U.S. and Japanese Officials Split on Seriousness of Economic Crisis
[Japan still doesn't get it...]
nytimes.com
September 6, 1998
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Join a Discussion on The Financial Crisis in Asia
By DAVID E. SANGER
AN FRANCISCO -- The economic policy leaders of the
world's two largest economies, the United States and Japan,
spent hours here Friday night talking about the heightened risk of
global recession and a further spread of the turmoil that has engulfed
Asia, Russia and now Latin America. But they left Saturday morning
with no new plans, and an uneasy sense that Japan and the United
States remain on different wavelengths about how quickly countries
must act.
The discussion over dinner on Nob Hill included Treasury Secretary
Robert Rubin, Federal Reserve Chairman Alan Greenspan, and Kiichi
Miyazawa, the former prime minister who reluctantly agreed to take
the job of finance minister last month during Japan's deepest recession
since the end of World War II.
At the dinner's end, American officials said they feared that Japan's
leaders still did not accept the premise that Japan's huge banking crisis
and its moribund economy were a major cause of the turmoil that
included a stomach-churning dive on Wall Street last week, huge
market drops and instability in Latin America and deepening chaos in
Russia.
The astounding descent of the ruble, which has dropped 63 percent
since Aug. 17 and has already begun to create food shortages and
tremendous inflation, led the British government on Saturday to
announce that a meeting of deputy finance ministers from the world's
largest economic powers, the Group of 7, was planned in London,
probably this week, to map out a new Russia strategy.
But in a sign of the growing split between Tokyo and Washington,
Japanese officials bristled at the mounting American pressure and
suggested that they were being made scapegoats for problems that
are unrelated to Tokyo's seven years of economic mismanagement.
"How can Japan's recession be responsible for an economic malaise
in Latin America or Russia?" asked a senior Japanese official, who
insisted on anonymity. "Japan has been overly criticized. My concern
is that if anything happens to the U.S. economy, everyone will point to
Japan and say it is responsible." [Unbelievable...]
The meeting took place as Rubin and Greenspan, who in ordinary
times often outdo each other at understatement, issued warnings that
the world economy is in a particularly fragile state.
Only hours before the dinner, Greenspan, in a speech at the
University of California at Berkeley, cautioned that "it is just not
credible that the United States can remain an oasis of prosperity
unaffected by a world that is experiencing greatly increased stress."
He appeared to open the door to the possibility that the Federal
Reserve might consider a cut in interest rates if more evidence arose
that downturns on three continents were beginning to stall the
American economy.
Rubin, in a conversation as he flew from Washington to his meeting
here, said that "these are clearly extremely difficult times in the world
economy and world financial markets."
"This is an unprecedented situation in a host of respects," said the
treasury secretary, who experienced several major market drops in
his 26 years on Wall Street as a trader and then co-chairman of
Goldman, Sachs, the investment banking firm. "The number of
countries experiencing difficulties at once is something we have not
seen before."
The speed at which hundreds of billions of dollars that flowed into
emerging economies in the 1990s have flowed out was also
unprecedented. The inflow occurred, Rubin said, because "investors
got progressively less rigorous about risk."
Now they see risk everywhere, Rubin and other treasury officials
note, and they rarely discriminate between countries with deep
problems and countries that are simply fighting off economic
contagion. A global credit crunch has resulted, with countries that
lived off of huge flows of international investment now unable to
obtain it at any price.
"We are in a situation which is indeed a dangerous one, by far not
fully rational," said Michel Camdessus, the managing director of the
embattled International Monetary Fund, which has been charged by
its many critics with exacerbating the crisis it stepped in to abate.
Camdessus, speaking in Washington at the conclusion of a meeting of
Latin American finance ministers who had come to plead for relief,
said: "The degree of panic going on -- this is, indeed, clearly exacting
an excessive and unfair pressure on a large number of countries."
For Camdessus, that is a significant change of tone. In January, he
signed an agreement in Indonesia with President Suharto that he
declared would restore confidence -- only to see the country dissolve
into violence, economic chaos and political upheaval that forced
Suharto's resignation. Early this summer Camdessus declared that
there was no crisis in Russia, and a huge one erupted within weeks.
"A few months ago people were talking about seeing the light at the
end of the tunnel," said Jeffrey Garten, the dean of the Yale School of
Management, a former top official in the Commerce Department.
"Now the only hope is keeping the world economy from total
deterioration. And you get a sense that this is all now truly left to
Adam Smith's invisible hand -- it's beyond any country's ability, any
institution's ability, to control." [Need for global economic authority.]
For their part, Rubin and Greenspan, speaking frequently by phone
and at their weekly breakfast meetings in Washington, are choosing
their words with extraordinary care. Neither, for example, has used
the phrase "global recession" in public. They fear that the phrase alone
might cause more selloffs and make continued turmoil a self-fulfilling
prophecy.
But Miyazawa, speaking in Japanese at a news conference here
Friday evening, used a close equivalent to the term. And at one point
he broke into English to discuss how the failure of a major Japanese
bank, the Long Term Credit Bank of Japan, "might result in systemic
risk for the United States and for Japan."
"Systemic risk" is the phrase used by monetary authorities to describe
how the failure of an institution or a severe market drop in one
economy can course through the global economy, setting off events
elsewhere.
For Miyazawa, 78, the return to San Francisco to plead for "more
patience" to deal with Japan's problems had odd historical echoes. In
1951, as a young, English-speaking bureaucrat, Miyazawa was a
central behind-the-scenes player in the negotiation of the peace treaty
between Japan and the United States -- signed here -- that ended the
American occupation of his country and set it on the path to become
an economic superpower. In the ensuing half-century, Japan has often
turned to Miyazawa, whose contacts in Washington run deep, to deal
with what the Japanese call "gaiatsu," or foreign pressure. He grew up
in the Japanese finance ministry, and assured his dinner partners
Friday night -- in the presence of the ministry's officials -- that he
could deal with bureaucratic resistance to reform of Japan's economic
system.
But he was less sanguine about his ability to get Japan's Parliament to
act quickly on financial rescue legislation. The key dispute is whether
to allow a huge infusion of taxpayer money to the banking system to
rid it of bad loans.
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