[talk] Government Involvement and Limitations concerning Revitalization and Non-Performing Loans

Norihiko Ishiguro: Director of the Industrial Restructuring Policy Division of the Ministry of Economy, Trade and Industry of Japan.

He is in charge of making a mid and long-term policy for Japanese industry and special legislation for industrial revitalization. His published works include "Nihon no Kyousou Yuui towa Nanika(What is Japan's superiority in competition?)" and "Shin Syotoku Baizouron(New Theory of doubling income)". He graduated from the faculty of Law of the University of Tokyo in 1980.

Takaaki Kawashima: MKS Partners Limited, Managing Partner

Before MKS, Takaaki Kawashima spent 24 years in a wide range of banking businesses at Industrial Bank of Japan (IBJ). He was involved in corporate finance, investment banking, project finance, and in management of alternative assets both in Japan and internationally. At IBJ Securities, he was executive director and responsible for both debt and equity primary markets. He has a LLB from Keio University and an MBA from Northwestern University.

Paul Sheard: Chief Economist -Lehman Brothers Inc.

Born 1954. Currently, Managing Director - Economy Research, Lehman Brothers Inc., Tokyo Office. Ph.D. from the Australian National University. Worked at the Stanford University, Institute of Monetary and Economic Studies - Bank of Japan, Osaka University and more. Committee member of the National Economy Council. Authored "Crisis on Main Bank Capitalism", "Mega-reorganization Corporations"

The pillars of the government’s comprehensive policies against deflation are the accelerated write-offs of non-performing loans of banks and the revitalization of industries that are currently under structural recession. There is a sense that in these policies, an argument on the infusion of public funds. However, there was agreement that in the present debate, if the banks fall into a situation of lack of capital by accelerating the write-offs of the non-performing loans, the infusion of public funds would be unavoidable, and there should be a clear political message of the burden of taxpayers. Also, in cases of temporary nationalization, Mr. Kawashima states that “the government does not have the ability to manage banks” and Mr. Sheard emphasized the important issues of “the reform of bank governance”.

The most important focal points are the resolution of excessive corporate debt that is the other side of the coin of the non-performing loans problem and how to draw the road to industrial revitalization. There is also the issue of how the Industrial Revitalization Organization established by the government will function. Concerning this, a large part of the debate was focused on who would bear the business risk of those firms that would be revitalized. The three experts agreed on the recognition that the government could not bear the business risk, but Mr. Sheard claims that the main banks should be the in-charge of corporate revitalization, Mr. Kawashima states that it should be new financial institutions such as the corporate revitalization funds and Mr. Ishiguro places the emphasis on governmental financial institutions.

Mr. Ishiguro alarmed of the fact that within governmental circles, the debate started with the notion that the write-offs of the non-performing loans was the miracle drug for recovery of the Japanese economy, and positions the write-offs of the non-performing loans and industrial revitalization as structural problems which should be handled seriously in the medium to long term. He also claims that in the short term, the government should implement macroeconomic policies such as fiscal and financial policies. Mr. Kawashima emphasized the necessity of changing the social system that had continued from the period of high growth and Mr. Sheard argues that an economic environment should be provided in which the market mechanism could work sufficiently. Both of their views stand at the viewpoint of medium to long term. In this sense, it can be said that in the implementation of specific policies against deflation, the differential between short term and medium to long term and between macro and microeconomic policies will become more important than ever.