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Strategies & Market Trends : World Outlook -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (969)	10/6/2002 7:43:27 PM
From: Les H	Read Replies (1) \| Respond to of 48769

Japan 'must soften bank clean-up blow' bday.co.za TOKYO - Japan will need to put in place a safety net to soften the blow of any aggressive clean-up of its banking system, Masajuro Shiokawa, finance minister said. "If we were to push through bad-loan disposal to the extent that we need to use public funds to , we must have an adequate safety net," he said. His remarks came after the appointment by Heizo Takenaka, this week named head of the Financial Services Agency, of a taskforce to draw up a plan for accelerating the disposal of non-performing loans. The nomination to the taskforce of several advocates of a hard landing could signal a determination to force a more rapid resolution of the banking crisis. That has sparked fears that Japan's bad-debt problem - equivalent to a huge 8 per cent of gross domestic product, even according to conservative official estimates - may simply be too large to tackle in isolation without a parallel economic recovery. Japan's stock market has fallen sharply since Takenaka's appointment on fears that action on the banks could lead to big corporate bankruptcies, although the Nikkei average recovered some lost ground closing up 1% to 9,027.55. According to Ryoji Musha, chief strategist at Deutsche Bank Equity Research, big banks have combined shareholders' equity of about ¥16,000-billion, against which they owe ¥6,000-billion from previous public fund injections, have ¥8,000-billion in deferred-tax assets and face ¥4,000-billion in unrealised losses on equity holdings. That, he says, makes them effectively insolvent. Shiokawa said that, given the possible shock to the banking system of any radical action by the FSA, measures should be put in place to protect small, but viable, companies from going under. These could include government guarantees on loans, he said. Takeo Hiranuma, trade minister, said: "As the government proceeds with policies to accelerate the disposal of non-performing loans, we will compile measures for small- and medium-sized firms, seek tax cuts, compile incentives for new businesses, and take steps to make it easier for firms that need to exit the market." But Shiokawa joined Takenaka in rejecting calls for a supplementary budget to steer the economy through any shocks, saying that the government intended to stick to its much-vaunted ¥30,000-billion cap on new bond issuance. Some politicians have called for a loosening of the reins on public works spending, which has long been used to keep the economy afloat. The US administration, which has advocated a rapid acceleration of bad-loan disposal and the closing down of companies behind those non-performing assets, has also encouraged Japan to put in place a safety net. This will be needed, it says, to deal with the inevitable rise in unemployment that aggressive action on the banks would entail. Many economists argue that to deal with the banks in isolation is to ignore the fact that their problems stem from the badly performing corporate sector, which has never properly recovered since the bubble burst in the early 1990s. "I don't see any particular problem with the banks that is independent of the economy as a whole," says Nathan Lewis of Polyconomics, a US thinktank. "Recapitalising banks would service as little more than a band-aid if broader economic problems are not also solved." Financial Times