Emergency measures announced by Taiwan's Finance Ministry last week, including a NT$230 billion (about HK$54.62 billion) stock-market stabilisation fund, have restored short-term investor confidence in the Taipei exchange. But structural reforms in the island's financial 'game rules' are necessary to prevent worse crises in the future, according to industry insiders. In the wake of a series of stock-market and loan defaults and rumours of a renewed rash of failures, which pushed the Taiwan Weighted Index down last week, the Ministry of Finance announced five measures to shore-up confidence, following earlier moves to aid enterprises suffering from short-term revolving capital shortages. The most weighty new move was formation of a stock-market stabilisation taskforce, mandated to co-ordinate investments by key state and private-run (especially Kuomintang-run) financial institutions, postal funds, mutual funds and pension funds to support the market. With more than $280 billion at its call, this officially-backed stabilisation fund is reminiscent of the similar fund organised to defend the island's financial markets against Beijing's 'invective and missiles' offensive against Taiwan's first direct presidential election in early 1996. The finance ministry decided to allow listed companies whose stocks are in severe danger of collapse to apply for a temporary suspension of trading for as long as two months and, under certain conditions, engage in 'lot trading' of stocks to financial institutions. Despite sharp criticism of the rescue plans by opposition politicians, the ministry's moves did inject at least surface vitality into the stock market in Taipei. News of the official establishment of the $283 billion stabilisation fund on Monday helped to power a combined 4.4 per cent rise in the index on Monday and yesterday, when it closed at 7,131.9 despite a $180 million default in stock trading involving Taichung Precision Machinery, a leading medium-sized manufacturer. Nomura Securities research head Jeffrey Liang Shih-yu said: 'More cases may erupt but these should be seen as individual company or entrepreneur movements and will not necessary impact on economic fundamentals.' He said the ministry's moves aimed to restore investor confidence with the stabilisation fund, and by temporarily separating troubled companies from the equity market. 'The stabilisation fund will not have much substantive effect but only aims to boost investor confidence,' Mr Liang said. National Chengchi University finance professor Norman Yin Nai-ping added: 'What investments the fund makes will be in blue chips, and stocks of weak or badly-managed companies will continue to fall. The market mechanism will still exist but the intervention will sustain investor confidence.' So far, at least six companies have applied for temporary cessation of selling, and possible lot sales under tight conditions provide a route for such changes. Mr Yin explained: 'This move will let problem firms stem their fall and look for new investors outside the market to enter and help restore production, with a two-month buffer period.' Many analysts see the ministry's actions as necessary to prevent a big collapse in confidence but the package is not without its risks. Mr Liang warned: 'As with the government interventions in Hong Kong and the US Federal Reserve Bank in the Long-Term Capital Management Corporation case, the purpose is to reduce unnatural market fluctuations, but there is considerable risk in the timing for market intervention and exit.' More serious consequences are possible from earlier measures, which offered to allow troubled firms to delay loan payments for six months and not require banks to declare such loans as non-performing. Mr Yin declared: 'The finance ministry has no power to order banks to take such actions that can violate the rights of stockholders and depositors. 'After this restructuring, Taiwan businessmen should shift from the past preoccupation with expansion and excessive reliance on short-term financial manipulation to adopt more conservative fund management.'