Decisive measures, including the use of public funds to protect depositors, are necessary if Japan wants to restore confidence in its financial sector at home and abroad, the managing director of the International Monetary Fund said Thursday.
The suggestion that public money be used to support the financial sector came during an afternoon meeting between Michel Camdessus and Prime Minister Ryutaro Hashimoto, according to government officials. Camdessus, who was in Tokyo for the inauguration of the IMF's Regional Office for Asia and the Pacific, told a news conference that Japan is at an important juncture in its economic cycle, adding that the problem with the economy is "basically one of confidence," especially in its financial institutions.
"The early and decisive resolution of the banking system problem is crucial to restoring confidence and providing a basis for steady growth," he said. It is also necessary for the world to see that Japan's economy is doing well, he added.
Camdessus said necessary measures include an early identification and closure of insolvent institutions, the addition of public funds to the deposit insurance system to bolster its capacity to protect depositors and a transparent and credible plan to recapitalize unprofitable banks. But at the same time, Camdessus said, efforts are needed on the part of banks to correct management, reduce costs and attract private capital for recapitalization. He added that he is confident that the present "crisis" will be short and "through strong action Japan will recover its normal trend of growth."