TIME Asia | Death and Golf in Japan

	ASIA	MARCH 2, 1998 VOL. 151 NO. 8
Death and Golf in Japan As the world looks to Tokyo to help end the Asian crisis, the financial scandals just keep on coming BY DONALD MACINTYRE Tokyo or Prime Minister Ryutaro Hashimoto, under fire at home and abroad for mishandling Japan's economy, the timing of his state-of-the-nation address last Monday must have seemed propitious. Japanese ski jumpers had tr iumphed at the Nagano Olympics the day before, lifting the nation's spirits. That morning, lawmakers had passed a key plank in Hashimoto's plan to revive the wobbly banking industry: a $240 billion taxpayer-funded aid package. Speaking from the Diet, Hash imoto boldly sketched out the road back to "a strong economy." But the feel-good moment passed quickly. Across town, prosecutors armed with warrants were marching into the Tokyo Detention House to rearrest two Finance Ministry officials who had been due for release on bail that very day. The new charges: doing favors for two of Japan's biggest banks in exchange for pricey golf outings and lavish restaurant meals. By week's end, the mood had soured further as the scandal in Japan's financial industry went from farce to tragedy. A politician from Hashimoto's Liberal De mocratic Party, Shokei Arai, hanged himself in a Tokyo hotel hours before prosecutors were expected to arrest him for allegedly demanding special treatment from a brokerage. The scandals are clouding Hashimoto's efforts to get Japan moving again. The wining-and-dining revelations could unravel the plan to use taxpayer money to help Japan's banks clean up the estimated $600 billion in bad loans crippling the industry. The two institutions dragged into the mud last week--the Bank of Tokyo-Mitsubishi, the world's biggest bank with nearly $650 billion in assets, and 16th-ranked Sumitomo Bank--joined a rogue's gallery that includes three other top-drawer banks accused of bribing t he same bureaucrats. For the big institutions caught in the scandal, this isn't a good time to be seen lining up at the public trough. But the weaker banks, which could use the assistance, may be shunned by nervous depositors, analysts say, if they are th e only ones that take the handout. All the banks have reason to worry. "People are taking their money home," says Yoshimi Sukegawa, a manager at Tokyo's King Industrial Ltd., where sales of safes have jumped 50% in the past three months. There's a lot at stake. Unless the government can get the banking industry back on its feet and restore investor confidence, Japan's economy will remain stuck in the doldrums. And that would be bad news for Asian countries looking for a strong Japan to he lp pull them out of the crisis. What's more, with a made-in-Japan version of Big Bang deregulation just around the corner, the last thing global markets need to hear is more horror stories of behind-the-scenes corruption in the finance sector. Unsure when and where the next bombshell will land, overseas investors are already charging Japanese banks more for loans than they demand from U.S. institutions. Says Cameron Umetsu, an economist at ubs Securities: "What the markets are begging for is increased tra nsparency." The Finance Ministry officials cooling their heels on the tatami-floored cells of the detention center are both senior members of the agency's inspection department. Instead of supervising the banking industry, however, they dedicated a good chunk of thei r time to dining with bank officials at $300-a-head dinners at restaurants where the main attraction was waitresses without underwear. The banks picked up the tab, prosecutors say, and in return got tip-offs about the ministry's spot inspections and, poss ibly, help in hiding bad loans. The banks allegedly shelled out at least $100,000 to the two bureaucrats. The revelation that even Japan's top banks weren't above the fray has further complicated the controversial bailout plan. Pressured by the ldp, the stronger banks initially accepted the plan with reluctance. Executives have feared that taking taxpayer mon ey would amount to an admission of poor management that could cost them their jobs. That's partly why politicians are peddling the plan as a safety net for the entire industry, not just a few troubled institutions. "I'm not sure how many banks will raise their hands," says Michio Ochi, chairman of an ldp financial committee. But, he adds, "we won't hold back public funds because certain banks were involved in entertainment scandals." While last week's suicide wasn't directly tied to the scandal, the tragedy is rooted in the same money-for-favors ethic of Japan's financial world. The ldp politician was suspected of pushing Nikko Securities to funnel profits from the brokerage's own tra ding into his account to ensure he turned a profit. Once routine practice for big customers, it is now illegal in Japan. The loosely policed stock market is widely thought to serve as a key war chest for politicians, who need money to lubricate their netw orks of supporters. Until recently, prosecutors turned a blind eye to such practices, just as the wining and dining of bureaucrats attracted little attention. Those days seem to be over. In the long run, tougher regulation could help restore confidence in Japan's markets. Investors can only hope the Prime Minister last week was taking the long view. With reporting by Sachiko Sakamaki/Tokyo Photograph by TOM WAGNER--Saba
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As the world looks to Tokyo to help end the Asian crisis, the financial scandals just keep on coming

