Japan's Loan Collection Body Complains of Curbs

Reviewed By Takahiro MIYAO

Article:
"Japan's Loan Collection Body Complains of Curbs"
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By David Pilling in Tokyo, Financial Times

Comments:
In this article, one of the loan collection officers at the RCC (Resolution and Collection Corporation) is reported to be complaining about restrictions on their efforts to buy bad loans from banks. This officer said "the RCC had no remit to act more aggressively as it was not allowed to pay above market price for bad loans belonging to banks." This is a very legitimate complaint, indeed, not only from the viewpoint of the RCC itself, but also from the viewpoint of the Japanese economy as a whole.

In fact, buying up bad loans above market price is the only way to reconcile two seemingly contradicting objectives for the government, that is, (1) to speed up the direct disposition of bad loans and (2) to prevent a deflationary spiral in the Japanese economy. Actually, last February when the government was preparing its anti-deflationary package, intense discussions took place among top-ranking government officials and LDP leaders regarding possible relaxation of such restrictions so that the RCC could purchase bad loans at their book values rather than their market values. But that idea was vetoed by Prime Minister Koizumi on the ground that it would increase fiscal burden on the government. Apparently, there seems to be some confusion regarding policy priorities, and this is exactly what a senior official at the Deposit Insurance Corporation must have meant when she reportedly said "the RCC could not purchase loans more aggressively without political consensus."

What Japan needs now is clear policy priorities and political consensus to solve the "Japan problem" from the domestic as well as international viewpoints. Lifting unnecessary restrictions on the RCC would be a first step in the right direction to reconcile Japan's domestic needs to combat deflation and international pressure to dispose of bad loans swiftly.