One of the candidates for vice president in the Jan. 13 elections is on a collision course with the central bank after calling for the monetary authority to allow some of its billions in foreign reserves to be used to set up a sovereign wealth fund.
Legislator Cynthia Wu (吳欣盈), the vice presidential candidate for the Taiwan People’s Party (TPP), is vowing to lay the legal groundwork to establish a roughly US$56 billion state-owned investment fund that would plow money into international equity funds, she told Bloomberg News in an interview on Friday last week.
A sovereign wealth fund dedicated to driving higher returns and making bolder investment decisions could help improve financing for pensions, healthcare and infrastructure, Wu said.
Photo: Lee Jung-ping, Taipei Times
“If you invest in a Fortune 500 company fund or Europe ETF fund and just park that money there for 10 years, you’re still going to make more money than the central bank’s current 2 percent returns,” said Wu, who as a lawmaker has access to the central bank’s data.
“It’s a no-brainer,” she said. “It’s not very high risk at all.”
Wu said the fund would aim to deliver yields of about 7 to 8 percent annually.
The central bank did not immediately respond to a request for comment on its returns.
A secondary benefit would be expanding Taiwan’s influence globally through the fund’s investments, she said, adding that “Taiwan needs more friends.”
As one of the most high-profile advocates for a sovereign fund, Wu’s platform as a vice presidential candidate has thrust the decades-old debate into the spotlight.
While discussions over the pros and cons of a fund have surfaced from time to time, the main stumbling block has always been where the money to establish it would come from.
The central bank held about US$567 billion in foreign reserves as of last month, one of the largest hoards in the world, data compiled by Bloomberg showed.
Wu and her party say that the monetary authority and other state-run funds deliver limited investment returns that could easily be erased by inflation.
She proposed that a sovereign fund be founded by using 10 percent of the central bank’s reserves.
Central bank Governor Yang Chin-long (楊金龍) has already said he would not give up any of the bank’s reserves for free, but would be willing to loan them.
Campaigners should figure out a different way to fund the idea rather than taking capital from the central bank, Yang told lawmakers in May, just after Wu put forward a proposal in the legislature.
A total of 65 out of 113 lawmakers signed onto the idea, a sign that it does hold some appeal.
Yang’s reservations are based on concerns over Taiwan’s access to emergency funds in times of crisis. Due to Taiwan’s diplomatic isolation, it does not have access to the traditional global lenders of last resort, such as the IMF or the World Bank.
Since the Asian Financial Crisis in 1997, Taiwan’s foreign reserves have expanded more than 570 percent, partly in a bid to inoculate the economy from global shocks.
The central bank also uses its large cash pile to maintain a predictable exchange rate for Taiwan’s export-oriented manufacturers and insurance industry, buying and selling US dollars to avoid major fluctuations in the local currency.
Wu sought to alleviate the central bank’s concerns by saying the money would still belong to and be under the control of the monetary authority, but just set aside and managed differently.
Wu’s ability to push through a sovereign wealth fund would largely depend on the outcome of the election.
The TPP campaign trails the other two presidential contenders in polls, but the party might still be able to wield influence over key legislation if it wins enough seats in the legislature.
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