Is Japan responsible for the crisis?
By Edward Neilan
Don't blame Indonesia, blame Japan for irresponsibility in setting precedents for loose lending, corruption patterns. Confidence is the issue in widening Asian financial crisis.
TOKYO (JP): In Japanese Prime Minister Ryutaro Hashimoto's recurring nightmare, he is the captain of the Titanic Maru and it is sinking fast.
The overpowering gushing sounds of the S.S. Indonesia nearby caught in a downward spiral of big waves is deafening. The S.S. Malaysia, helpless in the wake of the foundering Titanic Maru, appears rudderless. The S.S. South Korea has launched its lifeboats.
Hashimoto awakens in a cold sweat to find he is not on the bridge of the Titanic after all, but addressing a plenary session of the Diet on Jan. 12.
"It s our firm resolve that neither a (worldwide) financial crisis nor an economic crisis originating in Japan will be triggered.
"The government will stabilize the nation's financial system, which constitutes the artery of the economy, and restore public confidence in economic prospects," he said.
Soon after Hashimoto gave his speech Monday, the Ministry of Finance said that Japanese financial institutions are holding 76.7 trillion yen (US$580 billion) in bad or questionable loans, more than three times the bad debt figure they had previously reported.
The new total---equivalent to about 16 percent of Japan's gross domestic product (GDP)--is based on more accurate reporting guidelines set by the ministry.
It provides the most clear and most devastating picture yet of the problem loans that have piled up with the collapse of the real estate market in the1990s and the constant parade of financial and corporate scandals.
More crooked money has changed hands in Japan in this decade than in any other country in history. Does anyone dispute that? Japan's bad example has infected Asia.
The US$580 billion in bad loans is more than the GDP of South Korea, more than the combined GDPs of Hong Kong and Singapore, double the GDP of Indonesia, and twice the GDP of Taiwan. It is also larger than the operating budget of the IMF.
When you realize that Japan is the world's largest holder of foreign exchange reserves at about US$220 billion, you get an idea of the key role Japan plays in the Asian economic scene.
Hashimoto even hinted that Japan might have to cash in some of its United States Treasury bills. You'd better believe that U.S. President Bill Clinton was on the phone in a hurry requesting firmly that Hashimoto watch his mouth.
Poor President Soeharto of Indonesia. He is getting beat upon by so-called experts ranging from Financial Times editorial writers to U.S. Deputy Treasury Secretary Lawrence Summers to gurus from the International Monetary Fund.
Does anyone really believe that Indonesia, led by the distinguished Soeharto, is singlehandedly responsible for the crisis that is sweeping Asia and being felt in every treasury in the world?
The man who should get the blame, as representative of the nation with the largest irresponsible economy over the past 10 years, is Captain Hashimoto, standing there on the bridge of the Titanic Maru in his orange-colored L.L. Bean life jacket, proposing yet another tax cut, as the water rises.
What we have is a crisis of confidence and the only party to lead the region out of the crisis of confidence is the nation that did the most to create the scenario---Japan.
If Japan---the largest foreign investor and the largest foreign lender (with strings attached) in Asia-- will get its act together, confidence will begin to be restored throughout the region.
Just about everyone knows what needs to be done. Dust off a copy of the Maekawa Report of the mid-1980s and you can read about the market-opening and financial deregulation necessary by Japan to avert just what has happened.
The outlook is strong for three occurrences in the wake of crisis:
1. Japan will use the current crisis to slow its big bang and other financial and political reforms.
Foot-dragging has become as much a Japanese national sport as judo and sumo.
2. In times of crisis, the Japanese public hypnotized by an establishment media, will give the LDP a majority in the next Upper House election, returning the nation to one-party political rule. The LDP already has regained a majority in the lower house.
3. A tremendous backlash against "globalization" will sweep Asian nations, which will see it as a means of perpetuating foreign influence, led by "debt-collector" IMF.