Japan to Take Stakes in Ailing Companies

Sandra Fickweil

Tuesday, January 27, 2009

6:17 pm

Japanese government plans to inject state money into several companies in exchange for equity stakes that are badly affected by the inflation.

This is the latest string of efforts by the Japanese government to help especially small and medium-sized businesses. As the Japanese economy is badly struck, the Japanese government takes stakes in ailing companies, rather than relying on the country’s banks to increase lending.

Due to the economic downturn and last year’s stock market rout, Japanese financial institutions’ business began to worsen. Namuara, Japanese’s largest brokerage, lost $3.8 billion in the last quarter of 2008 due to operations of the Lehmann Brothers.

The trade ministry plans the state-owned Development Bank of Japan to buy shares in companies that have trouble in raising money amid the lingering credit crunch and the government will guarantee the investments if the companies go bankrupt. Especially smaller and mid-size companies find it hardest to obtain bank lending due to shrinking domestic and international demand.

On Tuesday a $53.7 billion stimulus plan was approved in order to improve the broad dissatisfaction of the Japanese population with the way in which government handles the crisis. Economists warn that the plan should not be used artificially prop up nonviable companies at tax payers expense. According to the ministry, financial aid is only provided while companies facing difficulty in fund-raising because of market turmoil.

Here we have a further example of a government that plans to provide financial stimulus not only to improve economy and trade but also to collect votes for upcoming elections. The effects of inflation as a global problem can be seen in each country.

http://www.nytimes.com/2009/01/28/business/worldbusiness/28yen.html?ref=business