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Recovering from the Great East Japan Earthquake | Koji Toyokuni, Director-General Tohoku Bureau of Economy, Trade and Industry Ministry of Economy, Trade and Industry [Date of Issue: 31/October/2011 No.0200-0814]

Date of Issue: 31/October/2011

Recovering from the Great East Japan Earthquake

Koji Toyokuni
Tohoku Bureau of Economy, Trade and Industry
Ministry of Economy, Trade and Industry

Recovery from the Great East Japan Earthquake has begun. Industrial production, which was virtually halved immediately after the disaster, has returned to almost 80 percent as factories have reopened. However, severe tsunami damage has meant a slower recovery along the coast and intensive efforts continue, backed by robust government support measures.

The March 11 earthquake and tsunami caused enormous damage in the Tohoku region. The loss of close to 20,000 people dead or missing is an indescribable tragedy, but above and beyond such figures, I cannot forget the scenes of absolute destruction which greeted me in the tsunami-hit areas I visited immediately in the wake of the event. The sites of people’s daily lives—homes, workplaces, and even schools and hospitals—all these had been demolished without a trace by the massive tsunami. Everything which our predecessors worked so hard to build up in the Tohoku region was destroyed in an instant, and I was seized by the thought that perhaps we would never be able to get it back.

Subsequently, the people of Tohoku launched an intensive recovery effort. The industrial production index for the six northeastern prefectures provides a picture of status of Tohoku economy in the months following the disaster. In March, the index plunged to 64.6, which given that plants were operating normally right up to 11 March, suggests that the disaster almost halved production. However, a steady recovery trend kicked in almost immediately, with the index rising to 71.7 in April and 81.5 in May. In July, it had returned to around 85. The Tohoku Bureau of Economy, Trade and Industry’s investigation into the status of factory restarts too indicates that plants began moving back into operation starting around April in those areas more lightly impacted, while the auto industry, which was affected by supply chain breakdowns, got underway again somewhat later. By fall even more companies are expected to resume production. The strength and speed of private firms’ recovery have been truly astonishing.

Trends in the Industrial Production Index (seasonally adjusted) For the remaining 10 percent of companies, however, it will take more time before they are back on their feet. Many of these are located on the coast and suffered major damage such as the total destruction of their plants. The Tohoku region’s Pacific coast is home to the key plants of major companies in industries such as paper-making, cement and oil refining, as well as to many small and medium enterprises (SMEs). Fishing and ship-building industries have been located there to take advantage of the proximity of the sea, while the auto- and electronics-related parts industries are also strongly in evidence. All are important firms in terms of underpinning the local economy, and restoring and developing these will be critical to the recovery and renewal of the region. In those areas hit by the tsunami, debris is still piled up in temporary dump sites, but people who have lost their stores are beginning to establish temporary premises and open their doors for business again, while factory owners whose premises have been wiped out are looking for factory space and getting back into operation.

The major task for the Tohoku Bureau of Economy, Trade and Industry at the moment is to use the government’s disaster budget to move steadily forward with restoring SMEs and addressing issues such as ‘double loans’. Policy needs have changed over time as the region works toward recovery. Immediately after the disaster, the critical issue was finding capital, and we had a hectic time dealing with financing queries and providing stop-gap funds. Because March falls at the end of the financial year, there was concern that capital procurement difficulties would result in bankruptcy and unemployment, but the flexibility with which financial institutions responded to delays in repayment saw companies through that initial problem. In May, the government’s first supplementary budget went through, including disaster loans from government-related financial institutions (some interest-free) and expansion of unsecured loans as part of the disaster-related loan guarantee program, representing a comprehensive package of financial measures.

With the initial fund procurement issue dealt with, the next stage as summer passes autumn has been to work toward corporate recovery. At this point, even those companies whose factories had been entirely destroyed by the tsunami are beginning to look concretely at how they might resume operations. The major issue is the provision of funds for factory rebuilding. Restarting operations is no easy task for those SMEs that lost their factories in the disaster. Listening to stories from stricken firms, many had borrowed money from banks before the disaster to build factories and equipment that were destroyed in the space of a single night, leaving them only with their debts. To rebuild their plants, they need to borrow more money, but in many cases banks apparently aren’t interested because such loans would exceed firms’ repayment capacity. With the earthquake and tsunami causing such wide-ranging damage, firms throughout the region are suffering the same predicament, and if nothing is done, the risk is that the local economy as a whole will be unable to recover.

Given this situation, the government recently made a bold decision that breaks with past practice. At the time of the Great Hanshin-Awaji Earthquake, low-interest loans were provided but subsidies were not applied on the grounds that private enterprises’ capital investment is essentially the business of the private sector. However, because of the magnitude of the Tohoku disaster, the government has decided to provide subsidies to support the recovery efforts of small and medium enterprises (SMEs), which will contribute to the recovery of the regional economy as a whole. The Organization for Small and Medium Enterprises and Regional Innovation, Japan (SME Support, Japan) has also launched a system for working with towns and villages in the affected areas to put up temporary factory facilities and shop buildings which can be leased free of charge. Using these systems, some SMEs have already managed to start work toward the resumption of business. Factory construction has begun in places where the tsunami swept everything away and people are finally returning to work. These clear moves toward recovery are obviously a major encouragement to people affected by the disaster.

There are some companies that suffered major damage which are also saddled with a heavy debt repayment burden from before the disaster, preventing them from acquiring funds even through the above support measures—the so-called ‘double-loan’ issue. The government plans to get these firms back on their feet through the debt purchasing agency outlined in the second supplementary budget.

The scale and content of the supplementary budgets were subject to considerable discussion in the Diet, but thanks to the efforts of those involved, mechanisms have been developed that will serve as a generally sufficient framework for recovery from the disaster. The challenge ahead will be whether these policies can be operated appropriately to produce results on the ground. The Tohoku Bureau of Economy, Trade and Industry looks forward to working with local companies and government authorities to apply policy with a focus on conditions in the affected areas to realize a return from the disaster. We hope for your understanding and support in that endeavor.

(original article : Japanese)
(For the Japanese version of this article)

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