Hashimoto eying ASEM gains

Hashimoto eying ASEM gains

By Linda Sieg

TOKYO (Reuters): The promise of a record big stimulus package and some diplomatic goodwill from his visit to Indonesia could smooth the way for Japan Prime Minister Ryutaro Hashimoto at an Asian-European summit this week.

But Europeans are likely to urge swift and effective implementation of Japan's 16 trillion yen ($123 billion) package aimed at bailing out its own economy, while Asian leaders will want to know whether Japan's planned steps will really help the region recover, analysts and diplomats say.

Hashimoto will join leaders from nine other Asian nations, the 15 European Union members and European Commission President Jaques Santer in London on Friday and Saturday for the second Asia-Europe meeting (ASEM).

The summit, the second of its kind, will be dominated by the financial crisis that has swept Asia since last year and comes at a time when Japan is under heavy pressure to boost its growth to help its neighbors out of their economic mire.

"The big number provides plenty of political coverage and if they question it, they'd be calling him a liar," said John Neuffer, political analyst at Mitsui Marine Research Institute. "You can say it's cynical politics, but it's pretty shrewd."

Hashimoto's Liberal Democratic Party (LDP) outlined the 16 trillion yen stimulus package last Thursday but left out most of the relevant details -- including whether a temporary two trillion yen income tax cut would be extended or expanded.

How far the LDP will get in spelling out the package contents before Hashimoto departs on Thursday is unclear.

"It totally depends on how discussions proceed between the ruling party and the government itself. But if you look at the parliamentary schedule, I don't think by the time of the ASEM meeting that the prime minister could clarify his position more than he did recently," a Foreign Ministry official said.

But hints about what might be included already abound.

Former prime minister Kiichi Miyazawa said on Sunday that it would probably include four to five trillion yen in fresh spending and added that he thought three trillion yen in tax cuts would be about right.

Washington has been vocal in urging Japan to include permanent personal income tax cuts, but European leaders may agree but be more cautious in offering explicit advice.

"It's actually quite difficult to 'teach your grandmother to suck eggs' and tell him his economic advisers have got it wrong," one diplomatic source said. "You can't have that sort of debate at the prime ministerial level."

Hashimoto's European peers may also warn against throwing fiscal reform goals completely out of the window, some analysts said.

The prime minister is expected eventually to reconvene his fiscal reform panel with an eye to postponing a legally mandated goal to end deficit financing by March 31, 2004.

"European countries said at the last G-7 (Group of Seven) meeting that Japan should not just bow to American pressure because it does have a debt-to-GDP (gross domestic product) ratio that is worrying," one economist said.

Hashimoto's visit to Indonesia earlier this month, during which he urged President Soeharto to carry out reforms sought by the International Monetary Fund but in a gentler tone than some of Indonesia's other critics, could stand him in good stead in London. "I think he gets quite a bit of goodwill for that," the diplomatic source said.

Japan applauds a British initiative to set up a new ASEM Trust Fund at the World Bank, but does not plan to contribute itself, the Foreign Ministry official said, noting that Tokyo has provided some $40 billion worth of aid to Asia since the crisis erupted.

"We will certainly welcome the British initiative, but we are also facing a very serious problem of budget reform so we couldn't extend a direct contribution to the ASEM Fund," the official said.

Asian leaders, meanwhile, are likely to want to hear more about Japanese plans to increase imports from the region to help put the battered region back on a growth path.

Japanese imports from the region fell more than 17 percent in February, the most recent month for which data was available. Economists said the LDP package, to be fleshed out sometime in April, might not do much to help any time soon.

"Where do you have excess capacity in Asia? In cars, in machinery and machine tools. These excess inventories are not going to find their way into Japanese factories and Japanese homes," the European economist said.