| |
Japan's banking crisis:
Post-mortem
By Richard Hanson
Previously:
It's
macho time in bad loan land
Capital
crimes
Follow
the leader
Compromise
TOKYO - So what happened?
Last week,
before most everyone took off for a three-day Cultural
Day holiday weekend, Japan's influence peddlers were
deeply engaged in verbal combat over a dizzying
array of vital economic and political issues. Most could
be rightly considered critical to the nation's
deflation-prone financial health and the fate of its
feckless bankers.
When squeezed together into a
confusing package of measures to be implemented under
the aegis of Financial Services Minister Heizo Takenaka,
the result was a puzzling glop that could only be loved
by its creators. By the Cultural Day holiday's climax -
which was marred by the usual traffic jams and unusually
bad, cold snowy weather in parts of Japan - a reading of
responses to the package seems to confirm that.
"Watered-down" and "disappointing" were favored
by commentators and editorial writers. They referred
mainly to parts of the many issues that squarely take
banks to task for their profligate behavior in lending
to companies that can't pay back their loans. The
criticism was mainly at Takenaka's decision in the last
stages of negotiations with the banks to back off (not
down, by the way) from an initial plan to hold banks to
stiff standards in treating the adequacy of their
capital, the prime measure of a bank's health.
This was a no-brainer for Takenaka. Big Japanese
banks are helped in meeting internationally accepted
standards by loose provisions involving tax treatment
when ridding themselves of bad loans. On average, about
40 percent of big bank capital is in the form of
deferred tax assets. Takenaka dropped a plan to set a
date for reducing that to 10 percent. Eventually banks
will conform to more stringent standards. The others
will likely be out of business.
Bankers
frittered away large amounts of political clout by
uniting against Takenaka's special task force that drew
up the deflation-fighting/bad loan package. They pressed
politicians in the ruling Liberal Democratic Party (LDP)
to support their cause. At the same time they resorted
to scare tactics, warning that improving their capital
health will force them to withdraw loans from weaker
companies, causing those firms to fail.
Until
the mid-1990s, there was a tacit understanding that
banks would be protected when lending by the regulators
who maintained a postwar policy that no bank could fail.
That era was declared over. The regulation of banks was
transferred from a demoted Ministry of Finance to a
newly created Financial Services Agency (FSA), which
came under Takenaka's control last month after Prime
Minister Junichiro Koizumi reshuffled his cabinet.
The banks and their political allies are
fighting a futile rear-guard battle to prevent the sort
of purge in the banking industry - of top management -
that is a key goal of Takenaka. His plans envisage a
large number of corporate failures as bank credit is
withdrawn, and more bank failures.
In this
scheme, all but a few very strong banks will find it
necessary to receive infusions of capital to stay in
business. The only source of capital is the government
and its various agencies. In fact, the government became
the biggest shareholder in the bank industry when it
dealt with a severe banking crisis in 1999, when some
banks were in fact nationalized. The purge of bankers
comes at that stage and bankers are fighting to keep
their jobs.
There are many other aspects of the
package being implemented over the next few weeks. Most
involve technical adjustments of existing institutions
to take on new duties. There are other plans to create
vehicles that will serve as a buffer as tighter controls
over banks result in stricter standards for loans to
companies. This is the stage in which the government has
committed itself to provide a "safety net" to deal with
an anticipated sharp rise in corporate failures and
subsequent jumps in unemployment.
In the scheme
of things, this is one area where the current Ministry
of Finance (MOF) sees itself as regaining some of the
clout within the government that it lost when it was
stripped of the banking and other financial sectors in
the late 1990s.
MOF's special areas of influence
include tax policy, budget policy and control over the
national treasury. Finance Minister Masajuro Shiokawa,
80, wields considerable clout over the Koizumi cabinet
in such matters, given his seniority in the LDP and a
beguiling grandfatherly demeanor.
Takenaka, a
51-year-old academic, serves at the pleasure of Koizumi.
Local wags tend to write off Takenaka as a scholar with
little political savvy. If that were the case, Takenaka
would be an obvious fall guy for the prime minister if
things go awry.
So back to the first question.
What happened last week?
This is where
commentators and editorial writers get hot under the
collar about the standoffish stance the prime minister
has assumed as the deflation-fighting,
bank-bad-loan-crisis-solving offensive shifted to high
gear under his minister, Takenaka. A review of the
public record of comments is helpful.
Takenaka,
dubbed of course the banking czar, was as humble as his
large ego could manage. After the often harsh and bitter
verbal sparring with all comers, Takenaka scored the
result in sporting terms. He was fairly please with the
result.
"I would call it five wins and one
draw," he told a hearing in the Diet (parliament) of the
compromise on the banking plan announced last Thursday
night. "But these are guidelines for changing the rules,
so it's not a matter of winning or losing. We have to
keep going forward with our basic framework." Of the six
main topics, only the deferred bank tax issue was
severely attacked.
If anything, it was a Pyrrhic
victory for the banks. Opponents derailed another of
Takenaka's plans to cope with the impact of deflationary
dangers from measures to slash the overall amount of bad
debts held by banks by half by the year 2005. The
Japanese political system can only take so much pain
giving. The Japanese public is, generally speaking, not
willing to believe that it should suffer. Decades of
prosperity will do that to people.
The real
judge of Takenaka is his boss. Koizumi gave the
following assessment: "Our basic position has already
been decided, so I will leave the rest, including the
question of a timetable [for implementing the measures],
to Financial Services Minister Takenaka," the prime
minister said at a news conference.
That does
not mean that the prime minister is complacent. But he
is also aware that the weight placed on the problems of
the banks is greatly exaggerated by the political
campaign fought by the banks. This in turn is backed by
his enemies within the ruling LDP, who have been annoyed
no end by the success that Koizumi has had in recent
months.
Koizumi failed to pass much of his most
ambitious reform agenda during the last session of the
parliament, which ended in July, foiled by powerful
factions in the LDP. He has recovered his standing in
the popularity polls since he became the first prime
minister directly to tackle the normalization of
relations with North Korea, winning admission that North
Korea had in fact kidnapped Japanese citizens. He also
led the LDP to a victory in last week's election for
vacant seats in the Diet.
Koizumi is also aware
from reports he receives from allies in business that
the Japanese economy itself is not entirely in the
doldrums. Some corporate Japanese manufacturers that are
not threatened by bad-loan problems are doing well -
witness record profits reported by Toyota Motor, Japan's
largest company.
Ridding the country of the
bad-loan stigma is a high priority, even if it is
painful, he has often said. Success will help keep him
and his supporters in office. That is what a prime
minister is for.
(©2002 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
|
| |
|
|
 |
|
