Development Bank of Japan

  • News Release
  • Dec 27,2005

The Basic Policy on organizational reform of eight government financial institutions

On November 29, 2005, the government's Council on Economic and Fiscal Policy announced the Basic Policy on organizational reform of eight government financial institutions, including the Development Bank of Japan. According to the Basic Policy, the DBJ is to be privatized in a process to begin in April 2008. Within the remainder of the fiscal year, the government is to write a detailed scheme of the privatization for legislation.

The summary of the Policy which relates to DBJ is as follows:
(Provisional Translation)

The Basic Policy sets forth four basic principles. First, policy finance will be limited to the following three functions, and all other current functions will be abolished: 1) provision of financing to small and medium-sized enterprises and individuals; 2) financing necessary to secure overseas resources and international competitiveness in line with national policy; and 3) provision of yen loans that have the dual function of policy finance and development assistance. Second, the size of policy finance will be reduced by half in accordance with the realization of “small and efficient government†through the following steps: 1) reducing by half the ratio of loans outstanding to GDP by fiscal 2008; 2) not incurring any new financial burdens; 3) continually reducing the scale of policy finance after the new framework takes effect through establishing market testing, assessment and monitoring mechanisms; and 4) completing full privatization of those special public institutions that will be privatized. Third, an emergency response system, which makes use of the resources of private financial institutions, will be established to deal with natural disasters, acts of terrorism and financial crises. Finally, the following actions will be taken in order to achieve the efficient administration of special pubic institutions: 1) engaging in activities that complement those of private financial institutions, such as partial funding guarantees, securitizations and indirect loans; 2) immediately prohibiting government bureaucrats from obtaining posts in the top management of special public institutions with which they used to do business; and 3) making operations more efficient through streamlining the newly integrated institutions.

The Basic Policy divides the functions of the special public institutions into those from which policy finance will be withdrawn, those which are necessary and will be maintained and those that are currently necessary but may be withdrawn in the future. According to the Basic Policy, DBJ's function of providing loans to large and medium-sized businesses is no longer necessary as a matter of policy finance and is an area from which policy finance should be withdrawn, since unlike during the high-growth period of the Japanese economy when the nation lacked funding, various forms of financing, including not only loans but also the issuance of debt or equity securities, are available for enterprises today. The Basic Policy also proposes that DBJ be completely privatized as a single entity so that it can continue to maintain its numerous functions and thus remain capable of developing new financial technologies. In addition, certain minimal transition measures should be taken to ensure that DBJ will be financially self-reliant.

Regarding the process of the transformation of the special public institutions into new entities and submitting the relevant bills to the Diet, the Basic Policy calls for the Headquarters for the Implementation of Policy Finance Reform to be established within the Cabinet, with the Prime Minister serving as chief and the Minister of State for Regulatory Reform and others serving as deputy chiefs. It also calls for the Japanese government to soon commence drafting bills related to the reform of policy finance in accordance with the Basic Policy, followed by a detailed structuring of policy finance, and within the current fiscal year, for final draft proposals to be prepared and a definite time schedule for submitting the bills to the Diet to be finalized. During this process, the Headquarters for the Implementation of Policy Finance Reform should report to CEFP as needed, and administrative tasks should be handled by the Office for Promotion of Regulatory Reform under the Minister of State for Regulatory Reform. In addition, the Basic Policy identifies the following other matters that need to be taken into consideration: 1) when an organization is reorganized or privatized, there shall be due diligence to scrutinize its assets and liabilities, and if there are idle assets, they must be sold or returned to the national treasury; and 2) there must be no inconvenience incurred by the current borrowers and the holders of outstanding bonds.

Following completion of the Basic Policy, the Japanese government and the ruling party agreed on four items on reforming policy finance:

  • Once consolidated, the special public institutions that remain are expected to utilize their present know-how and to maintain an efficient organizational structure that enables the institutions a view from the borrowers' perspectives. In particular, as the nature of financing in the domestic context, such as to small and medium-sized enterprises and individuals, differs from international financing, there should be clear aims set for each type of financing, and specialization should be enforced and utilized through the establishment of specialized contact offices and the development of human resources.
  • The Okinawa Development Finance Corporation will exist in its current form until fiscal 2011, or the last year of the Okinawa Development Plan. Subsequently, it will merge into the Okinawa development program and be consolidated into the newly integrated special public institutions by 2011, while maintaining its functions autonomously.
  • The transitional period of privatization for DBJ and Shoko Chukin Bank will be five to seven years, depending on the market situation. In addition, transitional measures are to be taken in order to secure a sound financial basis for the Japan Finance Corporation for Municipal Enterprises.
  • In order to maximize policy finance functions in a timely matter in the event of a crisis, such as a financial or international currency crisis, a natural disaster, an act of terrorism or an epidemic, and temporarily expand the safety net for related financial institutions, including privatized enterprises, consideration should be given as soon as possible to establish necessary procedures and standards and create a system whereby decisions made by the Prime Minister can be carried out promptly.