NCPA - National Center for Policy Analysis

World Needs Japanese Reform

November 19, 1998

Japan's economy continues to go in the tank, and analysts believe President Clinton must use his Friday meeting with Prime Minister Keizo Obuchi to tell him -- politely but firmly -- that the world can't wait for Japan to get it right.

  • After wasting billions of yen, the Japanese economy is still flat, with gross domestic product (GDP) down 2.5 percent this year and expected to fall more in 1999.
  • A new fiscal stimulus package will only have a simulative effect of about a quarter of its advertised figure, or just 1.25 percent of GDP.
  • Japan won't open its markets to Asian imports, meaning its neighbors are struggling to raise the revenue they need to pay their debts.
  • Japan scuttled a regional trade liberalization plan that would have added up to $1.5 trillion in international trade.

Japan argues it can't reform its internal policies until there's a recovery. But analysts urge Clinton to explain there can't be a recovery without reform. One example: when Tokyo embarks on a public works project, it pays off supporters in the construction cartels with prices 50 percent higher than international levels. Instead, critics say, the government should let the market dictate the price through competitive bidding open to foreign firms.

Also, analysts say banks should write off the staggering amount of bad debt -- now said to equal 30 percent of the country's GDP -- which the government hesitates to do because the insolvent debtors in the real estate, farming and construction industries are big contributors to the ruling political party.

Source: Richard Katz, "Time For Frank Talk With Japan," Investor's Business Daily, November 19, 1998.

 

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