Non-performing loans and Japan's economy


JCP Executive Committee Chair Shii Kazuo on July 16 spoke at the Foreign
Correspondents' Club of Japan in Tokyo. Following is the gist of the speech:


Good afternoon. Thank you very much for giving me this opportunity.


I was asked to talk about the problem of non-performing loans and the
Japanese economy. So in my speech I'll concentrate on these two subjects,
then I'm ready to answer any questions you might have.


The Koizumi Cabinet's "structural reform" plan gives the write-off of the
non-performing loans top priority. But the JCP maintains that this policy
will deal a heavy blow to the people's living conditions and the Japanese
economy in general.


What is the JCP position on this? How are we going to deal with it? Let
me talk about it from four angles.


Present Bad Loans Are Born out of the Recession, Most of the Holders Being
SMEs Who Have Worked Hard Only to Find Difficulty in Repaying


First, the majority of the non-performing loans now in question are not
ones born out of the bad management in the bubble economy, but ones born out
of the recession.


This is a fact admitted to by the government itself. In December 1999 the
state secretary for financial reconstruction said in reply to a question in
the Diet that the past bad loans had basically been disposed of; this means
that the bad loans created during the bubble economy have basically been
cleaned up.


As regards bad loans born out of the recession, most of these loans are
in reality for small- and medium-sized companies who have worked hard under
the prolonged recession only to find themselves faced with poor sales,
falling into the red with difficulty in repayment.


The government policy will cause a rush of bankruptcy


On this problem, I questioned Prime Minister Koizumi in the Diet. If the
government policy is carried out, disposal of the bad loans held by 16 major
banks alone entails the bankruptcy of 200,000 to 300,000 small- and
medium-sized companies throughout Japan. Mr. Koizumi did not deny the fact,
saying that there will be companies unable to survive.


In addition to the bad loans held by the major banks, we have to take
into consideration bad loans held by local financial institutions plus newly
born non-performing loans. So if the plan is implemented, it will surely
give rise to a terrible rush of bankruptcies and many jobless people.


The Japanese government policy is one of abandoning hundreds of thousands
of small- and medium-sized businesses in the name of so-called national
interests, which is extraordinary, historically and internationally.


What will happen to the Japanese economy if this is forced through? It
will bring about a further deterioration of business performance and a
further increase in non-performing loans.


An expert of an influential research institution called Teikoku Data
Bank, a research company making statistical research on business failures,
said, "The government says the pain is just temporary, but there is a strong
possibility that it will hit the weaker people, economically and socially,
including small- and medium-sized companies. It also will continue for so
long that they cannot possibly endure it. There is a possibility of chain
bankruptcy or bankruptcy spiral." This is day by day gaining common
understanding among economists.


Reproduction of non-performing loans and endless process of cleaning them up


The government says, "The existence of non-performing loans prevents
economic recovery," but to the contrary the prolonged recession prevents the
cleaning up of the non-performing loans.


According to the government statistics, as much as 29 trillion yen of bad
loans for major banks have been written off during the eight years from 1992
to 2000. But in the same period, non-performing loans increased by 19
trillion yen from 13 trillion to 32 trillion yen. This means 48 trillion yen
of new non-performing loans was born in the period.


If the government's policy is implemented, non-performing loans will
continue to be reproduced, with no end to the disposal of non-performing
loans.


The JCP opposes the policy of forcing small- and medium-sized companies
to go bankrupt. We support the improvement of the family budget, and by this
to improve general economic performance. This is how the smaller companies
will be better off. Only by taking measures to improve the business of the
small- and medium-sized companies suffering from non-performing loans, can
this problem be solved. Only by improving the economy, can the problem be
settled. This is the basic position of the JCP.


Purpose of the Writing Off--More Profits for the Major Banks at the
Sacrifice of SMEs


Second, then what is the purpose of the government forcing the write-off
of non-performing loans?


The government recently announced its basic economic and fiscal policy,
which clearly specifies the purpose of the write-off plan.


The first purpose is to increase the profitability of the major banks.


The government gave great privileges to the major banks by using 70
trillion yen tax money. In addition, there is another plan in their favor.
If the cleaning up of the non-performing loans results in decreasing their
equity, the government will make up for the loss with public money.


The prices of stocks held by the major banks are now going down. The
government is planning to set up a body to buy these stocks. If the prices
drop again after the body buys these stocks, the government will again use
two trillion yen in tax money to help them make up for the loss.


In short, what they are going to do is to help the major banks by
abandoning small- and medium-sized companies.


I think the role played by small- and medium-sized companies are
invaluable in supporting manufacturing in the Japanese economy, or in
enriching local streets. Therefore, if the government gives precedence to
the profits of the large corporations and allows the destruction of small-
and medium-sized enterprises, it will be a great loss to the Japanese
economy.


Withdrawing money from SMEs to use it in speculative business


The government's other explanation of the purpose of the write-offs: The
existence of the non-performing loans prevents money from flowing to
industries where there is a prospect of growth; this is why a cleaning up is
necessary. But this reasoning is not logical, either.


Mr. Hayami Masaru, Bank of Japan governor, is asserting that thanks to
financial deregulation measures taken in March, the market is full of funds,
that a new release of funds is of no use, and that just watering will not
help plants grow. The reality is that there is enough money but no
borrowers.


There is a sharp decrease in plant investment. This is not because of
lack of funds, but because there is no prospect for the Japanese economy.


The government often explains away the purpose of the structural reform:
To transfer the workforce, money, and goods from ineffective industries to
effective ones.


Money might go to more promising sectors in Mr.Koizumi's wording. But the
workforce will not follow this. It is because, according to Mr. Koizumi's
argument on officiency, the less the number of people becomes, the more
efficient the sector is.


