Japan's financial woes should be a lesson By Sun Piing-yann ®]¬±Ú]

Japan's total land value was estimated to be as high as ?2,153 trillion in 1989, while the US' total land value was only ?500 trillion. In terms of area, the US' land is 25 times bigger than that of Japan. The average price of land in Japan was therefore 100 times higher than that in the US. At the time, investors (or opportunists) had no doubt about future economic prosperity, believing that Japan's land was well worth the price. Five years later between 1994 and 1996, after Japan's "bubble economy" burst, the next Japanese financial crisis developed. There were runs on the banks due to a lack of capital at housing loan corporations. The Japanese government put ?685 billion into banks and temporarily eased the financial crisis.

Three years later, securities firms as well as small and medium-sized banks, such as the Long-Term Credit Bank of Japan and Hokkaido Takushoku Bank Ltd, went bankrupt in quick succession. This time, the government spent ?7.5 trillion saving 15 of the larger banks in order to prevent yet another financial crisis. The financial market was again temporarily stabilized.

From 2000 until now, huge sections of the economy, from insurance companies to very well-known businesses, including famous department stores and supermarket chains, have all faced difficulties. At least 19,000 companies have gone bankrupt, leaving a hefty debt of ?27 trillion (Japan's GNP was about ?500 trillion in 1998, while Taiwan's was ?20 trillion). If the problems are not effectively controlled, as many as five million people could face unemployment.

Statistics show that Japanese banks, by the end of September 2000, had loaned out ?530 trillion in total. Of this, ?64 trillion (about 12 percent) is considered to consist of problem loans.

Potentially irrecoverable loans were estimated at ?20 trillion-?30 trillion. Moreover, Japan floated ?15.6 trillion of government debt in 1998. Although the government debt was increased to ?34 trillion by 2000 to stimulate the domestic economy, the economic slump persisted. In fact, since 1990, the Japanese government has spent more than ?60 trillion trying to solve the domestic financial problem.

The finance-related side of the economy used to be viewed as a veil covering the so-called "physical economy," and finance was viewed merely as an economic means and a reflection of the physical economy. But recent financial crises have proven that finance and the economy are mutually complementary, and financial crises also cause economic crises. Only healthy finance leads to a healthy economy. That is why the US and Europe hope that Japan can give top priority to solving its financial problems (eg, irrecoverable loans) and deal with its other troubles later.

Non-performing loan ratios in Taiwan's banking industry are not as serious as those of Japan's. Since Japanese restrictions on the extension of collateral loans on land are much looser than those of Taiwan, the impact of the "bubble economy" has been much more serious in Japan. But if Taiwanese companies try to ask for loans in Taiwan and then leave debts in Taiwan while investing in China, this would create another financial bottomless pit.

The earlier a financial problem is solved, the lower its cost. It is to be hoped that Taiwan's legislators will show sympathy for the people and start to help the government solve its financial problems as soon as possible. Apparently, Japan's approach has dragged the problems out for too long, and the government is paying a huge price. The Japanese experience should serve as a lesson for us.

Sun Piing-yann is a professor in the department of cooperative economics at National Taipei University.

Translated by Eddy Chang

http://www.taipeitimes.com/news/2001/06/26/print/0000091589

-- Martin Thompson (mthom1927@aol.com), June 26, 2001