Tuesday, September 29, 1998

Island's economic woes demonstrate fallout from Japan's bank crisis

By TODD ZAUN

Associated Press

SAPPORO, Japan - Torao Kano thought he had enough money put aside for a comfortable retirement, without having to depend on his children for support.

But when Hokkaido Takushoku Bank failed in November, the economy in this part of Japan began a slow meltdown. Companies that depended on the bank for loans went under when it ran out of money. Kano, who is 72, had invested $37,000 in one of those companies.

"It was money I was saving in case I got sick," he said. "Now I don't know what I'll do. I have a daughter, but she has her own life. That money was everything to me."

Possibly nowhere has Japan's financial crisis been felt more sharply than on Hokkaido, a northern Japan island where the economy has always been particularly vulnerable to downward slides.

Sapporo, Hokkaido's biggest city, is one of Japan's most inviting. With wide streets and a flower-filled promenade running through its center, the city is a refreshing change from crowded Tokyo.

The demise last November of Hokkaido Takushoku Bank devastated the regional economy. Hundreds of companies have failed, and tens of thousands have lost their jobs.

"The collapse of the bank cut the main artery of the Hokkaido economy," said Kazuo Toda, chairman of Hokkaido Economic Federation. "It may take 10 years to recover."

It could also be an omen for the rest of Japan.

Around the world, financial markets are watching to see how Tokyo will clean up its banking crisis. On Monday, Japan's ruling party announced it had reached a final agreement with the major opposition parties on a key set of bills to clean up about $1 trillion of bad debt in the banking sector.

The two sides agreed any bank whose capital falls while purchasing an ailing bank that has been nationalized will be eligible for public funds.

At the center of the political debate in Tokyo is whether banks foundering under bad loans should be allowed to collapse, a process advocates say will, in the long-run, weed out weak institutions and thus strengthen the banking sector.

Opponents say that is too harsh and the government should help prop up the banks. Prime Minister Keizo Obuchi and his ruling party, conscious of the immediate impact on voters when banks fail, tend to support the latter approach.

Hokkaido is an example of the kind of impact they fear.

Since the Takushoku Bank failed, the unemployment rate on Hokkaido has hit a postwar high of 4.7 percent, compared to 4.2 percent nationally.

At the government-run employment center in Sapporo, there are four job seekers for every job offer - twice as many as a year ago.

"It may not look so bad by international standards, but in Japan we've never experienced unemployment like this before," said Hirokatsu Sato, an employment agency official. "It has been very difficult."

Of nearly 700 bankruptcies this year on Hokkaido, the Takushoku Bank failure was a major factor in 40 percent, said Toshihiko Yamazaki, director of Tokyo Shoko Research Ltd.

"It has become impossible for many of the companies that borrowed money to find new lenders," he said. "The credit crunch has been very severe."

That the collapse of one bank could trigger a series of failures highlights the delicate dilemma Japan's leaders face in repairing a financial system teetering under as much as $1 trillion in bad loans.

Before its demise, the Takushoku Bank was Hokkaido's largest and most prestigious lender.

To be a client was a sign a company had made it. In Japan's business world, such relationships are often more important than collateral or profits.

When their main lender went bust, many companies on Hokkaido were left with nothing.

The government has ordered Sapporo-based North Pacific Bank to take over Takushoku's healthy clients. But it has been reluctant to welcome the weaker ones.

Even smaller companies that had no ties to the bank were hurt.

"Sales started falling almost immediately after (Takushoku Bank) said it would close," said 63-year-old Motohiro Ito, a clothing store owner in downtown Sapporo. "Almost everyone knows of someone who could lose their job or has a friend whose son has been looking for work."