Thursday, March 27, 2008

LDP, New Kōmeitō Want My Money

The top two news items on the front page of the Yomiuri (Tokyo edition; what does the Yomiuri front page look like in Osaka, Janne?):

Intention to Use Revote on Gasoline Taxes
Original Prices in Another Month Later Prime Minister to Explain at the End of This Month
1か月で元の値段 首相、月末に説明

Shin-Ginkō Tokyo: Bill to Inject 40 Billion Yen Passes
LDP and New Kōmeitō Vote in Favor in [Tokyo] Prefectural Assembly
新銀行東京 400億円可決出資案可決
都議会委 自公が賛成

There’s no need to elaborate on the first one unless you’re reading this blog for the first time (in which case please search my blog with the keyword “taxes”, since half of what I’ve been writing recently must have had something to do with this). The only thing I have to add at this point? Support for the LDP-New Kōmeitō coalition appears to be down to its core while this story has been around for months, so this decision should have little effect on it either way for the time being. The same thing can be said for the equally unpopular DPJ, which hasn’t been able to capitalize on the Fukuda administration’s multiple mishaps as well as the LDP’s structural flaws during his regime, this issue being no exception.

The second headline may not be the top item elsewhere in Japan, but it’s an every-other-day headline here in Tokyo these couple of weeks. I touched on it here, but briefly: The responsibility for the failure of Shin-Ginkō Tokyo lies squarely at the feet of Governor Ishihara, who created the ill-conceived, ill-timed, and poorly-managed bank with 100 billion in Tokyo government money (and 11 billion yen from the private sector, including IT companies that apparently won contracts to set up the bank’s expensive and faulty computer system) against the opposition of the entire banking industry. The entire national media opposes the injection of additional funds, and 73% of the Tokyo public opposes it according to a Yomiuri poll. However, yesterday (26 March) the New Kōmeitō, which had been dithering, reluctantly went along with the LDP and voted in the Tokyo Assembly Budget Committee to inject 40 billion yen, which according to experts may balloon to 100 billion when the bank writes off all the bad debts, which could be as early as fiscal year 2008, when the bank receives the 40 billion. The bill is expected to pass the full Assembly on 28 March, a Friday.

Basically, Mr. Ishihara is placing a 40 billion yen bet that the bank will a) not have to write off all its current equity and b) be able to cover the opportunity costs of the 40 billion; many experts as well as the media doubt that and believe that the Tokyo government should cut losses. The silver lining is that this 140 billion yen (and counting) boondoggle will cut off for good the baseless talk that pops up from time to time in the foreign media about Mr. Ishihara having a meaningful role in a realignment of the Japanese political parties (which in turn I am highly skeptical about; but that’s another story).

Yet 51.1% of Tokyo voters according to that same Yomiuri poll still support Governor Ishihara. Factor former Prime Minister Koizumi’s enduring popularity, and there’s a lesson here for Japanese Prime Ministers and their wannabies.

Want to know more about Shin-Ginkō Tokyo and Governor Ishihara’s grudge match with the banking industry? Be my guest:

Governor Ishihara has a history of run-ins with the banking industry, which he accused of cutting back on its lending to small businesses during the banking crisis years. He also tried to tax them when the banks headquartered in Tokyo were not paying any local (or national) income taxes because of huge loss carryovers. This attempt to get money out of the banks also displeased the national authorities because they had injected trillions in national public funds to keep the banking industry afloat (which in turn was benefiting the Tokyo economy).

In any case, Mr. Ishihara launched Bank Ishihara - as the governor’s critics are fond of calling it - on 2005 April 1 to lend to creditworthy small businesses (as well as venture businesses) that he claimed were getting shafted by existing banks. However, the banking crisis had passed by then and the private sector banks were now making the risky but lucrative small business sector a top priority in their own businesses. Besides, the public sector already had an extensive loan guarantee and insurance system to help small businesses. Moreover, because of the enormous overhead, Bank Ishihara was under great pressure to ramp up its lending accounts. This led to shoddy lending practices there. It is no wonder, then, that the bank has been losing money hand over fist. To top all this, roughly half of the bank’s 200 billion-plus loans outstanding (against initial equity of 100 billion-plus!) has gone to big business. This may be prudent management, but surely not what Mr. Ishihara had in mind when he put the Tokyo Prefectural government in competition with the private banks and the public small business assistance network.

Fortunately for the financial sector, all this has meant that the bank is isolated metaphorically and physically from the mainstream banking sector. Mr. Ishihara stated after the Tokyo Assembly passed the 40 billion yen injection bill: I am grateful that the trigger won’t be pulled on a financial panic out of Tokyo. Actually, a Bank Ishihara failure would be the tree that falls in the forest that nobody hears.


Janne Morén said...

It's not on the front page online at least, though there's an editiorial about it in the Column section. Come to think of it, this bank thing doesn't seem to have had all that much local play here in Osaka. Perhaps it's being seen as just another weird Tokyo thing.

Jun Okumura said...

So much for the importance of Tokyo. This also underscores a side issue, that the foreign media give too much attention to Mr. Ishihara and a few other visible politicians of relatively limited influence.