Is Japan responsible for the crisis?

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.