Asia Crisis Leads to Japan Reform
Feb. 20, 1998
TOKYO (AP) _ Seven years of economic stagnation couldn't do it. Endless arm-twisting by Uncle Sam couldn't do it either.
But Asia's 7-month-old economic meltdown is forcing what had seemed the impossible: Japan is finally moving to open its markets wider to foreign competitors and get its economic house in order.
``The pressure on Japan ... is immense,'' said Paul Sheard, head of equity investment in Japan for Baring Asset Management. ``A policy shift is taking place.''
On Friday, Prime Minister Ryutaro Hashimoto's ruling party proposed easing government regulations on businesses, some of which were designed to give a lift to the weak economy.
Legislation would allow banks and brokerages to package bad loans and sell them as securities _ a common practice in the United States. It would consider using public funds to purchase those securities to revive the moribund real estate market.
Earlier in the week, Parliament rushed through a 30 trillion yen ($260 billion) bailout for the ailing banking system. That came on the heels of a 2 trillion yen ($16 billion) income tax cut meant to spur consumer spending.
Politicians also have lifted restrictions on sophisticated financial securities, freed pension fund managers to make their own investment choices, and broken the bank monopoly on foreign currency exchange.
Far more sweeping deregulation of the financial system _ dubbed the ``big bang'' after similar measures in Britain a decade ago _ has been promised over the next few years. Under that program, more companies would be allowed to compete head-to-head in the world's second largest market for financial services.
Even the nation's powerful bureaucracies have been shaken. The arrest of two Finance Ministry officials last month suggests a new intolerance of the cozy government-business ties that have long made Japan such a tough market for foreigners to crack.
Many of these changes were unthinkable only a year ago.
Public outrage over a much smaller 685 billion yen ($5.5 billion) bailout of seven savings and loan companies in 1996 was instrumental in forcing the resignation of then-Prime Minister Tomiichi Murayama.
And bureaucrats had always been above the law _ until now.
Japan's newfound reformist zeal comes as international pressure mounts for it to help the rest of Asia. Yet Japan is already doing more for its troubled Asian neighbors than other nations.
It has provided the most international aid to the region: $30 billion. Half has gone to the two most afflicted countries, South Korea and Indonesia. On Wednesday, Japan announced an additional $2.4 billion in loans to Indonesia.
In September, as Western countries were slow to react to the growing financial turmoil in East Asia, Japan suggested an emergency Asian Fund, independent of the International Monetary Fund. Washington shot down the idea, fearing it would undermine the IMF's ability to demand economic reforms in return for its rescue packages.
Japan faces more risk from the East Asian meltdown than other top industrial countries.
While analysts estimate the U.S. economy will likely slow by a half percentage point this year because of the crisis, Japan's already weak economy could be hit much harder. Its Asian neighbors, combined, absorbed 40 percent of its exports before the crisis.
There have been concerns the economic weakness, worsened by the Asian turmoil, could derail market and regulatory reforms. Japan's solution to past downturns has been to raise market barriers and rev up exports.
This time has been different _ so far.
Economists are quick to praise Japan's newfound sense of urgency, though they still fault the pace of reform. Only adopting tough measures and exposing more of its markets to competition _ even as the Asian crisis batters its own economy _ will make the long-sheltered economy more efficient, they contend.
And that, they say, will pave the way to future growth that is the best long-term panacea for East Asia's ills.
``Deregulation will entail some short-term pain,'' said Andrew Shipley, an economist at Schroder Securities. ``But the longer you wait, the more painful it gets.''