Japan: A leopard loath to change its spots<\/p>\n
The economic crisis in Southeast Asia has left Japan highly
\nexposed at a time when it is mired in a deep recession. William
\nKeegan in London warns that the global economy will suffer if
\nJapan, sticking to what it knows best, tries to export its way
\nout of recession.<\/p>\n
LONDON: The economic crisis in Indonesia and the rest of
\nSoutheast Asia has left Japan highly exposed at a time when it is
\nmired in the biggest recession since the Seventies.<\/p>\n
The subject has dominated discussions among Group of Seven
\nleading industrialized countries' officials, who are worried
\nabout the possible global ramifications.<\/p>\n
Eddie George, governor of the Bank of England, the UK's
\ncentral bank, told the House of Commons Treasury Select Committee
\nlast Thursday that \"the biggest uncertainty for the world economy
\nis Japan\".<\/p>\n
He conceded the world had come close to the financial abyss at
\nthe turn of the year because of the Korean banking crisis,
\nbrought back only by the extension of maturities by Group of
\nSeven banks.<\/p>\n
Continuing concern about Asia was behind the decision to leave
\nU.S. official interest rates unchanged at last week's monthly
\nmeeting of the Federal Reserve's open markets committee.<\/p>\n
The Bank of England governor warned of \"substantial
\ninternational (payments) imbalances\" and \"large external
\ndeficits\" that carry \"all sorts of politically worrying messages
\nfor the global economy\" and raised the specter of a revival of
\nprotectionism.<\/p>\n
With industrial production and consumer spending falling in
\nJapan, the country's imports fell by nearly 14 percent in April.
\nAt the same time, Japan's exports fell by almost 2 percent. The
\nnet result was yet another rise in Japan's politically sensitive
\ntrade surplus -- up more than 50 percent compared with a year
\nago.<\/p>\n
Although Japan has introduced ostensibly reflationary
\npackages, other G7 countries fear the country will take the time-
\nhonored route of trying to export its way out of its troubles.<\/p>\n
In April, Japan's exports to the U.S. rose by more than 7 per
\ncent, and shipments to Europe were up 16 percent. This helped
\noffset the sharp declines in Japan's exports to countries such as
\nKorea, Thailand and Indonesia -- all down by more than 40 percent
\non April 1997.<\/p>\n
Meanwhile the latest data for the U.S. shows a 26 percent
\nincrease, to US$37 billion, in the country's overall trade
\ndeficit between the first quarters of 1997 and 1998. U.S. exports
\nto Pacific Rim economies fell by 15 percent year on year, while
\nimports from Asia rose 11 percent.<\/p>\n
At the recent G7\/8 economic summit in Birmingham, England,
\nmuch was made of the U.S. having approved Japan's latest plans to
\nderegulate and open up its markets. But the reality is that the
\nbilateral trade deficit, on which the Clinton administration has
\nworked since it first came into office, was up by 23 percent (at
\nalmost $6 billion) between January-March 1997 and January-March
\n1998.<\/p>\n
Last week there were official celebrations in Geneva
\ncommemorating 50 successful years of the General Agreement on
\nTariffs and Trade and its successor, the World Trade
\nOrganization. But G7 officials are concerned that Asia poses the
\nbiggest threat to free trade since the oil crises.<\/p>\n
The big international payments imbalances now building up are
\nreminiscent of similar shocks in the Seventies. Now it is not
\nhigher oil bills that are hitting Western industrial countries
\nbut the loss of Southeast Asian export markets, accompanied by a
\nsurge of Asian imports.<\/p>\n
There are increasing concerns that the Asian imports will come
\nnot just from Southeast Asia, but from Japan, as the highly
\nefficient Japanese industrial sector reacts to depressed
\nconditions at home.<\/p>\n
Former analysts at the Organization for Economic Co-operation
\nand Development see increasing parallels with the delayed
\nreactions to the first oil shock of the early Seventies. \"People
\nforget that it was a long time before the oil crisis finally hit
\nthe West,\" said one analyst.<\/p>\n
There is an obvious difference between the Seventies, when the
\nprice of basic industrial and consumer input quintupled, and now.
\nIn fact, as Federal Reserve chairman Alan Greenspan points out,
\nthe Asian crisis, which has sparked intense competition from
\ncheap imports, has a depressing effect on prices, and a
\nbeneficial one on monetary policy -- easing the pressure for
\ninterest rate rises.<\/p>\n
But the competition from cheap imports, and the collapse of
\nAsian markets for G7 exports, threatens to increase trade
\ntensions in the way George has warned. The Asian crisis has also
\ninhibited the Bank of England's monetary policy committee (MPC)
\nfrom raising interest rates recently.<\/p>\n
The hope of the rest of the G7 is that the succession of
\nJapanese fiscal packages will undo the damage done by the 2
\npercentage point hike in consumer taxes there last spring, which
\nstopped the long- delayed Japanese economic recovery in its
\ntracks.<\/p>\n
The collapse of confidence within Japan gives rise to
\nspeculation about whether tax cuts will actually be spent.
\nJapanese government officials point out that, whatever happens to
\ntax cuts, traditional Keynesian public expenditure packages ought
\nto have a multiplier effect throughout the economy, because the
\ngovernment can guarantee that the money will be spent.<\/p>\n
Critics retort that the multiplier is low because of the
\ncollapse of confidence. They also have seen the impact of
\nprevious public expenditure packages disappear into thin air. Dr
\nGerard Lyons, of DKB International, notes that the Japanese
\nsituation is so desperate that some analysts argue in favor of
\nraising interest rates in order to boost savers' confidence and
\nget them to spend more.<\/p>\n
But the growing suspicion among other G7 countries is that the
\nJapanese leopard has not changed his spots, and wants to export
\nits way out of recession.<\/p>\n
-- Observer News Service<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/japan-a-leopard-loath-to-change-its-spots-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }