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Prime Minister Says Public Funds Will Go Into Economic Bailout

August 31, 1992

TOKYO (AP) _ Prime Minister Kiichi Miyazawa has said for the first time that he is ready to use public funds in a planned bailout of banks suffering from bad loans as part of government rescue measures for the economy.

In a speech Sunday, Miyazawa said the government will contribute to a private corporation to be set up later this year to buy real estate held by banks as collateral on bad loans. He added that banks, in return, should disclose the size of their bad debts.

So far banks have not given a complete picture of their bad debts, and analysts estimate the amount at anywhere from $79 billion to $550 billion.

The corporation was part of a larger rescue package announced by the government Friday that included $69.9 billion of public spending and a $9.11 billion boost in the amount of public funds to be invested in the stock market.

Government support for the real-estate buying corporation would amount to a bailout by Japanese taxpayers of banks whose willingness to lend was behind the high land and stock prices of the late 1980s.

Tightening credit helped burst the price bubble, setting off a 60 percent plunge in the Tokyo Stock Exchange’s main index. But the 225-issue Nikkei Stock Average climbed 25 percent in 10 days as details of the rescue package became known.

Miyazawa said in his speech to a ruling Liberal Democratic Party seminar that using public money to save banks would help achieve a healthy economy. ″When the financial system does not operate smoothly, the people suffer,″ he said.

Critics say that instead of a short-term bank bailout, the government should make basic changes in the Japanese economy by increasing domestic demand and thereby raising living standards.

″It is too self-serving to expect to get away with using public funds to save financial institutions,″ said a recent editorial in the nationally circulated Asahi newspaper. ″The poison of the bubble is gnawing away at the Japanese economy.″

But economists note that salvaging ailing banks is a common way of preventing an entire financial system from going under.

″Japan’s economic policy is geared at keeping its financial system intact,″ said Michael Naldrett, an economist at Kleinwort Benson International.

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