MoF's approach to the private sector banking crisis and the public sector
financial crisis is very different. MoF distanced itself from the former
(see Analytica "Japan's Banking Crisis"), while it has devised
a detailed reform programme for the latter. The Trust Fund Bureau, now-
FILP Fund, being located in the Ministry itself obviously made walking
away somewhat impractical.
Public sector funds are: Postal Savings, yucho, (launched 1875), Postal
Life Assurance, kanpo, (1916) and the now-EPI etc pensions (1941). MoF's
TFB (1885) managed government monies and slowly encroached on MoPT and
MoHW fund management prerogatives. TFB powers were finally defined clearly
and broadly in 1951 and thus the FILP Budget and agencies were born.
In Japan, public goods and services are often provided, not out of general
taxation, but by the FILP agencies each on an independent, albeit partially
subsidised, funded budget employing interest bearing FILP loan capital.
Forced to support the FILP budget by MoF, MoPT and MoHW struggled for control
over "their" funds with MoPT the much more successful of the
At issue was not only bureaucratic turf, but also simple investment prudence.
FILP investment projects tended to irrecoverability and poor transparency.
Fixed assets of doubtful economic value, lending of questionable business
rationale and capitalised expenditure proliferated. The public policy argument
and the persistent amakudari/zokugiin abuse aggravated these problems.
Using privatisation and efficiency as cover, MoF launched its FILP reform
programme which runs from 2001/02 to 2007/08. It has the flavour of the
less-than-successful JNR Settlement schemes: what assets can be realised
are and what cannot are funded by JGBs and amortised ad infinitum. Governance
failure clearly occurred but is now only being addressed piecemeal.
FILP Fund assets at end-March 2001 were JPY439.7tr: JPY7.7tr cash and
deposits, JPY73.4tr liquid market instruments, JPY314.6tr loans etc to
FILP agencies and local government and JPY44.0tr loans to central government
special accounts. FILP agency risk exposure is an estimated JPY543.9tr
and still rising and some JPY130tr should be considered irrecoverable.
Positively speaking for financial agencies etc reform means: 1. full or
effective privatisation or consolidation, 2. requirement of JGAAP, 3. requirement
of BIS capital adequacy, 4. ALM sophistication, 5. portfolio management
sophistication for yucho, kanpo, EPI etc and 6. a level playing field for
all financial institutions and higher profit margins for private sector
For the enterprise agencies reform means: 1. full or effective privatisation
or consolidation, 2. requirement of JGAAP, 3. restraint on amakudari/zokugiin
abuse, 4. better prioritisation of the provision of public goods, 5. prudent
management for the remaining heavily public policy oriented agencies and
6. greater reliance on general taxation to fund provision of public goods.
Negatively speaking reform means: 1. no clear initiative to resolve the
saving public's concern, 2. consequently persisting weak consumer confidence
and deflationary pressure, 3. refinancing of the FILP Fund by an issue
of up to JPY250tr of FILP Bonds by end-2007/08 and 4. growing market participant
unease about the new FILP Agency Bond as a bona fide investment vehicle.
FILP Reform is JNR Settlement by another name. It involves a large FILP
Bond issue, confusion as to the true extent of Japanese public debt and
limited progress on governance. Short term the IMF FSAP Japan and long
term the new-Postal Services Corporation and MoHLW portfolio management
independence and decided animus towards MoF will rock the reform apple