• Kyodo

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The role of government-backed postal savings and insurance services needs to be reduced in the medium term to help private financial institutions boost profitability, a senior International Monetary Fund official said Monday.

“If the government maintains its current role in the private sector, the banks are likely to continue to have problems with their profitability,” Stefan Ingves, director of the IMF’s Monetary and Financial Systems Department, said.

Ingves was in charge of a one-year IMF-World Bank inspection into the Japanese financial sector that was completed this summer.

“The bigger, publicly supported lending schemes and deposit-taking institutions need to shrink their involvement in the financial sector if Japan’s banking sector is to increase its profitability, consolidate, and develop new and better products,” Ingves said.

He said shrinkage has to happen “in an orderly way,” given the millions of people involved.

The IMF and World Bank launched the inspection into Japan in June 2002 under a program introduced in 1999 to identify the strengths and vulnerabilities of member countries’ financial systems.

The report released this summer by the IMF and the World Bank urged Japan to intensify efforts to address nonperforming loans and tackle structural reforms needed to produce a healthy financial system.

Ingves said the existence of the postal savings and insurance services is limiting profitability of private-sector financial institutions.

“You have a government that competes with the private sector,” he said. “It is not a fully level playing field.”

Prime Minister Junichiro Koizumi plans to make postal services privatization by 2007 a pledge in the next general election, expected next month.

Aso wants to go slow

Posts minister Taro Aso balked Tuesday at suggestions the government may have to scrap postal savings and insurance services after the envisioned privatization of Japan Post.

“It goes against common sense for the government to abolish postal savings and insurance services immediately,” Aso, minister of public management, home affairs, posts and telecommunications, told a House of Councilors committee.

“It is crucial for the government to ensure that those services and the willingness of (Japan Post) employees to work hard will not be lost,” Aso said.

Political and business circles are debating whether the services should be scrapped following Japan Post’s proposed 2007 privatization.

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