Establish Sovereign Funds: Promote Infrastructure Projects

Establish Sovereign Funds: Promote Infrastructure Projects
China Times editorial (Taipei, Taiwan, Republic of China)
A Translation
February 5, 2014

Summary: Taiwan's economy is suffocating. In order to find a breakthrough, the Government must act. It must use its foreign exchange reserves to establish sovereign wealth funds. Raise funds to promote public works, and provide affordable housing for young people. This is a viable strategy. All it takes is the will. As long as politicians are determined and the legislature can be persuaded, they can be swiftly implemented. Taiwan's economy can then be revived.

Full text below:

Taiwan's economy is suffocating. In order to find a breakthrough, the Government must act. It must use its foreign exchange reserves to establish sovereign wealth funds. Raise funds to promote public works, and provide affordable housing for young people. This is a viable strategy.

Economic growth can be promoted in four ways: consumption, investments, net exports, and government spending. Currently all four are in limbo. Salaries have not risen in over a decade. Private sector consumption is merely holding the line. It cannot increase growth. Recent investment remains bleak as a result of the world economic outlook. It has barely increased. It has occasionally experienced negative growth. Exports have been hurt following the 2008 financial crisis and the European debt crisis. Effective demand in Europe and America has been reduced. Economic growth has been unsatisfactory. Government spending has been affected by an emphasis on social welfare and a reluctance to increase the budget deficit. As a result, CEPD spending has been reduced. Investments in government and public utilities have barely increased.

Any economy that fails to grow becomes stagnant. New job opportunities are limited. One might have a job, but not a decent salary. Young people have no hope. They are forced to seek employment abroad. Older people tied to the land fear for their futures. The odds are against them. They are afraid to spend. This leads to a vicious downward economic spiral. Japan's "lost two decades" from 1990 onwards is the best example .

Reviving a stifled economy requires policies that restore a virtuous economic cycle. It requires using public works to stimulate economic growth, creating a multiplier effect. This is something the government can control.

What kind of public works best stimulate economic growth? The experience of nations around the world tells us that the most cost-effective means are the construction of infrastructure and transportation facilities. President Ma's "Golden Decade, National Vision" provided a comprehensive list. It included improvements to water works, electrical power, and industrial infrastructure. These can transform Taiwan into a convenient South East Asian sea and air transportation hub, and promote swifter transportation. They will create a comprehensive and convenient environment and digital convergence. These are public infrastructure works worth promoting. Several projects are top priority. They include the traffic bottleneck sections of the Huadong Line railway. These require tracks running in both directions, across the board rail electrification, South Link Line electrification, Suhua Highway No. 9 mountain road improvements, the West Coast Expressway road network. These form a third north south expressway. The Ten major infrasture projects include the New Taipei Twin Towers, the Songshan Airport Development Project, the Taipei Qui Yeh Yuan Building, the Taipei City Green Hill TWTC Exhibition Hall Development, the Kaohsiung City unified transportation system, the second Harbor Bridge and Harbor Tunnel, the New Taipei MRT third ring, third line MRT, the Tamkang Bridge, the Taichung Metropolitan Area MRT railway viaduct, the BRT public transport network, the Tainan City underground railway, and the Anping Harbor Bridge. These are also worthwhile projects that will generate benefits. If we have the financial resources, these projects stimulate economic growth on Taiwan immediately.

But even the cleverest housewife cannot prepare a meal without rice. Current annual revenue is limited. The budget is out of balance. Financial resources are worrisome. Different parties have different proposals to cut expenditures. But the government can set up sovereign wealth funds. This would help fill the nation's coffers.

Our government has yet to establish sovereign wealth funds. But in recent years, its foreign exchange reserves have reached 400 billion USD. The Central Bank has in fact conducted sovereign fund operations. As everyone knows, they have yielded a profit of 200 billion NTD. Most of this is the result of the leadership and hard work of the President of the Central Bank and his colleagues. The rest is the result of outsourcing operations.

Outsiders have little understanding of Central Bank operations. But in 2012 recognition was given to exemplary public servants. Forex Trade Chairman Chang Shou-fu received unprecedent public attention. He said CEO Peng authorized 500 million USD in capital to his operations team. In 2012 alone, they earned 28 million USD, about 800 million NTD. This amounted to a 5.6% interest rate. Observers consider annual earnings of over 200 billion NTD impressive. A total of 400 billion USD earned 12 trillion NTD, and a profit of 227.3 billion NTD in 2013, at a return rate of 1.894%.

The reason was, Central Bank operations ae conservative. Consider the Central Bank's income statement. Its main income is interest. These target U.S. Treasury AAA Grade fixed income assets. If sovereign funds are established, specialized investment operations begun, and certain risks assumed, one can expect a higher rate of return. The outsourcing of four major domestic fund operations in the wake of the financial tsunami should be able to beat market. Therefore sovereign funds can contribute to the nation's coffers.

