Bribery charges hit Japan's rescue plan

Prime Minister struggles to save multi-billion bail-out of banks after Finance Minister is forced to resign

THE Japanese Prime Minister Ryutaro Hashimoto is struggling to restore the image of his government and to save the multi-billion dollar bail-out of his country's banks after being rocked last week by a bribery scandal.

Mr Hashimoto is proceeding cautiously in his choice of new Finance minister. Hikaru Matsunaga is a 69-year-old veteran legislator, who started his career as a public prosecutor. He takes over from Hiroshi Mitsuzuka, who was forced to resign to take the blame for the scandal.

Mr Matsunaga's appointment on Friday capped a week in which the Finance Ministry was shaken by the arrest of two bank inspectors, the resignation of both Mr Mitsuzuka and his deputy, and the suicide of a banking bureau official who had been summoned for questioning in the case.

"The arrest of Finance Ministry officials has badly tainted the nation's trust in the Ministry," Mr Matsunaga told reporters. "I will use this opportunity to strengthen discipline. If we find officials who committed wrongdoing, they will be severely punished."

The immediate goal of Mr Matsunaga, Mr Hashimoto and Koji Tanami, the head of the Cabinet councillor's office who was named vice minister for Finance, is to ensure the Ministry can focus on shoring up the financial system.

A $235bn (pounds 143bn) package to bail out banks and protect depositors has already been held up in parliament because of the scandal. Mr Hashimoto's scheme to get the rescue plan approved was thwarted last week when opposition law makers boycotted parliament on Tuesday to put pressure on Mr Mitsuzuka to resign.

A slump in consumer spending has also forced the Prime Minister and his party to draw up measures to stimulate the economy. That has put them at odds with many in the Finance Ministry, which insists that Japan's priority should be to cut spending to drive down the fiscal deficit.

Mr Matsunaga, a 10-term legislator from Mr Hashimoto's ruling Liberal Democratic Party, worked as a prosecutor in southern Japan in the early 1950s.

Analysts said he was a strong candidate to pursue reform at the Ministry, which has been beset with criticism over its management of the economy, its handling of racketeering scandals involving major brokerages last year, and the fact that it allowed the nation's banks to run up an estimated Y77,000bn (pounds 376bn) in bad loans.

"The signal is not for fiscal expansion, but for a [Finance Ministry] clean-up," said Shigenori Okazaki, a political analyst at SBC Warburg Japan.

Triggering the latest scandal was Monday's arrest of two Ministry bank inspectors - Koichi Miyagawa, 53, and Toshimi Taniuchi, 48 - on charges of taking bribes. Tokyo prosecutors raided the Ministry that day, and the next day raided the four banks suspected of offering the bribes - Dai-Ichi Kangyo Bank, Asahi Bank, Sanwa Bank and Hokkaido Takushoku Bank.

Opposition law makers forced Mr Mitsuzuka's hand when they boycotted parliament, blocking passage of the nation's supplementary budget. That package was passed on Wednesday, hours after Mr Mitsuzuka stepped down.

The vice minister for Finance, Takeshi Komura - the Ministry's top career bureaucrat - also resigned, although Toshiro Muto, director of the Finance Ministry's secretariat will retain his post "for the time being".

Mr Komura's replacement, Mr Tanami, faced the heat right away. He denied in his inaugural press conference on Friday a report in the Nihon Keizai Shimbun newspaper that the Ministry had instructed failed Yamaichi Securities to hide trading losses through off-the-book trades.

Yamaichi said in November that it planned to shut down, and admitted to hiding Y265bn in losses from such off-the-book trades.

Copyright: IOS & Bloomberg