Japan to Go through IMF Special Assessment

As Japan`s financial sector, which is stricken by non-performing loans, became a concern of the world economy, the International Monetary Fund (IMF) will conduct a special assessment on Japan`s financial sector. Japan`s Minister for Financial Services Yanagisawa Hukuo, who is visiting the U.S., held a meeting on Wednesday with Horst Kohler, the managing director of the IMF, and announced that Japan would allow the IMF special assessment, which is designed to analyze the stableness of financial system, such as the current situation of Japanese banks` insolvent credits and the assigned money.

- Background of special assessment: The U.S. and European economists have pointed out Japan`s financial insolvency as the major cause of global economic crisis, such as repeated sharp declines of the world stock markets, and the slowdown of economic growth in each country. The amount of Japan`s insolvent credit announced by the Japan`s Ministry of Finance is 31.3 trillion yen.

After the IMF pointed out in the review report on Japan that the Japanese government announced the reduced amount of insolvent credit, which was different from the amount estimated by the private organization, the international opinion has changed to push Japan to receive the special assessment. As Japan refused to receive the special assessment from the very beginning, the Financial Times, a daily economic newspaper in Britain, said that ``the Japanese government tries to hide something.``

- What is special assessment? The IMF special assessment is to be performed by the review committee to evaluate the healthiness of financial structure of a particular nation`s financial sector, or if a nation follows the international standard. It is same as the `general medical examination` in the filed of finance. The system was established in May 1999 centering around the G7, such as Japan and the U.S., following the reflection that the IMF`s collection of information and analysis in relation to the finance during the currency crisis of Asian countries in late 1990s were not sufficient. About 20 countries, including Canada, have received assessment so far. Recently, Britain and Germany announced that they would receive the assessment. Although the U.S. does not refuse the assessment, it says that other countries in need should go through the assessment first.

Major items of assessment are as such; to evaluate whether transparency of financial policy and the independence of the central bank are maintained; to evaluate whether supervision systems, such as bank, stock and insurance, follow the international standard; to evaluate the actual condition of insolvent credits and the standard for the estimation of assets; to evaluate the management situation and the healthiness of financial organizations.

- Reactions from Japan: Japan`s financial market related people reacted as if it was unavoidable. Some said, ``Why only Japan should be charged as the major offender of economic aggravation?`` However, most people said that ``the Japanese government should clear itself from the suspicion as early as possible, and the market will be stabilized only when the government takes active measures in dealing with insolvent credits.``

The Japanese government has been reluctant to receive the IMF special assessment under the reason of the shortage of human resources in the financial ministry. This was an external reason. The Japanese government was really worried that if various problems are unveiled through the assessment, along with the stock market stricken by non-performing loans, they would influence more negatively on the Japan`s economy. Japan reluctantly allowed the special assessment to remove the international suspicion on the dealing of insolvent credits.

李英伊 yes202@donga.com