NOT JUST A LOT OF HOT AIR
Japan's "Mr. Yen" is bowing out, but let's not forget his ideas
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IN APRIL 1995, HE engineered the yen's retreat from an export-killing 79 to the dollar back above 100-to-one in six months. That propped up beleaguered Japanese manufacturers and the sliding Japanese economy - and earned Sakakibara Eisuke, the Finance Ministry's vice minister for international affairs, the fearful regard of world currency markets and a nickname to match: "Mr. Yen." For many a trader, the University of Michigan-trained economist could make exchange rates dance to his merest word. He also loomed large in the global marketplace of economic ideas, sparring with big guns in the U.S. Treasury Department and the International Monetary Fund. During the Asian Economic Crisis, in particular, Sakakibara was a rare voice for the region, arguing for an "Asian Monetary Fund," warning against unbridled hedge-fund trading, and taking issue with the analyses and approach to the Crisis coming out of the IMF and the U.S.
So it was with some sense of loss that many in the region got news of Sakakibara's retirement early this month from his high-profile post at Japan's powerful Okura-sho. Several media accounts, however, portrayed the 58-year-old vice minister as part of Japan's failed economic thinking and policymaking, even though he actually had less influence at home. A couple of reports cited his 1990 book Beyond Capitalism, which extolled the Japanese economic model and its stress on production and employment over the consumer spending and return to shareholders emphasized in the U.S. - and widely credited for its impressive 1990s growth. Also being recounted was an exchange at the World Economic Forum in Davos, Switzerland, in January. After Sakakibara predicted recovery in Japan, his former Harvard colleague Lawrence Summers, now the U.S. treasury secretary, said: "Japanese pronouncements at the last eight [Davos] meetings would suggest that it was a good idea to wait and see before declaring victory."
Still, it would be wrong to dismiss all of Sakakibara's ideas outright just because of his forecasting record (which, anyway, is probably no farther off the mark than those of most other economists). Indeed, officials picking and putting together policies should take care not to let their choices be unduly swayed by what happen to be the latest ups or downs of major countries. Proponents of the Anglo-American formula of ruthless restructuring seem to have won the debate these days against Sakakibara and other defenders of Japan-style industrial planning, high savings and lifetime employment. Yet just nine years ago - a blink in the lives of nations - Japan ruled the world economic roost and few of Sakakibara's challengers would have gotten much of an appreciative audience.
Incidentally, the same can be said of the so-called Asian model of development, which many Crisis analysts have now cast as a dumb, if not demonic, strategy. The mood swings of global investors also shape policy these days, often more than the reasoned judgment of cabinet ministers and elected leaders. In certain countries, what the markets want they almost always get, whether or not it is beneficial to the economy, for fear that they will shoot down asset and currency values.
So spare a thought or two for some of Sakakibara's ideas which might have been dismissed out of hand by a world fixated on recent growth figures and market movements. Some, in fact, have won grudging acceptance. For instance, few would now take issue with his - and Mahathir Mohamad's - view that short-term speculative capital flows can inflict grave damage upon economies and markets. Sakakibara was willing to give the Malaysian prime minister's currency controls a chance; many Western critics of the move now concede that it was not an unmitigated disaster. Sakakibara's misgivings about harsh IMF economic programs won some vindication earlier this year when the Fund admitted that it had misgauged the severity of Asia's downturn and had imposed excessively tight monetary and fiscal policies.
One idea of the vice minister's that continues to be resisted, particularly by the IMF and the U.S., is the Asian Monetary Fund. Opponents feared the AMF would offer relief without requiring policy changes. But given that the IMF had misapplied policies designed for Latin America on a very different debacle in Asia, the idea of a fund attuned to the region's conditions is not entirely without merit. Moreover, the AMF can generate pressure for better policies, especially from donor countries. They would want measures in place to forestall crises which would deplete the funds they contributed.
A few reports on Sakakibara's exit wonder whether he is leaving just as his economic predictions may be finally coming true. Along with talking up Japan's recovery, the vice minister had warned of "bubble.com" in the U.S., the market frenzy led by online investors chasing Internet stocks. Writing in Time magazine last week, Merrill Lynch global strategist Trevor Greetham argued that Japan's world-beating first-quarter growth could be the beginning of a sustained recovery, helped by loose monetary and fiscal policies. The U.S. in turn may stall if growth in Asia gave global inflation a kick, triggering interest-rate hikes and ending Wall Street's bull run. Such events wouldn't necessarily prove Sakakibara right, but don't be surprised if, true to form, the world dusted off copies of Beyond Capitalism and proceeded to deify its author.
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