Provisional and Unofficial Translation
On the opening of the 142nd Session of the National Diet, I would like to state my basic thinking on measures to stabilize the financialˇˇsystem and economic management, so that I can obtain the understanding and cooperation of the people.
I have repeatedly expressed my resolve to decisively push forward six reforms-reforms of administration, fiscal structure, social security structure, economic structure, financial system and education-in a cohesive manner, in order to create a system anticipating the new era to come. At the last Session of the Diet, the Nursing Care Insurance Act, which ensures that society as a whole supports care for the elderly, was passed; also passed was the Fiscal Structure Reform Act. At this Session, I am determined to devote wholehearted efforts to these six reforms, pressing ahead with the FY1998 budget based on the Fiscal Structure Reform Act and basic legislation for the reorganization of government ministries and agencies.
To ensure that the six reforms proceed steadily and smoothly, I am firmly committed to protecting the financial system, taking carefully planned and all possible measures against the weakening of confidence in Japan and overseas in the financial system. We must by all means prevent failure of financial institutions from putting at risk the credit order and the economy. It is my unwavering determination to absolutely avoid a financial or economic panic originating in Japan, to stabilize the financial system, the artery of the economy, and to restore confidence in the outlook for the economy.
The basis of finance is confidence. The Government will do its utmost to restore the confidence of depositors, investors and the market as a whole by presenting to both Japanese and overseas markets concrete measures for stabilizing the financial system. These measures are, firstly, the expansion of systems to protect depositors and others, and risk management for the financial system as a whole, and secondly, measures to address the so-called credit crunch.
Protecting depositors is the basis of the stability of the financial system. To reassure the people of Japan, the Government will ensure the protection of deposits in full, and expand the scope of the injection of public funds, not only into credit cooperatives but also into other financial institutions. In addition, I will strengthen the functions of the Resolution and Collection Bank (RCB), which takes over failed financial institutions to deal with non-performing loans.
Simultaneously, for the risk management of the overall financial system, preferred stocks and subordinated bonds will be purchased in order to enhance the equity capital of financial institutions, the final recourse of their credibility. This is not intended to bail out the financial institutions in question but to deal with cases where concerns exist about serious impact on the credit order and the economy. Given that purchasing of preferred stocks and subordinated bonds utilizes public funds, it hardly needs to be said that the relevant procedures must be fair and transparent to secure public understanding.
The Government will back these urgent and temporary measures with 30 trillion yen, comprising 10 trillion in government bonds and 20 trillion in government guarantees. Moreover, legislation will be created to protect securities investors and insurance policyholders.
I would now like to turn to measures to address the credit crunch. The Government is to introduce prompt corrective action to ensure transparent and fair financial administration. However, amidst concerns at the falling equity capital ratio of financial institutions, we must prevent excessive reluctance to lend on the part of financial institutions which negatively affects the supply of capital to robust small and medium enterprises and middle-ranked enterprises. To maintain the smooth capital supply functions of the financial system as a whole, the Government will make 25 trillion yen available, including credit guarantees, by establishing new lending programs run by government financial institutions. It will also take such measures as flexible application of prompt corrective action to financial institutions exerting self-help efforts to improve their management. Prompt corrective action will be introduced from this April as scheduled for internationally active financial institutions.
In the context of these measures, I would like to touch upon the issue of the management of financial institutions. Given the current market environment, financial institutions are required to make rigorous management efforts due to the public nature of their operations and their heavy social responsibilities. In order to obtain understanding and cooperation from the people of Japan on the measures it seeks to take, the Government strongly requests financial institutions to work on disclosure of information on their management in accordance with globally acceptable standards, on more rigorous management rationalization, and on development of more accountable management systems. Needless to say, the liability of management personnel of insolvent financial institutions must be seriously pursued.
To set Japan's economy on the recovery track, it is vital to stabilize Japan's financial system, which is the root of economic activities. At the same time, economic recovery is extremely important in ensuring the stability of financial and capital markets. Furthermore, the stability of the financial system and economic recovery is required to improve fiscal situation.
The Government announced the Emergency Economic Measures last November to dispel the uncertain outlook held by consumers and companies as to the road ahead for the economy and quality of life, including substantial deregulation and land policy measures. Moreover, given the economic situation in Asia, which is more severe than expected, as well as the history and current situation of the Asian economies which have grown like a flock of geese spearheaded by Japan, I have decided to implement a special income tax cut of two trillion yen from February this year in order to realize the strong recovery of our economy. Also, as part of the FY1998 Tax Reform, the basic rate for the corporation tax will be reduced by 3% from 37.5% to 34.5%, while the basic rate of the corporation enterprise tax will be cut by 1% from 12% to 11%, which is a step forward in making an environment facilitating for more corporate activities. Other measures include the halving of the rate for the securities transaction tax and suspension of levying the land value tax. This package amounts to a reduction of national and local tax worth 840 billion yen. Moreover, in the FY1997 supplementary budget, around an extra one trillion yen in public works projects such as disaster rehabilitation projects will be included and 1.5 trillion yen worth of public works for the FY1998 and thereafter will be front-loaded. These measures have been designed with the greatest possible consideration for impact on our economy. I am convinced that they will act synergetically with the measure I mentioned earlier for the stabilization of the financial system an other measures, bringing back the vigor of the Japanese economy.
At the same time, these measures need to be combined with promotion of structural reform to achieve domestic demand-oriented growth led by the private sector. I have no allowance for pessimism that sees no future prospects for Japan's economy. When Japan liberalized its trade and investment and launched its voyage on the seas of international competition, our predecessors were bound together in their endeavor to foster internationally competitive industries such as automobiles, electrics and electronics and machinery. Japan is blessed with excellent human resources, abundant assets and capital, and technologies to create a new era, in all of which we can take pride vis-a-vis to the world. The strength of the Japanese economy which was the envy of the world in the 1980s was underpinned by the people of Japan with their high levels of education and strong work ethic. In terms of capital, Japan holds some 1,200 trillion yen in individual financial assets and 800 billion dollars in net overseas assets, with more than 200 billion dollars in foreign reserve, which is the world's highest level. In terms of technologies, Japan's manufacturing industry has taken advantage of technologies built up over many years to supply a range of materials and products other countries cannot hope to equal, and is responding to the new needs of the times with, for example, environment-friendly technologies and products. Looking ahead into the twenty-first century, Japan has many industrial sectors with growth potential, including information and telecommunications, finance, environment, medical services and welfare. We will strongly push forward economic structural reform and financial system reform so that, through market mechanisms, human resources, capital and technologies will flow into the areas with growth potential, creating places of high quality employment and producing wealth.
The Fiscal Structure Reform Act aims to improve the fiscal situation, currently in a state of crisis, and to realize a fiscal structure which can fully deal with such challenges as the realization of a secure and affluent caring society and a healthy and vibrant economy. There will be no change in the necessity for fiscal structural reform. Needless to say, I will implement necessary fiscal and tax measures in prompt response to changes in the economic and financial situations and to international developments. The measures for the stabilization of the financial system and for the economy, I have presented today, are a resolute response, while conducted in a manner consistent with fiscal structural reform. I believe they are appropriate.
The responsibility of politics is to ensure the stability of the livelihoods of the people. I will protect your livelihoods. Please rest assured. I would reiterate that the measures, the Government intends to take, are indispensable for the stability of the financial system and for economic recovery. I strongly request the honorable Diet members to approve the supplementary budget for FY1997 and related bills as early as possible.