ECONOMY-ASIA: Japan Helps Region the Way It Wants to

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Jun 1 1999 (IPS) - Ignoring criticism from western countries that it is too soft on its neighbours, Japan is forging ahead with its massive aid programme to help ailing South-east Asian countries recover from the financial crisis.

The latest part of this aid scheme was a pledge on May 15th to extend 16 billion U.S. dollars to guarantee redemptions on Asian government bonds, a move Japan’s finance ministry officials noted as the second phase of Japan’s support to Asia’s recovery.

The bond guarantees are in addition to the Miyazawa Initiative, a 30 billion dollar fund for Asia announced in October by the Japanese government and named after Finance Minister Kiichi Miyazawa.

Japan’s bond programme, announced during a meeting of Asia- Pacific Economic Cooperation (APEC) ministers in Malaysia this month, has been praised by Asian governments as more help when they need it.

But some analysts are critical of the programme, saying it does not enforce International Monetary Fund (IMF) objectives by forcing Asian countries to carry structural reforms that will strengthen their economies in the long run — and in exchange for assistance.

Washington has long pushed for Japan to help the region more constructively by striving toward stimulating domestic demand and importing more from Asia. In response, Tokyo says it is doing its best and despite an economy in recession, has managed to come up with major assistance funds.

Some analysts argue that beyond giving money, Japan should be requiring recipients to show economic and financial reform, lest ailing Asian economies be complacent with incoming capital and ease up on changing policies to helped make them vulnerable in the regional crisis.

Japan’s lending, while important, is not forcing structural reform like the IMF does, Tetsuji Sano, an economist at Nomura Research Institute in Singapore, was quoted in the ‘Nikkei Weekly’, Japan’s leading financial daily, this week.

“While it is natural for capital-short Asian countries to welcome the Japanese initiative, it’s possible that the loose conditions attached to the aid will slow structural reforms in the region,” he explained.

Yet there is a political angle to the debate. Since the crisis broke out, Japan has increasingly taken different policy views from the U.S. government and multilateral institutions it influences, like the International Monetary Fund (IMF) and World Bank.

This has also been a time when apart from being under repeated fire by Washington for “not doing enough” for Asia.

Likewise, officials at the American-led IMF, which has also given out rescue loans, continue to release reports that single out the Asian economic giant as delaying a recovery in Asia, pointing out that the best solution to the crisis is for Japan to quickly reinvigorate its own economy.

Remarks by Robert Manning, a former State Department adviser for policy who wrote a recent commentary here, are typical of this viewpoint.

He says the point of Japan’s problems are profoundly structural and long-term in nature. Echoing American criticism, he describes Japan’s economic model as a “catch-up”, state-directed collectivist capitalism, which worked after the devastation of World War II, but is now a burden.

He calls on Japan to deregulate its economy faster and lower corporate and private taxes, among others, to stimulate the Asian economy.

U.S.-Japan differences on the Asian crisis have also emerged on Tokyo’s proposal for the setting up of an Asian monetary fund, which Washington killed.

The reason for rejecting the Tokyo-proposed fund sound familiar in the wake of more recent complaints that Japan’s conditions for giving help are too lenient. At the time, western-led critics said an Asian fund would probably be too soft on regional countries and would not have the discipline of the IMF.

Tokyo has also differed with the IMF’s early approach to helping Asian countries and has called for lesser dependence on the U.S. dollar to make the financial system less vulnerable to fluctuations — a proposal that did not sit well with the Americans.

Indeed, some critics point out that Japan’s recent bond guarantee move actually works toward its goal of taking steps to “internationalise the yen”, because a considerable portion of Asian bonds are expected to be denominated in yen.

Tokyo and Washington also think differently on hedge funds, which have been blamed for encouraging unregulated and speculative short-term capital flight.

Miyazawa has proposed a set of measures with aid packages to introduce regulation of hedge funds in a bid to control in the wake of the Asian meltdown, but has been told by American officials that this was not a good idea.

“Americans tend to view speculation as a good factor that helps to generate healthy market liquidity, whereas Japanese tend to think that speculation is a factor of instability,” said Professor Mitsuhiro Fukao, who teaches international finance at Keio University.

Hideaki Ota, an Asia expert at Nomura Research Institute, explains that Japan’s aid programme to South-east Asia is aimed at bringing reform through not only aid but also extending support for industry policy reform and financial training.

“The goal of Japanese aid package is not to see short-term results, but to encourage reform slowly by providing a safety net,” he pointed out.

Japan has disbursed around 19 billion dollars of its 30 billion dollar aid package to Indonesia, Malaysia, Thailand, South Korea and the Philippines. Most of the loans committed are medium-and long-term ones.

In addition, the finance ministry says it plans to send financial experts to South-east Asian nations from autumn onwards, to offer advice and experience that will help those countries to rebuild sound financial systems.

These experts will also help countries on the evaluation of creditworthy borrowers and assist them in countering the effects of currency crises on their financial systems.