Edited by James R. Barth, Chen Lin and Clas Wihlborg
Chapter 32: Debt Forgiveness during Japan’s Lost Decade
Satoshi Koibuchi* 32.1 INTRODUCTION The Japanese economy experienced a prolonged slump after the collapse of the asset price bubble in the late 1980s. Although there were considerable factors that led to the ‘lost decade’, it is widely recognized that the problem of non-performing loans constituted one of the major factors responsible for the prolonged slump. However, this decade-long problem was suddenly resolved after a turning point around 2003. Figure 32.1 depicts the outstanding risk management loans for the major and regional banks. The non-performing loan problem for the major banks peaked in March 2002, though the amount of risk management loans and its share to the total lending continued to decline steeply until March 2005. Impetus for resolving the bad loan problem was provided by the announcement of the Anti-Deflation Package and the Financial Revitalization Program in October 2002. Under these programs, the Japanese government declared that the bad loan outstanding share to the total lending for the major banks would be forced to decline from 8.4 percent at that time to around 4 percent in the next two and half years. In reality, in May 2003, Risona Bank, one of the most ailing major banks, was nationalized; and in November, Ashikaga Bank, a large regional bank, was liquidated under the Financial Reconstruction Law.1 The Industrial Revitalization Corporation of Japan (IRCJ) was established in response to the Financial Revitalization Program to resolve the debt overhang problem in the corporate sector in Japan. From its commencement in May 2003, it supported...
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