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MONDAY JUNE 22 1998ÿÿAsia-Pacificÿ
ASIAN CRISIS: Lack of surveillance seen as root cause
By Peter Montagnon in Tokyo
Ask most economists what was the cause of the Asian economic crisis and the chances are that a failure of regional economic surveillance will loom large among the answers.
Asian countries were simply too shy of interfering in each other's affairs to express openly worries about the flawed policies of their neighbours, so the early warnings of what was in store were not loud enough.
The meeting in Tokyo at the weekend of leading officials from Asia and the industrial world broke some of that reserve. It is thus a first real test of the new, improved style of surveillance promised by governments as part of the solution to the Asian problem, says Takatoshi Ito, economics professor at Hitotsubashi University.
Whether the test proves successful depends on how Japan reacts to the pressure for economic and banking measures which dominated the meeting, but at least the statement that followed is public declaration of what Larry Summers, deputy US Treasury secretary, called "a very strong consensus" over what needs to be done.
That is true not only of the agreement about the urgency of Japanese reform but also about the importance of currency stability in China and of Indonesia reaching an early agreement with the International Monetary Fund. Both issues were flagged in the statement.
After the recent upset, meeting provided an opportunity for China to reaffirm currency policy. "The Chinese government is firm on its commitment to maintain the value of its currency," said Jin Liqun, assistant finance minister.
Even if the yen weakens again, some hope China would refrain from publicly raising fears for the knock-on effect on its own currency. China's actions seem to have been tactical, directed at drawing attention to the problem of Japan rather than born out of any immediate sense of desperation, said one participant.
As to Indonesia, Japanese officials who signed a $1bn trade finance facility in Jakarta last week said its talks with the IMF were on track. There is a feeling the IMF should be willing to help a country in such difficulty, even if doubts remain over the ability of President B. J. Habibie to deliver reform, delegates said.
But the biggest doubts remain over Japan's willingness to deliver its part of the bargain. Failure on its part would clearly aggravate the regional crisis, economists say. Not only would a weaker yen further undermine the exports of other countries in the region. The withdrawal of Japanese banks from the international loan market is also aggravating the serious credit squeeze across Asia.
Even if Japan were to act quickly on bank restructuring, the credit squeeze might last a while, Mr Ito said, though the general effect on market confidence could make a big difference. As the currencies of other Asian countries rose in response, that would also take some of the heat off China and in turn help it to live up to its pledge of currency stability.
But if Japan fails to act, then the international community has now made it perfectly clear where the blame for a worsening regional crisis will lie.
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MONDAY JUNE 22 1998ÿÿAsia-Pacificÿ
Japan warns of delay on economy
By Gillian Tett and Peter Montagnon in Tokyo
Japan's finance minister yesterday warned that the ruling Liberal Democratic party was unlikely to take firm action to clean up the country's ailing banking system until "the middle of next month".
The delay is likely to disappoint financial markets, which had been looking for rapid and concrete action to restore Japan's flagging economy after emergency talks in Tokyo at the weekend between the Group of Seven industrialised countries and Asian nations.
Speaking after the Saturday meeting, Lawrence Summers, US deputy treasury secretary, said last week's intervention by the US and Japanese central banks to support the yen had created a chance for Japan to tackle the bad loans plaguing its banking sector and to revive its economy.
"What is going to be very important going forward is the steps that Japan takes to take advantage of this window of opportunity, and the credibility that is established by its actions," he said.
Japan's determination to bolster the economy will be tested tomorrow when a panel of LDP politicians is expected to produce further recommendations on how to tackle the banking sector's problems. But Hikaru Matsunaga, the finance minister, indicated in a television interview that concrete action might have to wait until after the crucial July 12 upper house elections.
The LDP panel, set up last month by Prime Minister Ryutaro Hashimoto, is expected to recommend changes to the tax and property laws to help banks deal with the bad loan problem, and may also recommend the provision of more public money for banks that follow this route.
"The markets are going to look for substance," said Robert Feldman, economist with Morgan Stanley. Chris Tinker, of ING Barings in Hong Kong, said foreign exchange markets would remain cautious today, initially out of fear of further intervention.
In the stock market, concern remains high as troubles mount for Long Term Credit Bank, whose subordinated debt was downgraded by Moody's last week.
LTCB's share price has plunged recently and the bank said this weekend it could look for a merger partner as one option for resolving its problems.
Mr Matsunaga has promised government support for the interbank money market as well as for depositors, and the Bank of Japan has already indicated that it will provide any liquidity needed to stave off systemic risk resulting from increased pressure on the banking sector.
Sir Nigel Wicks, permanent secretary at the UK Treasury, said: "What is needed to restore market confidence is a timetable (for dealing with bad loans)."
Over the weekend the European delegation met Japanese leaders and sought to persuade them to provide a clear explanation for the role of the Financial Supervision Agency which comes into existence today, a concrete timetable for tackling the loan problem, and the introduction of consolidated accounting for banks by fiscal 1999.
The talks produced no firm commitments, although Eisuke Sakakibara, vice-minister of finance for international affairs, said Japan was "very serious about structural reform, particularly banking reform".
Editorials in Japanese newspapers have been calling on Japan to live up to its pledge to act.>>>> |
