As Indonesia tries to forestall a collapse and Hong Kong reels from the failure of a major investment house, Japan is trying to a take a lesson from Asia’s continuing crisis and come clean about some of the risks to its economy.
In a speech before parliament designed to generate momentum for a recovery plan, Prime Minister Ryutaro Hashimoto on Monday made his strongest statements yet about Japan’s problems. He promised to do whatever he can to instill confidence in a severely weakened financial system and turn around an alarmingly lackluster economy.
To underscore the depth of its problems, Hashimoto warned that Japan risks triggering a worldwide financial catastrophe if it can’t pull off the economic recovery plan now under consideration.
“It is my unwavering determination to avoid at all costs a financial and economic panic originating in Japan,” Hashimoto said in a speech to mark the opening of the spring parliamentary session.
The Finance Ministry later announced that the banking system is saddled with about $500 billion in bad or questionable loans, though the majority still may be recoverable. The figure was almost three times the previous official estimate but in line with analysts’ estimates.
The new candor was part of an orchestrated effort to calm markets and send a message that Japan will not allow its problems to spiral out of control.
Japan, the world’s second-largest economy, is not in danger of financial collapse, and it remains with the United States the only country with the financial muscle to help the rest of Asia repair its damage.
But Hashimoto’s warning was another reminder of the near-total reversal of fortune that has struck Asia and an acknowledgment that the problems cannot necessarily be contained within the region.
“It is important for the global economy that the Japanese economy gets back on the path to recovery,” Finance Minister Hiroshi Mitsuzuka said Monday.
Japan, suffering banking problems that essentially are unrelated to the chain-reaction financial collapse throughout Asia, has been slow to come to grips with the possible extent of its economic difficulties. For a long time, the country seemed content to wait out its problems and hope for better times.
This was the same mistake made by governments throughout Asia, where bureaucrats and business leaders never thought the good times of the early 1990s could unravel.
Economists have been warning for some time that Japan’s precarious position could be made worse by the weaknesses throughout Asia because it is the main lender and exporter to the region.
Conversely, other Asian economies will be less likely to rebound if Japan is sick and its major corporations can’t invest abroad.
Hashimoto admitted on Monday that Asia’s problems had become worse than previously believed.
Japan has been struggling for nearly a decade with anemic growth and mounting lending losses. The problems can be traced to overheated investment and borrowing in the late 1980s, leading to a property and stock-market collapse. Many economists say Japan made its problems worse by ignoring them.
