Kamei Economics: Where is Hatoyama?

Written By: guyjin on October 13, 2009 No Comment

Prime Minister Hatoyama has traveled half way around the world and back a couple of times already in his first 50 days as Prime Minister. He has spent a great deal of time talking about ‘yuai’ (loosely translated as ‘fraternity), and about his plans for East Asian cooperation, nuclear disarmament, and some of the world’s strictest environmental measures. But he is yet to address in a major way the issue that most worries the people that he governs – the economy.

Indeed, while Hatoyama has been playing international statesman, most of the major policy announcements of his government have been made by individual ministers. This may be fine as far as it goes, but with a new man at the head of a brand new party in power I think it would be much better for Hatoyama to play more of a leading role in rolling out major policy decisions, and in explaining these policies to the Japanese people.

Case in point is the work of Finacial services minister Kamei Shizuka. I mentioned last week that he was spouting off about businesses in Japan being the cause of family murders in recent months (a truly disgusting accusation). He is now back emphasizing his plan to impose a moratorium on the loans of small and medium sized businesses for a period of three years. In a story today, Kamei insisted that the bill for the moratorium has been approved, and will be submitted to the Diet session beginning later this month. But in spite of figures such as Finance Minister Fuji Hirohisa having attempted to poor cold water on the idea, there still has been little heard from Hatoyama, in spite of Kamei’s continued insistance that the idea will go ahead.

Tim Kelly at Forbes has labeled Kamei the “Bank Bully” for his plan, and Japanese political observer Tobias Harris called several weeks ago for Hatoyama to do a better job “Containing Kamei”. But so far, by all accounts, the Kamei juggernaut continues unabated, and the general public, not to mention the banking sector and businesses, are left to wonder if this Kamei plan may actually be put into place under this Hatoyama government.

The plan basically is to require banks to provide refinancing options for small and medium sized enterprises (SMEs) that are no longer able to pay their loans and fees. A moratorium will be imposed, whereby SMEs will not be required to pay back loans for a period of 3 years, without penalty. The banks will be expected to eat this, with the government promising that they will not be required to keep these suspect loans on their books to destroy their bottom line. The government would also guarantee all of these loans under the Kamei plan. This last measure is problematic in that there is no way to accurately determine the cost of such a proposal. This would be an open-ended commitmet by the national government to pay the loans of potentially thousands of businesses that are already in a position in which they are unable to survive without these extraordinary measures of support.

These measures would have a terrible effect on banks, who are struggling to maintain their businesses in the face of the global economic slump. As Tim Kelly explains, this three year moratorium will ‘straight-jacket’ banks, and place them into a kind of ‘economic purgatory’, in which they will have no idea when they will be getting their money back. And while the scheme may save a few jobs in the short term, most of these jobs will be saved in companies that are currently financially unstable, and there is no guarantee that they will be in a better position after three years. This means that when the program runs out, the government will be faced with essentially the same problem – let all of these companies fail, or prop them up again. In the meantime, banks will be even less willing to lend out captial to smaller companies, because they won’t know when they will be getting the money back. All of this would lead to more economic instability than currently exists. Also, by tying up capital in companies that are currently in poor financial shape, the opportunity will be lost to use this capital in areas where it may be far more productive, simply by letting the market work as it is meant to.

The fact that this plan has been allowed to get this far without a word from the Prime Minister is worrying. I can understand the desire to delegate, and to not micro-manage all of the plans and policies of his Cabinet. But at the beginning of this administration it was clear that the biggest test of the new government was going to be whether or not they could revive the economy. The Kamei plan would be a major plank in that effort, and Hatoyama should be at the head of such measures, reassuring the people. Indeed, he should be ‘heading off’ the plan altogether, and announcing his own plans. Unfortunately, aside from promises to shift money from public works to welfare programs, I see very little substance so far in the economic plans of this government. Apart, that is, from Kamei, who seems to know exactly what he is doing…….