SUNS #4301 Wednesday 14 October 1998



JAPAN: CREDIT SQUEEZE TOPPLES SMALL BUSINESSES

Tokyo, Oct 13 (IPS/Suvendrini Kakuchi) -- Small and medium-sized businesses make up the backbone of Japan's economy, but have been weakened to the brink of bankruptcy by a continuing credit crunch in this time of recession.

Smaller businesses form the majority among all Japanese companies and collectively employ the most number of workers in this country.

But some 226 businesses already collapsed in 1997 due purely to the loan squeeze, says the Teikoku Databank, a private credit research agency. In January, 42 more small businesses went bankrupt, representing a more than fourfold increase from the figures recorded during the same month last year.

As a result, production volume across all industrial sectors has taken a deep plunge while unemployment is at a post-war high of more than four percent, or a rise of almost two percent from 1997.

Commercial banks usually accept assets such as land or deposits as collateral when lending to small companies. With the fall in real estate prices -- down 50 percent since the 1980s --and the plunge in the stock market, borrowing has become extremely difficult.

Analysts say the situation is bound to get worse as the world's second largest economy finds it harder than ever to shake off its eight-year long recession. As banks get saddled with more bad loans, they add, small and medium-size businesses may be facing even more inhospitable
loan credit officers in these institutions.

This in turn will only mean that these businesses, which supply big companies with high technology and materials, will be slashing costs all the more to stay afloat, thereby dragging everything down, says Naoyuki Aikawa, head of the Asahi Credit Union that services firms in downtown Tokyo.

As it is, increasing unemployment and declining production has already hampered business growth and cash flow.

Indeed, the situation is a blow to economic recovery, say analysts, who also note that many Japanese are feeling betrayed by their government as well as the Japanese financial system.

Small companies blame top banks for the current mess in the financial sector, arguing that indiscriminate lending practices based on greed for quick profit overheated the real estate to such an extent that prices collapsed.

Recently, a group of small and medium company owners put up a one-act play in a desperate attempt to increase public awareness regarding their experiences in the hands of banks and what they say is an uncaring government.

"The play is based on true stories," says Yasuo Yokoi, head of the Tokyo Association of Small and Medium Sized Enterprises. "We want to show how we are being squeezed to death by government policies that ignore our predicament."

In the play, called "When Banks Disappear", company presidents plead for loans, explaining that the funds are needed to keep their businesses going. But bank managers prove unyielding, and the firm executives are left on their own to figure out how to stay afloat.

After years of depositing with the same bank and repaying our loans back scrupulously, fumes one character in the play, they now turn around and tell us they cannot give us anymore. All because, he says, these arrogant banks have squandered the money through wasteful management policies during the bubble economy.

In another scene, colleagues comfort a despondent company manager who is contemplating suicide because he cannot pay the salaries of all his 20 employees.

The play ends with a large crowd of entrepreneurs denouncing the government and demanding that it change the old system that has supported and favoured large businesses over them.

"If not," says Yokoi, "there might come the day when we small businesses will just stop borrowing from big banks and turn to our local credit unions instead."

"That will be a revolution," he warns. "There is strength in our numbers."

The scenario described by Yokoi may become a reality sooner than expected. According to Aikawa, there is now growing interest among small and medium size firms to depend on community banks, ushering in a new era where the focus is on localism or small regional pockets that offer protection and support.

Other analysts say this is one way of preparing for the era of globalisation that makes it harder on small companies that do not have the assets of rich companies to survive stiff competition.
This applies not only to Japan but developing countries as well, they add.

The government, meanwhile, has already begun a belated attempt to lessen the worries and hurt of small and medium-sized businesses.

A new fund of about eight billion U.S. dollars was proposed by the ruling Liberal Democratic Party and accepted during the Diet session last month, to help ease the credit crunch. The government has also promised an income tax cut.

During the G-7 meeting this month, the government says it will propose a special Asian fund, into which it will contribute 7.5 million dollars. Tokyo says the money will help Asian economies recover by boosting funding to local companies, in the process restimulating trade in the region.

Yokoi says Japan, whose economy was once the envy of the rest of the world, is learning a bitter lesson. He adds: "Japan's mistakes must not be repeated in ailing Asian economies if a faster recovery is to be expected."