rigging by senior executives of the Public Service Pension Fund, is a typical example of the problems.
Li says the Government and public service sector is “full of governance problems. If the officials responsible would address these issues, the role of board members would be less likely be open to abuse.” She is not hopeful that this will occur though. She cites the Financial Supervisory Commission as ‘unapproachable’: “We have tried to meet them, but we encounter the problem of who to talk to. No one wants to have accountability, in the Government sector especially. Meanwhile, the Finance Minister wants Taiwan to be the number one centre for financial services in the region.”
One of the biggest issues for the government is the number of pension funds with huge funding gaps, says Li. “Eventually, when funds go bankrupt, the Government will be the last resort. But no one has ever quantified the likely debt burden. The question is, what do they plan to do to deal with this looming crisis?
“So we try to help them decide whether to raise the retirement age or increase the contribution levels. But the problem is no one in Government will make a radical move because the executive’s job changes whenever there is a shift in presidential power. So no one is planning for the future.”
Another key market segment is insurance, which Li says has moved along much quicker, but is now suffering from the credit crunch. “A lot of CDOs were bought prior to the crash. Risk management was weak in the insurance sector. Often what they decide to invest in, is whatever is riding high at the time. So the key area now is repairing the risk on their balance sheet and diversifying sensibly. A lot of money is also in local charity funds, which is in cash and bonds, so if the funds management industry can get to that money, they have a captive market.”
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