POINT OF VIEW/ Yoshihisa Kitai: 'Super solar loans' green way to stoke economy

As an economist whose job is to analyze fiscal policies both in and outside the nation, I expected the government to devise a powerful policy package to tame the ongoing economic crisis.

And indeed, the 15-trillion-yen economic stimulus package the government has put together is passable, in terms of scale, if it is combined with countermeasures introduced during fiscal 2008, which ended in March.

In terms of content, however, the stimulus package doesn't measure up to my expectation.

It mostly comprises traditional public investment projects and subsidy programs similar to ones that have been adopted in Europe. It contains few, if any, innovative ideas.

It would have been much better if the government had developed a plan based on new thinking to help open the door to a better future while stoking economic growth in the short term.

For example, why not try a "super solar loan" program aimed at putting the economy back on track while pushing the nation toward a cleaner future by supporting solar power technology through a well-designed financing scheme?

This idea is similar in some ways to the mortgage lending in the United States that eventually triggered the catastrophic global economic downturn.

But there is no such risk. The loans would be paid back by the sun, so to speak. Moreover, the lending program would quickly popularize solar power generation. Let me explain.

Since the terms of mortgage loans provided in the U.S. market were very favorable to borrowers, American consumers rushed to apply for the loans. In principle, housing loans to corporate employees were effectively guaranteed by the government. So applicants for mortgages were seldom turned down.

Since they are non-recourse loans--secured only by the underlying property--the borrowers who become unable to keep making payments on their debts are exempted from outstanding liability if they give up their collateral houses, even though the collateral properties are not of sufficient value to cover the outstanding loan balance.

This type of non-recourse lending could be used to make solar power systems widespread very quickly.

The government should introduce guaranteed non-recourse loans for the purchase of solar power systems. The plan would be in addition to the existing government program to subsidize part of the purchase costs for solar power systems.

The lending plan would provide a strong incentive for consumers and companies to install solar panels on the rooftops of houses and offices.

Of course, as everyone knows, the subprime mortgage market's collapse has left a gargantuan bad debt mess that the U.S. banking industry and government are trying to clean up at a huge cost.

But no such risk exists in the super solar loan program I propose, if the government also requires electric power companies to buy the electricity generated by solar panels.

If borrowers default on their loans, the government only needs to seize the solar power systems and resell them. When the resold units start generating electricity on new roofs, loan payments would resume.

Introducing this program would add no fiscal burden to the government, in principle, if small fees are collected from borrowers to guarantee the loans.

If 1 million residential photovoltaic systems, each priced at about 2 million yen, are installed each year, the nation would generate new demand worth 2 trillion yen annually.

That would translate into 200,000 new jobs, based on the estimate that 1 trillion yen in additional sales in a manufacturing industry creates 100,000 new jobs.

In addition, the plan would provide banks with safe lending opportunities worth tens of trillions of yen over the years. Borrowing under this loan program wouldn't put a big strain on household finances.

All in all, I believe this idea is a ray of sunshine that would offer many economic and social benefits and is worth serious consideration.

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The author is a chief economist at Itochu Corp.(IHT/Asahi: July 2,2009)