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Japan unveils reform plans
Staff and wires
TOKYO, Japan -- Japan has unveiled long-awaited plans to mend its ailing bank sector, but indications are that Tokyo is still shying away from taking the harsh medicine prescribed by many to revive the world's second-largest economy. In laying out its blueprint on Wednesday to get the banks and the broader economy back on track, Tokyo stopped short of forcing an injection of public money into the debt-ridden banks to deal with up to $400 billion worth of bad loans. However, the government of Prime Minister Junichiro Koizumi said it would force banks to make stricter assessments of problem loans. Hiromichi Shirakawa, Tokyo-based chief economist for UBS Warburg, told CNN on Thursday morning that the plan meant that the possibility of Japan's big banks being nationalized had declined. He said it was clear the focus from now would be on stricter provisioning. Shirakawa said the plan's architect, Financial Services and Economics Minister Heizo Takenaka, had been forced to compromise and was unlikely to come back with a tougher package. The government hopes to slash bad loans in half before March of 2005, and said it would try to provide a so-called safety net for the jobless and small companies as bank reforms take effect. Considerations for tax cuts and deregulation of the beleaguered property market were also part of the package. The measures came after the Bank of Japan moved to pump more money into the financial system to boost the economy. Watered down
Analysts had been expecting a watered down bank reform package after strong opposition in the government to initial reform plans for the banks. But Chris Walker, Senior Economist at CFSB in Tokyo, said the plan was even more watered down than expected. Analysts have argued that radical surgery is needed to overhaul a banking sector plagued by at least 52 trillion yen ($423 billion) of non-performing loans. In his original proposal, Takenaka had planned to inject public funds into the country's debt-ridden banks, seen as a key plank in any reform package. But compromises mean that few of the initial plans emerged in the final version, according to banking analyst at HSBC Securities, Brian Waterhouse, also in Tokyo. The reforms, delayed from last week, provoked a political fight within the ruling party over how harsh they should be. Fierce debate
Politics has been as much a factor as economics in Japan's failure to solve its decade old economic slump, analysts say. There was fierce debate over the reform package right up until the last minute between staunch reformers and hard line conservatives, both within the ruling party, and in the opposition. The independent central bank, which set the reform process in motion two months ago with an unorthodox plan to buy stocks, has already driven interest rates to near zero but to little effect. Bank lending is stalled and deflation is rampant, meaning new bad loans pop up as soon as banks write off old ones. Japan's banking system worked splendidly in rebuilding the country's economy from the rubble of World War Two, but is now paralyzed by dud loans that some experts think could be three times the official figure. Reuters contributed to this report.
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