Despite comments from senior LDP officials that the ruling party would abide by an agreement made last week, it apparently failed to do so when delivering its latest financial stabilization proposals to opposition parties on Thursday.

The Democratic Party of Japan and Heiwa-Kaikaku parliamentary group said the LDP’s outline is unacceptable because it greatly deviates from Friday’s agreement between Prime Minister Keizo Obuchi and the two opposition parties’ leaders.

The LDP said it would present specific provisions later in the evening and seek further negotiations. But prospects turned dim as negotiations broke down shortly after the outline was presented.

In the outline, the LDP again promised to scrap the financial stabilization law that authorizes injections of public money into weak banks, but it also again proposed a new similar scheme, according to informed sources.

Concerning the separation of fiscal and financial authority, both currently held by the Finance Ministry, the LDP’s proposal said only that the issue will be handled by a financial agency to be established under the framework of administrative reform, the sources said.

Last week’s agreement called for scrapping the financial stabilization law and did not mention replacing it; it also called for creating an independent financial supervisory agency, the “Financial Resuscitation Committee.”

“We’ll keep the door open,” DPJ President Naoto Kan told reporters after the conclusion of the day’s first round of talks. Kan said the DPJ is willing to enter negotiations as long as the LDP comes up with revisions based on last Friday’s agreement.

The LDP’s proposal as it now stands, however, is not in line with that agreement, he said. The DPJ points out that the LDP retreated on giving the Financial Resuscitation Committee full authority in financial affairs.

Heiwa-Kaikaku also contends the LDP’s proposals suggest the possibility that public money will be injected into failing banks.

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