Debt clearance highlights plan to revive Japan
By Hans Greimel
TOKYO Japan's government announced a long-awaited economic revival plan yesterday, pledging to help clear bad debts that threaten stability of the banking system and help the country's increasing numbers of jobless workers.
The announcement was an achievement for Prime Minister Junichiro Koizumi, who was embarrassed earlier this month when opponents in his own ruling Liberal Democratic Party blocked the release of the blueprint, fearing that its reforms were too severe. However, critics of the new program complained that it does not go far enough.
"I think it is a good start," said Japan's get-tough Economy Minister Keizo Takenaka after unveiling the plan.
The program aims to clear $336 billion in the bad loans saddling the nation's banks and reverse the trend of falling prices, or deflation, that has undermined corporate profits and caused some firms to go under.
Takenaka's original measures called for tightening accounting rules for the nation's banks in a way that could have increased the number of bad loans on their books. Some feared the rules would bankrupt banks and debtor companies.
Reflecting LDP concerns, the final version of the plan guarantees special loans to companies that hire people thrown out of jobs. However it is vague on other safety net items. It also backs down by containing no timeframe or numerical targets for implementing the suggested accounting reforms.
Some economists were disappointed by other things the package left out.
Ryo Hino, an analyst with JP Morgan investment bank in Tokyo, said the government would need to spend more money to further stimulate the economy. Koizumi has been uncommitted to the idea because of the government's already huge public debt.
"Obviously these reforms are necessary, but they are just a first step," Hino said. "Even if they get this through, it is not enough."
Some members of the ruling party coalition agreed.
Takenori Kanzaki, a leader of the LDP junior member New Komeito party, said the package would have only a "weak impact" without a supplementary budget.
Japan's once-booming economy began to unravel in the early 1990s with the bursting of the real estate bubble. That wiped out the value of the collateral many banks held against loans to overextended businesses. At the same time, Japan's export-driven companies were losing out to cheaper competitors elsewhere in Asia.
With rising unemployment, which stands at 5.4 percent, people began spending less. Consumer spending accounts for roughly half the economy, and when consumption began to tail off, Japan's slowdown worsened.
The Japanese squeezed out 0.5 percent economic growth in the April-June quarter, but the economy shrank for four straight quarters before that the first time Japan recorded a full year of contraction since Tokyo began keeping such records in 1980.
Chipping in yesterday to revive growth, Japan's central bank relaxed its already easy monetary policy. The Bank of Japan's decision should make it even easier for businesses to get the loans they need to finance expansion.
But Bank of Japan Gov. Masaru Hayami has repeatedly said such steps alone won't have much impact unless the government delivers true economic reforms.
Echoing the pessimism, the central bank released its monthly report yesterday stating: "Japan's economy is not expected to demonstrate clear signs of recovery during the remainder of fiscal 2002."
The fiscal year ends in March 2003.