Japan to Announce $30-Billion Aid Package for Asia

Japanese leaders, hoping to dispel widespread criticism that they have not done enough to help stem global financial turmoil, plan to announce a $30-billion aid package for Southeast Asian nations this weekend.

Finance Minister Kiichi Miyazawa told reporters here Wednesday that Japanese officials plan to present the proposal at a meeting in Washington of the finance ministers of the Group of Seven major industrial countries.

Under what is being called “the Miyazawa plan,” the Export-Import Bank of Japan, a quasi-governmental financial institution, would guarantee loans by Southeast Asian nations and also would purchase government bonds from those countries. In addition, it might pay the interest on loans made to them to help them raise funds.

“We would like to implement it after explaining it at the G-7 meeting, if the Asian countries agree with it,” Miyazawa said.

The proposal will also be discussed with finance ministers and central bankers from Asia when they meet this weekend ahead of a gathering of the International Monetary Fund and the World Bank.

The financial market instability of the last year has plunged several Asian economies into recession, thrown millions out of work and fueled widespread political unrest. Japan’s economy, which is in recession, is the largest in Asia, and its revival is widely seen as crucial to the region’s recovery. Japanese leaders are expecting to face tough questioning from G-7 officials about their efforts to fix their economy.

Indeed, the latest economic forecast showed that Japanese business confidence deteriorated further in September from three months earlier. The Bank of Japan, in its closely watched tankan survey of corporate sentiment, registered a diffusion index of minus 51, compared with minus 34 in the previous quarter.

The survey, released today, of more than 10,000 businesses showed managers don’t expect conditions to deteriorate further by the next survey in December. Though the government plans to increase public works spending, lower individual and corporate tax rates and clean up the banking system, executives doubt it will be enough to turn the economy around.

Last year, the Japanese proposed a $100-billion fund, with contributions from many countries, to help Asian nations hit by the economic crisis. But at the time, that idea was opposed by Clinton administration and IMF officials, who feared it would undercut the IMF’s efforts.

The U.S. Treasury Department had no comment Wednesday on the plan.

Several private economists have said that direct assistance from Japan could give Southeast Asian nations some breathing room. But they also have said the funds probably will not outweigh the negative impact of Japan’s weak banking system and economy, which has sent Japanese demand for Southeast Asian products plummeting.

Japan’s financial system woes caused Tokyo stocks to fall to a 12 1/2-year low, despite the U.S. Federal Reserve Board’s decision this week to cut a key short-term interest rate. The Nikkei index plunged 3% to close at 13,406.39.

Traders said financial company shares were heavily sold after Moody’s Investors Service Inc., a U.S. rating agency, cut the long-term debt rating of Nomura Securities to A3 from A1. The two-notch move--considered a sizable downgrade--ignited new concerns about Japan’s financial system because Nomura is the largest and considered the healthiest of Japan’s brokerages.

Moody’s said the downgrade reflects losses in Nomura’s international operations and severe earnings pressure in Japan. Nomura’s U.S. and British operations suffered substantial losses as a result of the Russian economic crisis.