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Saturday, Sep. 19, 1998
Japan passes tough reforms for failing banks
Country bows to international calls to stem crisis
By JOJI SAKURAI
Associated PressTOKYO - Heeding international calls to fix its economy, Japan's prime minister on Friday surrendered to opposition demands on a set of crucial bank bills to strengthen the ailing financial system.
The agreement increases the likelihood that banks enfeebled by bad debt will be liquidated rather than rescued.
Prime Minister Keizo Obuchi leaves in two days for a summit in New York with President Clinton, and he has been eager to break a deadlock with opposition parties on the bills package before his departure.
The bills are seen as vital to prevent Japan's economy from sinking further into recession. They seek to clean up some 80 trillion yen ($606 billion) in soured loans paralyzing the nation's banks and threatening to send global markets into a tailspin.
``As the country with the world's second-largest economy, I determined that it wouldn't do for Japan to be the source of a global meltdown,'' Obuchi said.
After two days of intense bargaining, Obuchi accepted the main points of the opposition's counterproposal to the plan put forward by the ruling party.
The changes include stripping the Finance Ministry of powers to chart the country's financial course and nationalizing the ailing Long-Term Credit Bank of Japan, one of the nation's largest banks.
In addition, a 13 trillion-yen ($100 billion) pool of public funds that had been set aside to prop up banks will be abolished, making it harder for failing banks to receive government bailouts.
The opposition, which controls the upper house of Parliament and can block the legislation, had criticized the ruling Liberal Democratic Party's bank reform proposal, saying its ``soft landing'' approach of using public money to rescue banks was too lenient on bank managers.
In spite of the breakthrough, some analysts said the agreement was too vague and open to interpretation.
``Just having measures in place doesn't mean they'll be used efficiently,'' said James Fiorillo, an analyst at ING Barings in Tokyo.
The compromise plan does not answer the question of how much taxpayer money will be used to mop up bad debt at ailing banks. It also does not say if public funds can be used to inject capital into weak banks.
But others said the legislation was likely to make Japan's banks more responsible.
``Rather than doing nothing and simply applying for a public fund injection, banks will try to improve their conditions by themselves,'' said Nozomu Kunishige of Lehman Brothers Japan.
Under intense pressure from the United States and other Western governments and from Japanese voters, Obuchi's Liberal Democratic Party desperately needed an agreement on the bills.
With Friday's agreement, most of the measures are expected to pass next month during the current parliament session.
Caving into opposition demands represents a humiliating setback at home for Obuchi, whose approval ratings are sinking.
Naoto Kan, the popular leader of the main opposition Democratic Party, was triumphant after the negotiations were over.
``Today's agreement basically represents the total acceptance of the (opposition) parties' proposals,'' Kan said.
Still, Obuchi told reporters he was happy to have the chance to explain to Clinton Japan's strategy to stabilize its financial sector.
One of the biggest points of contention in the banking bills was curtailing the powers of Japan's mighty Finance Ministry. The prime minister agreed to opposition demands to transfer oversight of financial markets from the ministry to a new committee by next June.
Another was to let bad banks fail and limit the use of taxpayer money to protect depositors and healthy borrowers.
The debate came to a head over a ruling party proposal to spend public funds to bail out cash-strapped Long-Term Credit Bank.
The prime minister gave in to opposition demands and decided that public money will be used to clean up the bank's bad loans only after placing it under government control - effectively proclaiming it bankrupt.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web