Economic ministers in the newly formed Cabinet of Junichiro Koizumi said Thursday that they will try hard to pull the nation out of its long economic downturn and help accelerate the disposal of banks’ bad loans.
Finance Minister Masajuro Shiokawa said he will pursue the dual goals of achieving a self-sustaining economic recovery and preparing for the reform of debt-ridden public finances.
Shiokawa, 79, a political veteran with little experience in fiscal policy, said the new administration’s structural reform policies will not drive the economy into a contraction.
“Our primary policy objective is to swiftly place the economy on a recovery path,” Shiokawa said. “To this end, we will strive to disburse fiscal outlays in the fiscal 2001 budget, which was enacted in March.”
On fiscal reform, Shiokawa said he will start with “reviewing the balance among various government expenditures” by scrapping dormant public works projects and shifting more resources to new areas.
Koizumi has said the government should avoid debt-oriented budgets by limiting the annual issuance of government bonds to less than 30 trillion yen.
Shiokawa also said the government will draw up a long-term fiscal reform blueprint based on macroeconomic simulations from the Cabinet Office, expected to be completed by summer.
Regarding Saturday’s meeting in Washington of Group of Seven finance ministers and central bank governors, Shiokawa said Japan will strive to support the decelerating global economy in close collaboration with its G7 partners.
Hakuo Yanagisawa, who remains as financial services minister, said his most important task is to get the ball rolling on reducing banks’ bad loans.
“For the sake of Japanese financial institutions and for the sake of the economy, we must reduce the volume of banks’ bad loans,” Yanagisawa said.
The failure of Japan’s banks to reduce nonperforming loans, which began swelling when the bubble economy burst in the early 1990s, is expected to be on the agenda at the G7 finance meeting.
Yanagisawa said the bad loan problem dovetails with finding ways to reduce the banks’ large volume of cross-held shares, which make them vulnerable to market fluctuations.
“We cannot leave the problem alone,” he said, citing a new law requiring industry to adopt mark-to-market accounting standards beginning this fiscal year.
Under this system, companies must record their shareholdings at current market value rather than at purchase value. This could force banks to report massive unrealized losses on their balance sheets, beginning in their midterm earnings reports.
Any unrealized losses will hamper their ability to writeoff nonperforming loans from their balance sheets.
Yanagisawa said it will be a challenge to respect market principles in creating a stock-purchasing body to buy up banks’ shareholdings. A stock-purchasing body is included in the emergency economic package announced earlier this month.
Toranosuke Katayama, reappointed as minister of public management, home affairs, posts and telecommunications, said he will tolerate debate on privatizing the state-run postal system.
The privatization of the mail, savings and insurance services is Koizumi’s pet reform project.
But Katayama said he will consult with Koizumi about how to tackle the issue only after the planned transfer of the services to a new public corporation is completed in 2003. He added that he will continue preparing for the transfer.
Heizo Takenaka, the Keio University professor appointed minister for economic and fiscal policy, said it will be difficult for the government to achieve its target of 1.7 percent economic growth for fiscal 2001, which began this month.
“It is extremely difficult to achieve the growth target, which is why the previous administration compiled a series of economic packages,” Takenaka said. “However, we should design a long-term recovery scenario rather than focusing on short-term economic growth.”
On fiscal policy, he said, “We should retain flexibility in macro-economic management until the final disposal of banks’ bad-loans is completed.”
Emphasizing that fiscal reform should be carried out simultaneously, Takenaka said, “There are many things we can do for reform in the meantime.”
Takenaka was a key member of the Economic Strategy Council, an advisory panel to the late former Prime Minister Keizo Obuchi, and served as an adviser to Obuchi’s successor, Yoshiro Mori.
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