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To: goldsnow who wrote (13831)	6/26/1998 9:30:00 PM
From: robnhood	Read Replies (3) \| Respond to of 116770

goldsnow,, << and analysts say that Tokyo should not count on America for help.>>> What a joke,, We owe them billions... russell

To: goldsnow who wrote (13831)	6/27/1998 3:14:00 PM
From: Alex	Read Replies (5) \| Respond to of 116770

How Japan could sink South Africa By John Spira Economic turmoil in Japan and Asia represented the biggest threat to the world economy in 20 years, British prime minister Tony Blair said at the recent European summit in Cardiff. His words have reverberated around the globe, sounding alarms in world capitals and, most significantly, in Washington. After weeks of proclaiming that the yen was Japan's problem and that it would be allowed to find its own level, Washington abruptly changed course and stepped in to support the sagging currency. The world's seven most powerful economic nations, the G-7, last week called for Japan to take further action to revive its economy and to reform and strengthen its fragile banking system. The G-7 said the support for the yen was an opportunity Japan should not waste. Keen awareness of the magnitude of the problem gives rise to hopes of a solution, but it is feared that Japan's politicians are not taking the reform process seriously enough. Ryutaro Hashimoto, the prime minister, is seen even by senior figures within his own party as weak and ineffective. The next few months will determine whether Japan is heading back into the dark ages. If it is, South Africa will be dragged down too, at least part of the way. The worst-case scenario is frightening, particularly since South Africa, as a small nation with an open economy, has precious little at its disposal to fend off the threatening global tidal-wave of recession. Indeed, some economists are talking of the country having already entered a period of recession. The first ripples are observable in the form of the rand's depreciation against the dollar and the upward-trending interest rate pattern. Azar Jammine, a director of Econometrix, the Johannesburg-based economic research unit, is not optimistic. He points out that the rand-dollar exchange rate, domestic interest rates, short-term economic growth and equity prices depend on whether Japan can resolve its economic crisis and the yen can sustain its newfound strength. If not, Jammine predicts that all emerging markets, including South Africa, are likely to remain out of favour for some time. "In turn, this means that their currencies are likely to remain depressed and interest rates high." Jammine sketches two scenarios, the first of which sees inadequate action by Japan to extricate itself from recession leading to another series of competitive devaluations among developing countries. Such a development could lead to a global economic slump and stockmarket crash because of destabilising massive trade imbalances between East and West. His second scenario sees Japan reviving its economy, generating a "virtuous circle" of currency rallies, lower interest rates and higher economic growth in Asian economies and, ultimately, among all developing countries, including South Africa. "Under the latter scenario the dollar and pound would fall significantly as international investors begin withdrawing their funds from the United States and Britain and revive their interest in emerging markets." Jammine is noncommittal on which of the two scenarios is likely to materialise. Nor is Adam Smith, Nexus Securities' economist, prepared to sketch an upbeat picture. Noting that the Asian region buys about 20 percent of South Africa's exports, which are starting to contract, he says the same threat now applies to South African exports to Africa. He believes that a major adjustment in the value of the rand is in progress, exacerbated by the possibility that capital inflows will, for a time, disappear entirely. That, in turn, "would lead to an even more abrupt fall in the rand, since the country would have to start running surpluses on the current account of the balance of payments". Smith says that the international markets do not tolerate continuing deficits on the current account. "The counterpart to this is the inability of the country to attract large sustained inflows of long-term foreign capital." All Material c copyright Independent Newspapers 1998. inc.co.za