November 26, 1997
Despite Vast Resources, Japan
May Require IMF's Discipline
By DAVID P. HAMILTON
Staff Reporter of THE WALL STREET JOURNAL
TOKYO -- Japan firmly insists that, unlike several of its Asian neighbors, its recent financial turmoil won't force it to request a bailout from the International Monetary Fund. That may be too bad, some economists say: They argue that Japan could use a dose of IMF discipline.
Elsewhere in Asia, the IMF is pushing governments to close insolvent financial institutions, deregulate, increase disclosure and privatize public corporations. Prompted by the failures of two major financial institutions -- Yamaichi Securities Co. and Hokkaido Takushoku Bank Ltd. -- in the past week or so, Japan is moving in that direction, but often only grudgingly, and in some cases not at all.
"Japan actually does need the IMF," says Richard Jerram, an economist with ING Baring Securities (Japan) Ltd. "It doesn't need to borrow $20 billion, but it does need someone to come tell it how to run its economy."
Japan's Resources
No one is suggesting that Japan needs a loan from the IMF. The nation holds more than $200 billion in gold and foreign-exchange reserves, as well as just over $3 trillion in government-run postal-savings deposits and insurance accounts. Instead, the question is whether Japan's notoriously weak political system can figure out how to use those vast resources appropriately while also making necessary reforms.
"Japan certainly has the resources to fund a bank bailout and an expansion of fiscal policy," says Michael Hartnett, an economist with Merrill Lynch Japan Inc. "The problem is that Japan, for the last five to 10 years, has allocated those resources very badly."
Yet for Japan, which rarely makes major reforms in the absence of external pressure, fixing the problems is likely to be tricky. Take, for instance, the relatively simple question of whether to liquidate insolvent financial institutions, a cornerstone of the IMF efforts across Asia. In Japan, while officials in the ruling Liberal Democratic Party continue to insist that the government will allow such failures, other party elders are still pushing a plan that would commit the government to bailing out unsteady institutions.
Stricter Accounting Standards
Consider the matter of disclosure. Japan's mandarins have decreed that by the year 2000, Japanese firms will have to adopt U.S.-style accounting standards, which are stricter than those now in use in Japan, while also adopting much tighter rules for valuing assets like stocks and property. In other Asian nations, the IMF has pressed both central banks and financial companies to more accurately disclose bad-loan levels and currency contracts.
Yet the changes in Japan are still years away, though they would be useful now. When Yamaichi failed on Monday, for instance, it disclosed that it had hidden roughly $2 billion in bad debts. And regulators at the Ministry of Finance later admitted that they had known of the hidden debts for nearly a week but had made no disclosure to financial markets while they conducted an internal investigation. Yamaichi's situation isn't unique: After Hokkaido Takushoku failed last week, regulators combing through its books said the bank may hold some $3 billion more in bad loans than it previously disclosed.
Finally, the IMF has pushed Asian governments to privatize public corporations and break up inefficient monopolies. In Japan, there are few bigger such institutions than the government-run postal-savings system, which holds nearly $1.8 trillion in assets and offers higher interest rates than private banks. Bankers complain about unfair competition from the system, yet Prime Minister Ryutaro Hashimoto recently bowed to pressure from conservative lawmakers and agreed to scrap a plan that could have led to the system's eventual privatization.
........looks like hasimoto is willing to go half-way--only mildly bullish |
