The government will consider new assistance measures for local governments to restructure or abolish loss-making third-sector companies and local public corporations, according to sources.
The central government designated a five-year period until the end of fiscal 2013 during which local governments were encouraged to fundamentally reform such corporations in a concentrated manner.
But there are still more than 600 incorporated organizations that have liabilities in excess of assets though they have received public financial aid.
Thus the central government judged the situation may cause risks to local governments’ fiscal conditions.
The third sector in Japan refers to companies or other business entities jointly capitalized by the public sector, mainly local governments, and the private sector.
The new assistance measures will be discussed by a panel of experts on third-sector entities of the Internal Affairs and Communications Ministry. The panel will begin discussions Tuesday.
Among about 8,000 third-sector companies and local public corporations set up by prefectural and municipal governments, 1,923 as of May had been given loan guarantees or loss compensation from local governments when they were extended loans from financial institutions.
Of them, 639 entities were confirmed or believed to have liabilities in excess of assets.
Since fiscal 2009, the government has been allowing local governments to issue local government bonds to restructure or abolish third-sector companies and local public corporations.
Currently, however, the number of such local bonds issued is only 168.
The ministry found there are 196 entities that may have a serious negative impact on local governments’ fiscal conditions, if local governments spend money to cover their losses or debts.
Thus the focus is on how to assist local governments that have such third-sector companies or local public corporations.
As an initial measure, the central government will consider allowing local governments to issue the third-sector bonds for an extended period.
But if the period is extended indefinitely, it will be unfair for local governments that have decided to abolish or consolidate third-sector entities in earlier stages.
Thus it is likely the new assistance will be given only to local governments that will have started fundamental reforms by the end of fiscal 2013.
On the other hand, there are 718 third-sector companies and local public corporations that local governments have not decided how to deal with.
Thus it is possible a large number of local governments will be unable to utilize the third-sector bonds by the deadline.
The government plans to demand that local governments with entities in financial difficulty to quickly confirm their future fiscal risks.
The third-sector bonds are special local government bonds only to consolidate or abolish third-sector companies, local public corporations or local government-run companies.
By using the bonds, local governments can repay in installments large amounts of losses incurred along with the consolidation or abolition.
In principle, the central government shoulders 50 percent of interest payments of the bonds.
The third-sector bonds mature in 10 years in principle. But it is possible to extend the period if the amounts are large.