As the special measures law for corporate revitalization was revised, the government has started a scheme to inject capital into large companies suffering from the current economic downturn. The Development Bank of Japan will provide funds if companies meet certain conditions.
Conditions for an individual company include employment of 5,000 or more people in Japan on a consolidated basis, a sales decline of 20 percent or more in the past three months from the year before, and an equity capital shrinkage during the same period of 25 percent or more from the year before.
The bank is expected to provide several dozen billion yen for each eligible company. If the company fails, the government will compensate it for 50 to 80 percent of its losses. The total amount of compensation the government is ready to shoulder will be ¥1.6 trillion. Along with the Development Bank of Japan, private banks are expected to supply funds to an ailing company.
In view of the fact that major companies such as carmakers, electronic makers and semiconductor makers, which had underpinned the Japanese economy mainly through exports, are undergoing economic difficulties, using public funds to help them will be an effective way to use tax money. There is the fear that the failure of a large company firmly rooted in a local economy would severely damage the nation’s economy as a whole. Although this scheme should be regarded as an emergency measure, each party concerned should do its part.
Companies receiving funds from the Development Bank of Japan need to carry out a drastic review of their business projects. Private banks dealing with them need to help such companies, including perhaps with debt forgiveness. Unless these things happen, the scheme may end up simply helping to prolong the lives of inefficient companies.
Under the scheme, the government, not a third-party committee, will decide which companies to help. Company executives do not have to take responsibility for their companies’ plight. The government should ensure transparency by issuing timely reports on the progress of the companies’ reconstruction.
IN FIVE EASY PIECES WITH TAKE 5