BY DONALD MACINTYRE Tokyo

or Prime Minister Ryutaro Hashimoto, under fire at home and abroad for mishandling Japan's economy, the timing of his state-of-the-nation address last Monday must have seemed propitious. Japanese ski jumpers had tr iumphed at the Nagano Olympics the day before, lifting the nation's spirits. That morning, lawmakers had passed a key plank in Hashimoto's plan to revive the wobbly banking industry: a $240 billion taxpayer-funded aid package. Speaking from the Diet, Hash imoto boldly sketched out the road back to "a strong economy."

But the feel-good moment passed quickly. Across town, prosecutors armed with warrants were marching into the Tokyo Detention House to rearrest two Finance Ministry officials who had been due for release on bail that very day. The new charges: doing favors for two of Japan's biggest banks in exchange for pricey golf outings and lavish restaurant meals. By week's end, the mood had soured further as the scandal in Japan's financial industry went from farce to tragedy. A politician from Hashimoto's Liberal De mocratic Party, Shokei Arai, hanged himself in a Tokyo hotel hours before prosecutors were expected to arrest him for allegedly demanding special treatment from a brokerage.

The scandals are clouding Hashimoto's efforts to get Japan moving again. The wining-and-dining revelations could unravel the plan to use taxpayer money to help Japan's banks clean up the estimated $600 billion in bad loans crippling the industry. The two institutions dragged into the mud last week--the Bank of Tokyo-Mitsubishi, the world's biggest bank with nearly $650 billion in assets, and 16th-ranked Sumitomo Bank--joined a rogue's gallery that includes three other top-drawer banks accused of bribing t he same bureaucrats. For the big institutions caught in the scandal, this isn't a good time to be seen lining up at the public trough. But the weaker banks, which could use the assistance, may be shunned by nervous depositors, analysts say, if they are th e only ones that take the handout. All the banks have reason to worry. "People are taking their money home," says Yoshimi Sukegawa, a manager at Tokyo's King Industrial Ltd., where sales of safes have jumped 50% in the past three months.

There's a lot at stake. Unless the government can get the banking industry back on its feet and restore investor confidence, Japan's economy will remain stuck in the doldrums. And that would be bad news for Asian countries looking for a strong Japan to he lp pull them out of the crisis. What's more, with a made-in-Japan version of Big Bang deregulation just around the corner, the last thing global markets need to hear is more horror stories of behind-the-scenes corruption in the finance sector. Unsure when and where the next bombshell will land, overseas investors are already charging Japanese banks more for loans than they demand from U.S. institutions. Says Cameron Umetsu, an economist at ubs Securities: "What the markets are begging for is increased tra nsparency."

The Finance Ministry officials cooling their heels on the tatami-floored cells of the detention center are both senior members of the agency's inspection department. Instead of supervising the banking industry, however, they dedicated a good chunk of thei r time to dining with bank officials at $300-a-head dinners at restaurants where the main attraction was waitresses without underwear. The banks picked up the tab, prosecutors say, and in return got tip-offs about the ministry's spot inspections and, poss ibly, help in hiding bad loans. The banks allegedly shelled out at least $100,000 to the two bureaucrats.

The revelation that even Japan's top banks weren't above the fray has further complicated the controversial bailout plan. Pressured by the ldp, the stronger banks initially accepted the plan with reluctance. Executives have feared that taking taxpayer mon ey would amount to an admission of poor management that could cost them their jobs. That's partly why politicians are peddling the plan as a safety net for the entire industry, not just a few troubled institutions. "I'm not sure how many banks will raise their hands," says Michio Ochi, chairman of an ldp financial committee. But, he adds, "we won't hold back public funds because certain banks were involved in entertainment scandals."

While last week's suicide wasn't directly tied to the scandal, the tragedy is rooted in the same money-for-favors ethic of Japan's financial world. The ldp politician was suspected of pushing Nikko Securities to funnel profits from the brokerage's own tra ding into his account to ensure he turned a profit. Once routine practice for big customers, it is now illegal in Japan. The loosely policed stock market is widely thought to serve as a key war chest for politicians, who need money to lubricate their netw orks of supporters. Until recently, prosecutors turned a blind eye to such practices, just as the wining and dining of bureaucrats attracted little attention. Those days seem to be over. In the long run, tougher regulation could help restore confidence in Japan's markets. Investors can only hope the Prime Minister last week was taking the long view.

With reporting by Sachiko Sakamaki/Tokyo

Photograph by TOM WAGNER--Saba