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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Stitch who wrote (2853)	4/3/1998 10:37:00 AM
From: Worswick	Read Replies (1) \| Respond to of 9980

Good morning Stitch. I guess the sun has set over ther water tankers by now but this was just published in the Economist and it is a useful wrap up as to whre we are. My best, as ever - For Private Use Only (C) The Economist Good morning Chirodoc. For Private Use Only (C) The Economist For decades, Asian countries maintained that in finance, as in other realms, they had discovered a special Asian way. In practice, this meant a complicated system of cross-subsidies through which, in the end, individuals lent (or were forced to lend) to businesses at artificially low rates of interest. Asia touted its extraordinarily high saving rates as the key to fast economic growth. Asian companies fuelled by cheap loans, often extended at government behest, came to look like world-beaters. And when Cassandras warned that reckless lending and unproductive investment were creating speculative bubbles rather than solid economies, their objections were acknowledged as valid but not vital. Almost every country in Asia affirmed its intent to introduce market forces into its financial system-but slowly, so as not to bankrupt borrowers, destabilise lenders, displace workers or otherwise upset the established order of things. The crises of 1997, which began in the foreign-exchange markets and spread quickly through the banking sector, challenged that complacency. Now, at last, financial reform heads the agenda almost everywhere in Asia (see article). Japan this week began its prolonged "Big Bang", which is meant, eventually, to have the allocation of loans and shareholdings driven by market forces rather than personal connections. South Korea and Thailand have opened their financial industries to foreigners in ways that were unimaginable a year ago. China is looking serious about cleaning up its ailing banks and cutting off cheap loans to state-owned companies. Even India, less afflicted by the crisis, has recognised that rigged stockmarkets and insider dealing present serious obstacles to economic growth, and has cracked open the door for hostile takeovers. Given the starting point, these are impressive changes. All of Asia's important economies now recognise that they have a choice. They can participate wholeheartedly in the international financial system, a decision which requires extending to both foreign and domestic investors the protection they have every right to expect-honest corporate accounting, respect for minority investors, the right to open local offices-in return for putting their money at risk. Or they can seek shelter, protecting their financial systems against foreign intruders and accepting slower economic growth as the price. Some countries, particularly Indonesia and, to a lesser extent, Malaysia, still hope to have it both ways. The rest now admit that they cannot. At venues such as this week's annual meeting of Asian and European leaders in London (see article), they are reconfirming their commitment to participate in an open world economy. Halfway there Yet having admitted the urgency of financial reform, many politicians hope to escape with the unpopular job half-done. Japan has freed foreign-exchange trading and is letting foreign fund managers set up shop, but the government is still trying to prop up the stockmarket to make its banks look healthier than they are. South Korea has done much to open its financial sector to foreigners, but almost nothing when it comes to making insolvent financial institutions close their doors. India's new willingness to promote shareholders' interests by allowing hostile takeovers is tempered by its continuing suspicion of foreign investment. Even Thailand's invitation to foreign banks to buy stakes in Thai banks is less than enthusiastic; ten years down the road, any new shares issued by these banks must be offered only to Thais. The reason for such compromises, of course, is politics. Decades of protection have created huge constituencies of bankers and bank employees, company bosses and wheeler-dealers, all of whom are threatened by the introduction of market disciplines into financial affairs. These forces have rallied, arguing that now, with unemployment rising and family incomes falling sharply, is no time to be putting people out of work and firms out of business. There may be no better time. Crisis has created an environment in which Asia's leaders can force the pace of financial reform in ways that would until recently have been unthinkable. They would be foolish to waste the opportunity.

To: Stitch who wrote (2853)	4/3/1998 11:15:00 AM
From: GuinnessGuy	Read Replies (1) \| Respond to of 9980

Stitch, "I don't think this would give you the immediate injection the Japan economy needs. People would just delay purchasing until the full implementation wouldn't they? I know I wouldn't buy a car until the full decline was realized." Boy, I can see my communications skills are declining =-( The main point I was getting at was that the sudden and full cut WITH a declining feature would spur the Japanese people to spend less per item NOW(20% in this example) or wait and pay more later(that's the 2-4% per month absolute decline in the tax, not in the cost of goods). For example, if something cost 100 now, then on the first day of the tax reduction it would cost 80. With a 4% declining absolute tax rate then immediately following the first month the cost of the item would go to 84. The third month, the cost would go to 88, etc. Thus, after five months the item would return to its previous price. Hope that this is more clear... BTW -- Does anyone know what the national sales tax is in Japan? Craig