Japan Resists IMF Look at Banks Agency Urged to Delay Review of Bad Loans
By Paul Blustein Washington Post Staff Writer Saturday, September 1, 2001; Page E01
Japan is balking at allowing experts from the International Monetary Fund to assess the state of its banking system, a sign of the mounting tension between Tokyo and the IMF over the severity of Japan's financial woes.
Hakuo Yanagisawa, Japan's financial services minister, yesterday rebuffed an IMF request to send a team to conduct an in-depth review of Japanese banks under a program aimed at strengthening financial systems around the world.
"I want them to wait for the right time," Yanagisawa told a news conference, according to wire service reports from Tokyo. Yanagisawa asserted that while the Financial Services Agency was willing to disclose information eventually to the IMF, "Right now it's a little bit difficult" because the agency is short of manpower.
The rebuff is the latest in a series of clashes between the 183-nation IMF and Japan, the institution's second-largest shareholder. At issue is IMF concern that Japanese officials are underestimating the amount of bad loans held by Japanese banks -- a recurrent problem during the decade of stagnation that has beset the nation's giant economy.
Japanese officials are understandably sensitive to criticism about their economic stewardship, because the nation's financial system has been looking exceptionally shaky lately. The Nikkei stock index fell 2.1 percent yesterday to 10,713.51, hitting its third consecutive 17-year low. Plunging share prices are of much greater concern in Japan than in the United States because Japanese banks hold hundreds of billions of dollars worth of stock and depend on their stock market gains to help protect them against loan losses.
Although Prime Minister Junichiro Koizumi has proclaimed a cleanup of the banking industry's problems to be a top priority, his government has bristled at some of the IMF's suggestions and observations on the subject.
In July, an IMF report evoked irritation in Tokyo by warning that Japanese banks are so weakened by nonperforming loans that the government may need to inject billions of dollars in fresh taxpayer funds into them -- a move that Koizumi's cabinet maintains is unnecessary now.
And on Aug. 20, following release of the IMF's annual assessment of the Japanese economy, Shoji Mori, commissioner of the Financial Services Agency, blasted the fund for relying on calculations by private financial analysts concerning the size of the bad-loan problem. "It is irresponsible of an international organization of authority to use what market analysts said," Mori said. Among other things, he was referring to the IMF's citation of estimates by analysts that Japanese banks might have to take an additional $166 billion to $250 billion in reserves for loan losses above what the FSA projects.
Now the two sides are at loggerheads over the IMF's plans to include Japan in a list of countries whose banking systems will be scrutinized under the Financial Sector Assessment Program, an initiative launched in the aftermath of the global financial crisis of the late 1990s in the hopes of helping countries avoid similar bouts of instability.
The program, a joint venture with the World Bank, was started in May 1999. It first examined a dozen countries' banking systems on a pilot basis, including Canada, South Africa and El Salvador. In February the IMF agreed to expand the program along originally planned lines to include about two dozen countries a year, and its executive board decided to put a higher priority on "systemically important countries" -- that is, nations whose banking systems were big enough to pose dangers to the rest of the global economy.
The IMF "hopes that the FSA will accept our request" to allow the fund's banking experts to conduct an assessment, a fund spokeswoman said yesterday, adding that the matter will be discussed when Yanagisawa meets with IMF Managing Director Horst Kohler next week.
Other IMF officials were more pointed. Bloomberg news quoted Shunichi Fukushima, an economist in the IMF's Tokyo office, as saying, "People are very skeptical about the Japanese authorities' ability to assess nonperforming loans."