Time is beginning to run out for Prime Minister Junichiro Koizumi's new administration. Despite Koizumi's promises of quick reform, he has not done much to change Japan's stagnating economy since he took office. The country's banking system, in particular, is in need of repair. After a decade with little progress on nonperforming loans, the country's financial system lacks credibility. There is still dispute over the quantity of bad loans carried by Japanese banks. So bad is the situation that the International Monetary Fund is starting to cast a gimlet eye on Japanese loan books and wants to dispatch a team of examiners to audit them. Japan's Financial Services Minister, Hakuo Yanagisawa, has thrown cold water on the idea. He should reconsider. The IMF can restore credibility to Japan.
With an advanced industrial economy, the Japanese obviously would feel somewhat stigmatized if the IMF's SWAT team were to fly into Tokyo. The IMF's specialty is troubled developing economies such as Indonesia and Argentina, not a $4.5 trillion economic giant such as Japan. But right now, the markets have pushed the Nikkei stock index to punishing lows because investors basically don't believe the government's published figures on the bad debt mess. Yanagisawa insists that about $146 billion of nonperforming loans at 15 major banks can be written off and disposed of in about three years, without any public funds.
However, the IMF recently issued a report that's critical of Japan's banking system, casting plenty of doubt on the government's official bad debt figures. The IMF suspects the real problem is far bigger, and many private analysts agree with it. What's more, there is an additional $700 billion worth of loans that need attention, according to the government, and some of those loans could turn bad as well.
Financial Services Minister Yanagisawa counters that his auditors have scoured the loan books of the country's major banks and have produced a credible figure. Yanagisawa also faults the IMF and private analysts for grossly overestimating the problem by extrapolating from macroeconomic trends that may change in the future. What's more, he complains about plugging numbers into computer programs that use flawed economic assumptions. It's a fair point. But to criticize the International Monetary Fund for hyping the bad debt problem and then not giving the Fund enough access to do a reality check on the government figures is a bit rich. If the Japanese want to dispel the meltdown rumors swirling around the country's banks, they should let the IMF shock troops in to check for themselves.
Get BusinessWeek directly on your desktop with our RSS feeds.
Add BusinessWeek news to your Web site with our headline feed.
Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video.
To subscribe online to BusinessWeek magazine, please click here.
Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
