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Japanese Government Approves Emergency Economic Package
Japanese government and the ruling coalition on Friday approved an emergency economic package, which sets a two-year deadline for Japanese banks to dispose of bad loans along with a proposal to set up a government-backed mechanism to buy company shares held by banks.
The package, adopted at cabinet meeting Friday morning, incorporates five fields, including reconstruction of Japan's financial system and industrial revitalization, stock market reform, urban redevelopment, job creation and tax reform.
"We have come to a stage to launch an economic reform although it accompanies pains," said Taro Aso, economic and fiscal policy minister, at a news conference.
The economic plan sets a two-year deadline -- beginning from April 1, 2001 -- for major Japanese banks to remove from their balance sheets outstanding loans to borrowers that are bankrupt or feared to collapse, and a three-year period for new loans that are turning bad.
It also proposed the establishment of a government-backed Bank Equity Purchasing Corp. in a bid to absorb Japanese banks' excessive stockholdings in other companies.
The package pointed out that the weak Japanese economy is largely due to the deteriorated balance sheets of both banks and debtor companies.
The Japanese government said that the banks' function of providing funds to corporations has been damaged because of the bad loans, while excessive corporate debts are preventing companies from making necessary investment as they tend to repay debts when their earnings improve.
"The package is intended to resolve both the banks' bad loan and companies' 'excessive' debts issues," Aso said, adding that he personally thinks the bad loan issue will be resolved in three years.
The Financial Services Agency (FSA) will monitor the progress of bad-loan disposal, according to government officials.
Japan's 16 major banks held 12.7 trillion yen (101.2 billion US dollars) worth of loans to borrowers considered at risk of collapse or already under legal liquidation as of September 30 last year.
As for the creation of the stock-buying body, the government will guarantee the operation of the stock-purchasing body, but whether it will directly provide money to the body is still unclear.
The stock-purchasing body will be established with contributions by banks and other entities, according to the plan.
The Japanese government noted that it will consider using funds from the Deposit Insurance Corp. (DIC), a governmental body to protect bank deposits. Using DIC money would make it unnecessary for the government to directly fund the stock-purchasing body.
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