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Mounting economic problems
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A LONG awaited recovery from the lengthy economic downturn has stalled, and banks are still crippled by a decade-long debt crisis. Earlier this week, Japan was sharply criticized by Alan Greenspan, chairman of the US Federal Reserve, who expressed doubts about the speed and effectiveness of Japan's economic reform.
Mori's Cabinet on Friday announced an emergency economic package that set a two-year deadline for banks to dispose of their riskiest bad loans. The debt load by one estimate is US$102 billion.
While economists welcomed the general direction of the new economic measures, they remained concerned more meaningful structural corporate and economic reforms could be delayed and cautioned that the package lacked key details.
The most radical measures are to demand banks write off existing bad loans in two years, dispose of newly-classified bad loans in three years and the establishment of a new government-backed fund to buy 11,000 billion yuan in cross-held shares.
However, no details were available on how the new stock buying body would be funded, which stocks it would buy and when the fund would be implemented, undermining its positive impact.
According to figures released on March 12, Japan's economy grew by 0.8 per cent in the last three months of 2000, compared to the previous quarter. This reversed a decline in the economy of 0.6 per cent between July and September last year, and thus prevented two consecutive quarters of shrinking output -- the usual definition of a recession. Whether the fourth-quarter recovery will be sustained is in doubt, however: industrial production in January fell by a whopping 3.9 per cent. Nothing seems able to cheer the markets -- the yen fell to a 20-month low against the dollar on March 12, and the stock market lost 3.6 per cent of its value to close at a 16-year low.
Confidence has been sapped by the leadership vacuum in a government whose economic policy is in disarray, by the chronic weakness of the banking system and by a central bank which seems incapable or unwilling to pursue an expansionist monetary policy.
There is little prospect of an early improvement. Growth in the Japanese economy stalled at the beginning of the 1990s, after a speculative stock and real-estate bubble burst spectacularly. Despite 13 rescue packages since then, none has had much effect beyond creating a mountain of public debt which is now above 130 per cent of gross domestic product. Kiichi Miyazawa, Japan's finance minister, said last week that the country's finances seemed to be "quite near a state of collapse". Miyazawa subsequently backtracked. Unfortunately for Japan, he was denying the obvious. (SD-Agencies)
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