August 29, 1998 Much Talk About Russia, but the Numbers Shout Japan By NICHOLAS D. KRISTOF and SHERYL WuDUNN TOKYO -- One statistic on Friday evening stands out as an explanation of the importance of Japan, along with its misery: When trading ended Friday at the Tokyo Stock Exchange, Japanese stocks this week alone had dropped in value by $241 billion -- a sum that exceeds the size of the entire annual output of the Russian economy at present exchange rates. In other words, in one glum week's work, Japan managed the financial equivalent of erasing Russia from the world map for a year. Japan is so monumental as to be central to the health of the global economy, but for now it remains a mess. A month after Prime Minister Keizo Obuchi took office, vowing "to deal with each issue in a dramatic, speedy way," Japan remains firmly in recession and largely paralyzed politically and economically. The stock market fell 3.5 percent Friday to its lowest level since 1986, while long-term bond yields tumbled to 1.07 percent. They are the lowest long-term interest rates in recorded history, having recently fallen below the previous record low rate of 1.125 percent offered by the Italian city-state of Genoa in 1619. The markets are tumbling because for all Obuchi's pledges, Japan is in even greater political gridlock than usual. Obuchi's ruling Liberal Democratic Party has never been described as energetic, except by itself, but these days even its modest plans to revive the banking system are being blocked by opposition parties in the Diet, or Parliament. The upshot is that the six bills that represent the centerpiece of Obuchi's plans to revive the economy remain stuck in numbing Diet hearings. Officials acknowledge that it will be difficult to win passage of the bills by the time Obuchi meets President Clinton for a mini-summit meeting in New York planned for around Sept. 21, and the delays and stalemate are further dispiriting the markets here and around the world. In short, expectations of Obuchi were low, and he has met them. "In the long term, the Japanese situation is in some ways even worse than the Russian situation, particularly given the size of the Japanese economy and the seeming inability to take really serious action," said M.Y. Yoshino, a Harvard Business School professor who is an expert on Japan and is now visiting Tokyo. Yoshino noted that for all the vast scale of the bad bank debts in Japan -- perhaps five times the size of the entire Russian market before its collapse -- there is little move toward dramatic restructuring to restore sustained economic growth. A banking analyst at ING Barings Securities Japan Ltd. in Tokyo, James Fiorillo, penned a bit of verse that captures the mood here. It begins: "'Twas the night before crisis And behind the Diet border Not a creature was stirring, To restore financial order." Obuchi and his aides have been defending their conduct, but the defenses have only added to the impression that the government does not have the same sense of urgency as the rest of the world. On Friday, for example, Obuchi was scolded in Parliament by a prominent economist, Yoshio Suzuki, who accused the government of adopting economic measures that were -- he switched to English -- "too little, too late." Obuchi, who by all accounts is an exceptionally friendly and genial man, grinned and replied that if anything, his efforts had been -- here he switched to English -- "too much, too fast." Finance Minister Kiichi Miyazawa told reporters after stocks tumbled Friday: "This isn't something to panic about. With the passage of time, the market will stabilize again." Perhaps Miyazawa and Obuchi are trying to reassure the public, but to some it comes across as complacency. Officials have been reassuring ever since Japan's "bubble economy" burst in about 1991, and yet declining asset values have steadily erased more than $5 trillion in wealth, equivalent to wiping out half the entire value of all the stocks on the New York Stock Exchange. "Right now, this is the worst scenario," warned Masaru Takagi, an economist at Meiji University, referring to the plodding approach by the government and the stalemate in Parliament. Takagi estimated that there is a 50 percent chance the Obuchi government will collapse and be forced to call fresh elections, delaying any further moves to revive Japan's economy. "There is no time to waste, so we must avoid a general election this year," he said. Opposition parties, however, seeing blood in the water, are circling eagerly and insisting that this is just the time for general elections to break the deadlock, instead of waiting for two more years until elections are due. "General elections should come fast," said Suzuki, the economist, who is now a member of Parliament for the opposition Liberal Party. "We're now in a standstill, and in that case no bills may pass the Diet, and economic and financial crises may occur." Paradoxically, Obuchi's government is weak in part because of constant complaining by critics at home and abroad, especially in the U.S. Treasury Department, who want Japan to act far more decisively to address its economic problems. But the criticism has so weakened the government that it is less able than ever to push through economic measures. A weakened Japan is a global problem because it exacerbates the Asian crisis, and because the plummeting yen has been squeezing China, South Korea and other countries. President Jiang Zemin of China this week appealed again to Japan to do more to boost its economy, and many experts fear that China may eventually be pressured to devalue its currency, setting off a new round of devaluations and financial crises around Asia. All that has added to the demands on Obuchi to be more aggressive in tackling Japan's problems. "Some substantial initiative needs to be taken by the government," said Takeshi Sasaki, a political scientist at Tokyo University. "It is the responsibility of the government, or it can be the end of the Obuchi government." The opposition usually does not matter much in the Japanese Parliament, but the main opposition leader, Naoto Kan, has crafted a broad and relatively unified front that has blocked the government's proposals and offered its own. Some economists think Kan's financial plan is better than the government's, because it insists on more bank disclosure, but there are also criticisms that Kan is playing politics with Japan's economic recovery. "The opposition sees a chance to force the government down, even if it happens to bring the economy down," said Richard Jerram, an economist at ING Barings Securities Japan Ltd. "Politicians are oblivious to things in the real world, it's pretty clear." Obuchi clearly wants to have the bills passed by the time he meets Clinton, and one Cabinet official said the prime minister would meet opposition leaders soon to work out a compromise. The fall in global markets may increase the pressure on both sides to work out a deal. "If we were not a parliamentary democracy, of course we would be able to make progress on many issues, but that's not the case," said Akitaka Saiki, a spokesman for Obuchi. "If you call this paralysis, that could be one reason." Asked if he thought the West was too impatient for results, considering that Obuchi has been in office for only one month, Saiki scarcely paused. "Not just the West," he said glumly. "Everyone is a bit impatient." Obuchi has taken some steps that are significant, even if they are less than his critics seek. He froze a fiscal austerity law, laying the groundwork for continued fiscal stimulus packages, and he prepared new budget guidelines and convened an economic advisory panel with coming up with creative ways to revive the economy. Yet one indication of Obuchi's weakness and the perception that he will not survive long is that he has had trouble recruiting people. Sadako Ogata, the highly regarded U.N. high commissioner for refugees, turned down an invitation to be foreign minister, one official said, and several prominent business leaders reportedly declined to serve on the advisory panel. Whatever happens in Parliament, the situation is not entirely bleak. Above all, before Obuchi took office the Parliament passed a huge fiscal stimulus package, which will trickle through the economy this fall and generate some growth. Even if Obuchi does not dramatically liberalize the economy -- and almost no one thinks that is a realistic possibility -- the stimulus itself and some associated tax cuts will lend a healthy boost. Moreover, much of Japan's economic problem arises from a nearly universal gloom that makes everyone reluctant to buy or invest. That psychology is impossible to predict, but some optimists believe that the fiscal stimulus could restore growth, change the public mood, and restore the economy to life. That, if it happened, should revive the property and stock markets, and many bad loans would become good again. "The pessimism," said Richard Koo, chief economist at Nomura Research Institute in Tokyo, "has been going too far." Copyright 1998 The New York Times Company Louis Proyect (http://www.panix.com/~lnp3/marxism.html)