What do they have in mind? Their aim seems be to take money away from
smaller businesses who are sweating for producing goods, to pass it to the
sector with more profitability, the speculative sector.


This is a society of an enormous number of bankruptcies and unemployed. A
handful of international financial capital and multinational corporations
will be prosperous, but the people's economy will collapse at the bottom.


Government's "Safety Net" Is an Illusion -- Not a Job Creation but a Job
Forfeiture Plan


Third, when we question the government about the pains in relation to
this problem, they say they will set up a safety net for the jobless people.


How can we prevent new unemployment from being created, and give jobs to the
present jobless people


We oppose the "safety net plan" based on the assumption of a large-scale
bankruptcy and unemployment. It is important to prevent new unemployment
from being created and give jobs to the present jobless people.


What the government calls "plan to create 5.3 million new jobs" is
completely groundless.


If there is such an excellent plan, why don't they use it now for the
3.48 million long-term unemployed? Such a question will easily come up.


Since 1998, the government has drawn up plans four times to create new
jobs. With these plans they aimed to create 2.05 million new jobs but the
number of the unemployed has instead increased. We can say that the plans
were not for job creation but for job forfeiture.


JCP's 3-point proposal for job creation: Elimination of unpaid overtime,
regulation on overtime, and special measures for dealing with job scarcity
for young people


In the seven party leaders' debate the other day, I put forward a 3-point
proposal.


The first point is to eliminate unpaid overtime work that is rampant in
Japan. This alone can create 900,000 new jobs.


The second point is the need to regulate by law the overtime work. Many
European countries have laws to set the ceiling on overtime work. But the
Japanese Labor Standards Law has no regulation on overtime work. If we
compare Japanese working hours per year in the manufacturing sector with
that of Germany, Japanese workers work 1,900 hours while German workers work
1,500 hours. Why can't such long working hours be eliminated? It is because
there is neither a ceiling on overtime work nor rules to restrict it.


Japan's business circles often claim, as justification for corporate
restructuring, "There are more workers than necessary". But in Japan what
is in surplus is not the workforce but the working hours.


The JCP proposes that Japan should address work sharing as in many
European countries: Regulate by law the ceiling on the overtime work and
shorten working hours without wage cuts to create new jobs.


The third point is about special measures to be taken for dealing with
job scarcity for young people.


In Japan, half of university graduates cannot find jobs. It is not only a
painful experience for young people with promising futures, but also a loss
to the society itself.


But there was something our Akahata correspondent was surprised to see in
Germany. Large-sized posters with a slogan "Jobs for Youth" were put up on
walls by the government. It was a poster with a picture of a young woman,
with the message, "Any young person without jobs? If you have trouble in
finding a job, please contact us either by telephone or e-mail. You' re free
to consult with us any time."


Many European countries are giving vocational training to young people
and help them with their living conditions; the whole nation is tackling the
employment problem of young people. The JCP proposes that Japan should
follow their example.


Increase unemployment benefits to the level of the European countries


These are the three points of our proposal. Another point I'd like to
refer to is unemployment benefits. In our country unemployment benefits are
very inadequate and the government is cutting them back even further.


Among all the unemployed in Japan, just 30 percent are covered by the
benefits of unemployment insurance. It is because the period covered by the
insurance is very short, with 11 months being the maximum.


I made an international comparison as to how much from the unemployment
benefits the insured get, in relation to their former income, for five years
after dismissal. The figures tell us the Japanese unemployed get just a
fourth of their French counterparts, and a third of their German
counterparts. The shorter duration covered by the insurance is the greatest
problem.


In Europe, even after the period covered by the unemployment benefits
expires, the government helps with benefits from tax money those having
difficulty in their living. Therefore, even five years after they lost their
jobs they are given some form of benefits for unemployment. This is the
general situation in Europe.


We have now in Japan 3.48 million unemployed, and the JCP proposes that
the government has to raise the level of the unemployment benefits as in the
European countries.


However, the government is cutting back on the unemployment benefits in
spite of their big talk about a safety net. In this year's budget, they
shortened the benefit-covering duration for those who left jobs voluntarily
by as much as four months, reducing the budget by 600 billion yen. By
cutting the benefits, they are treating badly those who are now in need,
while giving an illusion of a safety net.


JCP's Economic Stimulus Policy: Consumption Tax Cut, Job Creation and Social
Security to Support Family Budget


Fourth, let me talk about the JCP's policy on economic recovery. The JCP
considers that the greatest cause of the current recession is weak personal
spending, which accounts for 60 percent of the Japanese economy.


The government virtually gave up formulating any economic stimulus policy
saying that boosting demand is no longer effective. Certainly, it has been
proved that their conventional economic stimulus policy of using enormous
money on public works projects is not effective. The JCP has been against
such a way of using tax money; far from being ineffective, this ended up
with enormous debts.


Looking back on the last ten years, the government talked a lot about the
importance of boosting demand, but there is one demand stimulus policy that
the government has not touched on. It is a policy to encourage personal or
household spending, which comprises 60 percent of the Japanese economy. What
has the government done to the family budget? The government has continued
to hurt the family economy by increasing the consumption tax and imposing
more burdens for social services.


The JCP proposes a change in the economic policy from this position to
one supporting the family budget. We have specific proposals on this: To
decrease the consumption tax rate, create jobs, and establish a social
services system people feel safe with. As regards the fiscal resources for
these measures, we propose that these can be financed by cutting back on the
abnormally swollen amount of public works projects, and cutting back on the
military expenditure by moving toward disarmament. Only by helping the
people's living and improving the economy from the grass roots, can we open
the way to solve the many problems facing Japan's economy. With this firm
conviction, we are appealing to the people on these points in expectation of
an advance in the House of Councilors election.


Thank your very much for your kind attention. I'd like to now answer your
questions. (end)