News Brief No. 97/31

News Brief: Camdessus Welcomes Measures Announced by Japanese Government

December 18, 1997

Mr. Michel Camdessus, Managing Director of the International Monetary Fund (IMF) made the following statement today:

"I very much welcome the fiscal and banking initiatives recently announced by the Japanese authorities. These actions represent important steps toward reviving a flagging Japanese economy and supporting a turnaround in the Asian region more generally.

"The fiscal measures--including the proposed temporary income tax cuts and the supplementary spending package--are somewhat more than we had anticipated and should ensure that fiscal policy provides a moderate degree of stimulus to the economy in 1998, following the substantial withdrawal of fiscal support in 1997. The proposed restructuring of corporate taxes and taxes on assets markets also mark significant improvements in the tax system, which should bring longer-term rewards. Thus, the authorities have demonstrated flexibility in responding to short-term macroeconomic developments while maintaining their commitment to needed medium-term fiscal consolidation and reform.

"The recent plan to inject public funds to bolster the Deposit Insurance Corporation represents an important step toward resolving the lingering problems of the Japanese banking sector. The goal of these measures is to ensure the stability of the banking system while advancing the needed resolution of the bad loan problem. Toward this end, it will be essential to ensure that the public funds are used to promote the needed bank restructuring rather than to support unviable institutions. A transparent and credible plan for using the funds to close insolvent institutions and to restructure undercapitalized banks, along with the government’s plans for strengthening regulatory and disclosure standards, will lay the foundation for a successful transformation of Japan’s financial system, as the "big bang" initiative unfolds.

"Although these recent initiatives have been announced too late to be reflected in the growth forecast for Japan to be included in the latest interim World Economic Outlook soon to be released, the fiscal stimulus and measures to strengthen the banking system will clearly have a positive impact on growth prospects. We will be reviewing our forecast early next year in the context of the full-fledged spring WEO exercise, at which point the details of the 1998 budget will be known and the framework for banking sector support should have been more fully worked out."