With his country hammered by repeated economic blows driving it toward recession, Japanese Prime Minister Ryutaro Hashimoto ducked any discussion on Friday of what his government would do to deal with the mounting crisis.
Hashimoto addressed the second Asia-Europe summit meeting in London as Japan’s investment rating dropped, bank failures appeared likely and the head of Sony, Norio Ohga, said the Japanese economy was “on the verge of collapsing.”
In Washington, President Clinton took the Japanese bureaucracy to task for being slow to come up with ways out of the economic malaise that is overhanging the country and, in the view of some experts, hampering economic recovery throughout Asia.
For several months Japan has been under heavy criticism from economists for its failure to take measures to stimulate consumer spending and stave off recession. But Hashimoto gave no hint of any change of course in his government’s conservative economic policy.
He confidently predicted “the worst has come” in the Asian economic crisis and Asia will return to growth.
“With this objective in mind, Japan will take the necessary economic measures and . . . provide assistance to the countries of Asia,” he said.
“There is absolutely no doubt that Asia will again become one of the pillars supporting the growth of the global economy,” Hashimoto said.
Moody’s Investors Service earlier in the day lowered its outlook on Japan’s sovereign debt rating to “negative” from “stable.” The dollar surged to 135.10 yen.
Japan’s financial health is crucial, not only because it is a market for American goods but because it is the linchpin of the Asian economy. Unless it is an active investor in troubled countries such as South Korea, Thailand and Indonesia–as well as a buyer of their products–the ongoing currency crisis in those countries may well be difficult to solve.
But the Japanese government has done little to inspire confidence, either externally or within the country.
A poll of corporate leaders released this week showed deep pessimism about the future. The poll said corporations expected lower profits and would cut investments in big projects to protect themselves.
Japan’s ruling Liberal Democratic Party put forth the latest in a string of economic stimulus proposals this week. This one struck some as impressive at first, but, as critics pointed out, lacked details and firm commitments. The party said it would spend $120 billion to get things moving, but no one seemed clear on where the money would go or what role, if any, would be played by tax cuts.
Japan’s problems are economic and political. The country has been suffering from a decadelong hangover since the collapse of stock and real estate prices after their heady days in the 1980s. Rather than quickly addressing major losses in the banking sector, the government waited for good times to return. Instead, however, losses mounted and financial companies eventually found themselves swimming in red ink.
Politically, Japan does not have a tradition of powerful, personality-driven leadership, and its big decisions tend to get made through consensus over time. The government has offered several economic stimulus packages in the past months but none has had the depth or focus to either quickly jump-start the economy or placate international markets.
Clinton focused on Japan’s indecisiveness during brief comments in the White House Rose Garden on Friday, his first day back in Washington after his Africa trip.
Offering a pointed political analysis that struck some as unusually frank, Clinton said there is “a raging battle” in Japan between government and business interests about what to do.
“The prime minister keeps moving forward in ways that . . . the market seems to believe are insufficient,” Clinton said. “We have obviously urged aggressive action because we want the Japanese economy to grow. We think the Japanese economy is the key to stability and growth in Asia and we have always wanted a strong, healthy Japanese partner.”
Clinton continued, “There is an ongoing struggle between . . . what is now the articulated view not only of the United States and others, but of the business community in Japan, about the direction that country should take and the entrenched resistance to that in the permanent government bureaucracy.
“They have to make a break now,” he said. “You simply can’t stay with a strategy that is clearly not appropriate to the times and expect it to get the results that are needed.”
The prevailing view from European leaders at the Asia-Europe summit was, publicly at least, somewhat less pessimistic. A European Union presidency spokesman said European leaders did not think the Japanese economy was about to collapse and believed the country has the ability to resolve its problems.
But while Japan offered no signs of change, neither did Europe in response to complaints from Asia that Europe has not done enough to help overcome the current economic crisis.
Foreign ministers at the summit adopted a statement agreeing it was important to reinforce the role of the International Monetary Fund in dealing with the crisis, but offering no additional European money.
The statement, which went to heads of government for consideration, expressed a resolve to resist any protectionist measures and to pursue further multilateral liberalization of trade.
British Prime Minister Tony Blair said the summit would launch a Trust Fund under World Bank auspices to provide technical support for financial restructuring and to look at ways of mobilizing European expertise in structural reform in Asia.
The 15 nations of the European Union sell more than $200 billion worth of goods to Asia each year, more than the U.S. does, and in 1996 bought $238 billion worth.
“We in Europe cannot afford to turn our backs” on Asia, Blair said.
Thai Prime Minister Chuan Leekpai said the summit would adopt plans to encourage greater trade and investment flows between Europe and Asia. He said there are still many difficult problems to overcome in the Asian crisis. He urged developing countries not to use the crisis as an excuse to close their economies, saying free trade and market liberalization are the keys to growth.
European Commission President Jacques Santer endorsed that view. European Commissioner Leon Brittan said Asia’s crisis would affect Europe’s growth but the impact “should be manageable.”
