Japanese parties reach new accord on banking crisis Package of laws promised to strengthen system

September 27, 1998|By NEW YORK TIMES NEWS SERVICE

TOKYO -- Japan's governing party and the opposition patched up a basic agreement yesterday on legislation to revive the banking system. The latest agreement, if it sticks, may dispel concerns that Japan's political paralysis will continue to hobble its economy.

The parties had reached an agreement earlier, on Sept. 18, but it began unraveling just as Prime Minister Keizo Obuchi and President Clinton were meeting in New York on Tuesday to discuss global economic problems. Markets here and around the world had been concerned that if the deal fell apart completely, Japan's economic troubles would worsen and spread around the world.

With yesterday's agreement, a set of long-awaited financial laws could be passed by the Diet by Oct. 7, when the current parliamentary session ends. The new laws would set up a mechanism for strengthening Japan's banks, dealing with large bank failures and confronting the problem of bad loans that is at the heart of Japan's economic crisis.

"This is an epoch-making moment," said Naoto Kan, head of the Democratic Party, the main opposition, according to the newspaper Asahi Shimbun.

While U.S. officials are likely to be relieved that a deal has been struck, they may not be entirely pleased with its terms.

In the past few days, U.S. officials, from Clinton on down, have been calling on Japan to use public funds to rescue failing banks and thereby avert a possible large-scale panic. Yesterday's agreement, however, specifies that the government will not use taxpayers' money to bail out the Long-Term Credit Bank, one of the world's largest and weakest financial institutions.

Instead, the government will nationalize the bank by purchasing common shares in the bank at a low price. The question of using taxpayers' money to boost the capital base of ailing banks before they go under has been a nagging crucial question over the past few weeks.

The terms of the deal are still a bit unclear. But it seems that for now the government will not move to bail out banks unless they are on the verge of collapse and may not be able to repay depositors. If a bank is that desperate, then the government will presumably intervene by nationalizing the bank.

The agreement also calls for the government to examine how taxpayers' money could be used to increase the capital of weak banks that are still viable.

Pub Date: 9/27/98

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