CEO Peng has helped the government earn nearly 3 trillion NTD. This has reduced the shortfall in revenue. But more aggressive sovereign fund strategies and emulation of hedge funds may offer greater benefits. This is now the job of the Central Bank. It should help the government establish sovereign funds. The CEO has a wealth of  experience. He can draw up plans for effective operations. He can consider how to revive a stifled financial industry, and give Taiwan's economy a shot in the arm.

The government should provide public works funding and establish sovereign funds. All it takes is the will. As long as politicians are determined and the legislature can be persuaded, they can be swiftly implemented. Taiwan's economy can then be revived.

社論－成立主權基金 推動大建設
    2014-02-05 01:24
    中國時報
    本報訊

　突破台灣「悶經濟」，政府該有所作為。活用外匯存底成立主權基金，籌措財源推動公共建設，讓年輕人買得起住宅，是可行策略。

　經濟成長可以從四大面向推動：消費、投資、淨出口及政府支出，當前這四個面向都非常沉悶。首先，十多年來因為薪水不漲，民間消費只能維持基本盤，增加有限。投資因為近年世界經濟前景未明，不但少有增加，有時還呈現負成長。出口在2008年後，因為金融海嘯、歐債危機，歐美有效需求遽減，表現也不如人意。政府支出方面，因為政府格外注重社福卻堅持量入，不願擴大財政赤字，因而縮減經建支出，讓投資項目中的政府及公營事業支出幾乎沒有成長。

　經濟不成長就變悶，新創的工作機會有限，勉強有工作卻沒有好的報酬，年輕人沒有希望，被逼得往外發展；年紀較大、有土地附著性的人害怕未來沒有機會，不敢消費，經濟螺旋向下，產生惡性循環。日本從1990年起，失落的20年，就是最好的例證。

　改變「悶經濟」窘狀，應採取能讓經濟產生正向循環的政策，以公共建設刺激經濟成長，產生乘數效果，是政府可以掌控的方向。

　什麼樣的公共建設，最可以刺激經濟成長？世界各國的經驗，做有效益的基礎建設及交通設施是最好的。馬總統「黃金十年，國家願景」列出的全面建設，其中的完善水、電及各項產業發展所需之基礎建設，打造台灣成為東亞海空樞紐及推動便捷交通環境、營造全面數位匯流環境的便捷生活，都是值得推動的公共建設。交通篇中的花東線鐵路瓶頸路段雙軌化暨全線電氣化、南迴線電氣化、臺9線蘇花公路山區路段改善、西濱快速路網，形成第三條縱貫南北快速公路，是該做的重中之重。又如台北新十大建設其中的雙子星、松山機場開發案、台北秋葉原、台北城市綠丘（世貿二館開發）；高雄港市一體交通運輸系統、第二港口跨港橋及過港隧道。新北市三環三線的捷運交通，淡江大橋；台中市的都會區鐵路高架捷運化、BRT的公共運輸路網。台南市鐵路地下化、安平港大橋。這些也都是非常值得做，可以產生效益的項目。因此只要有財源，這些建設立即可以拉動台灣的經濟成長。

　可是巧婦不能無米之炊。在目前歲入有限，財政收支不平的情況下，財源問題特別值得關切。各界已有多項開源節流的建議，但我們特別指出，政府可以成立主權基金，帶來更好的盈餘挹注國庫。

　我國雖未成立主權基金，但近年外匯存底達4000多億美元，央行實際上進行操盤行主權基金之實。眾所周知，獲利繳庫年貢獻2000多億新台幣。這大部分是央行同仁在彭總裁帶領下嘔心瀝血之作，小部份是委外操作成果。

　央行操盤實況，外界難以得知。但2012年度模範公務人員表揚讓外匯首席交易員張壽福首度曝光。他表示，彭總裁授權5億美元「本金」給他的操作小組，光在2012年獲利即達2,800萬美元（約新台幣8億元），算下來獲利率約5.6％。外界咸認為，年貢獻2000多億新台幣非常了不起，以整體4000多億美元換算成台幣12兆的資產，2012年創造了2273億新台幣的獲利，報酬率約1.894％。

　究其原因，央行的操作必定以穩健保守為原則。從央行的損益表來看，最主要的收入是利息收入，投資對象應該以美國國債、3A級的固定收益資產為主。如果成立主權基金，專業化的投資操作，忍受一定的風險，當可以有更高的收益率。國內四大基金的委外操作，在海嘯過後，績效基本上可以打敗大盤。因此主權基金應該有更大的效益來貢獻國庫。

　彭總裁已經幫政府賺了近3兆台幣繳庫，填補稅收的不足。但主權基金更積極的策略，仿效避險基金，可以為國家創造更大的受益。因此央行現在的任務，應是幫忙政府成立主權基金，以總裁豐富的經驗，建立未來基金的運作規畫及績效評估，也思考如何拉抬台灣沉悶的金融業，為台灣經濟注入強心針。

　政府公共建設支出及主權基金的建立，應是一念之間，只要為政者想通，說服立法院，就可以迅速的執行。台灣的悶經濟就可以解套。