Since the beginning of the global economic downturn, almost every nation has provided financial aid to their domestic industries, except Japan, who till now wasn’t affected severely by the economic recession. However, in a surprising move, the Japanese government has declared a $1.7 billion bail out package for its largest chip manufacturer, Elpida Memory. The bail out package consists of both public and private money.

Elpida Memory is the sole manufacturer of dynamic random access memory chips, or DRAM in Japan and is considered to be extremely vital to Japanese economy, specifically the electronics industry, which Japan is famous for. Elpida Memory currently has over 6,000 employees, who would be greatly benefited by the announced economic aid package. The chip maker had announced record losses in the year 2007, due to the diminishing demand for semi-conductors.

However, according to experts, the bailout packages announced by Japan for its industries, could in turn create problems for the nation’s economy, if it continues to support the weaker companies, Japan has already announced 2 trillion Yen or about $21 billion in public money to provide relief to the companies that have been hit by the economic downturn.

According to Shinichi Ichikawa (chief equity strategist, Credit Suisse),

“It’s a fine balance. Japan has decided it must save Elpida for the sake of Japanese industry, but going ‘too far’ means keeping zombie companies alive.”

With the global recession, Japan has been struck hard and it is estimated the economic crisis in the country is equivalent to the problems it faced in World War II. In a recent, the government announced that, the unemployment rate in Japan has risen to 5.2%, that is the highest rate witnessed in the last six years.

Elpida Memory’s is considered to be the backbone of the Japanese economy and if it shuts down, the domestic manufacturers of PCs would then have to rely on rival foreign companies such as Samsung Electronics of South Korea. This would severely hamper the import/export ratio and would lead to an even worsened national economy.

In a statement, Japan’s trade minister Toshihiro Nikai said,

“Elpida is Japan’s only DRAM maker, and it has been hit by extremely severe conditions amid the global economic slump, despite its superior technology. Securing a supply of DRAM is very important for Japan’s industry and livelihood.”

Via New York Times.