Japanese government backtracks on bad-debt pledge

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Japanese government backtracks on bad-debt pledge By Bayan Rahman and Emiko Terazono in Tokyo Published: March 27 2001 17:29GMT | Last Updated: March 27 2001 21:32GMT

The Japanese government backtracked on Tuesday on an apparent pledge to Washington that it would tackle the disposal of commercial banks' bad debts "within six months". At the same time the US stepped up its pressure on the banks to resolve the problem.

Taro Aso, Japan's economics minister, said he told Washington last week Tokyo wanted to find a solution to its economic problems, including the banks' bad debts, within six months.

But he said these comments were made over lunch and denied they amounted to an official pledge. A joint statement last week after the meeting between Yoshiro Mori, Japan's prime minister, and George W. Bush, US president, stated Japan would "promote vigorously structural and regulatory reform to revitalise Japan's economy and strengthen the financial system".

The statement was welcomed in Japan as an indication of the government's resolve to tackle the banks' bad-loan problem, which is thought to be a significant obstacle to a sustained recovery in the economy.

However, some politicians fear that active measures dealing with the bad-loan situation would be perceived by some voters as leading to bankruptcies and unemployment.

Mr Aso's comments came in response to reports by Asahi Shimbun, a Japanese daily newspaper, that he had promised the US that Japan would draw up a framework of measures including those for non-performing loans in about six months.

His statements throw into confusion the government's intentions over its banking policies amid growing concern that Japan's political leadership is weakening in its resolve to force the banks to write off Y32,000bn ($260bn) of non-performing loans.

Paul O'Neill, US treasury secretary, on Tuesday said Japanese banks should write down their assets to the real carrying value. He told the National Association for Business Economics in Washington that the banks needed to write their asset base down to "the value that can be supported by ongoing earnings". He added: "The other thing they need to do is to open up their economy to world prices."

Hakuo Yanagisawa, Japan's financial services minister, is expected to announce measures to speed up the disposal of bad debts this week, but there are indications that Mr Yanagisawa has softened his stance on debt write-offs because of political pressure.

Few Japanese politicians, ahead of July's elections for the upper house, are willing to back an aggressive plan that would result in job losses and business failures.

Mr Yanagisawa had initially called for "direct write-offs" of bad loans from banks' balance sheets, implying that banks should cut off support to debt-laden companies. However, he has recently indicated that he favours debt forgiveness and promotion of restructuring of debtor companies to allowing companies to go bankrupt and then writing off the loans.

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-- Carl Jenkins (somewherepress@aol.com), March 28, 2001


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