Governments Must Resolve Confidence Crisis: Former Minister Takenaka

Friday, May 22, 2009

TOKYO (Nikkei)--Governments must resolve the confidence crisis in order for economies to recover from the ongoing turmoil, said Heizo Takenaka, senior advisor to the Japan Center for Economic Research, here on Friday at the annual Future of Asia forum.

Takenaka, former minister for financial services, said that confidence will only be restored if governments dispose of nonperforming loans and stabilize the financial system, as well as counter the negative wealth effect by targeting aggregate demand.

He argued that the economic crisis was not triggered by the collapse of Lehman Brothers, but rather by the U.S. House of Representatives rejecting the use of public funds to buy bad assets from banks, a move that caused the public to lose confidence.

Takenaka noted that emergency measures and policies to resolve underlying economic issues are fundamentally different, and that countries that address the fundamental issues have proven more successful in the medium and long run.

Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.