[Congressional Record Volume 144, Number 32 (Friday, March 20, 1998)]
[Senate]
[Pages S2368-S2370]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               JAPAN'S ROLE IN THE ASIAN FINANCIAL CRISIS

 Mr. ROTH. Mr. President, earlier this week, I addressed an 
audience at the Center for Strategic and International Studies on the 
Asian financial crisis and the critical role Japan needs to play in 
bringing that crisis to an end. While Japan has made bilateral 
assistance available to the countries most affected, Japan clearly is 
not facing up to the challenges presented by its own economic problems, 
let alone those of the region as a whole.
  Japan still constitutes more than two-thirds of East Asia's GDP. 
Regional recovery, therefore, is impossible without economic growth in 
Japan. Quite simply, the countries of the region in most dire condition 
need markets for their goods, and the United States alone cannot serve 
as the world's only major engine of growth. For Japan's own good, and 
for the good of the region and the global economy, Tokyo must serve as 
a second engine of growth.
  Unfortunately, Tokyo's economy remains mired in its seventh straight

[[Page S2369]]

year of stagnation, and Japan is failing to take the steps it must take 
to stimulate and open its economy. At this critical moment in Asia's 
future, when Japan's role is so vital, Tokyo is failing to provide 
leadership of any lasting consequence. I hope that Japan can be 
convinced to change course and implement the bold series of measures I 
outlined in my speech. Because of the importance of this matter, I ask 
that the text of my speech be printed in the Record.
  The speech follows:

                Address by Senator William V. Roth, Jr.

       It's a pleasure to be here today--to join CSIS in looking 
     at a vital and very volatile area of the world. That, of 
     course, is Asia--a region that has captivated our attention 
     and generated quite some concern in recent months . . . and 
     for good reason.
       Today, I will address the Asian financial crisis and the 
     role of each of the major players in the crisis, particularly 
     the role of Japan. The concern these past few months is borne 
     by the fact that Asia, Japan and the United States have a 
     critical stake in the outcome of the problems rocking the 
     economies along the Pacific Rim of Asia.
       In a global economy, all of us have a stake in seeing 
     Asia's rapid return to prosperity and growth. Our economic 
     interdependence with Japan and the rest of Asia continues to 
     grow by the day, as does our interest in the maintenance of 
     peace and security for the region. That's why I'm convinced 
     that restoring the economic health of Asia is vital to the 
     economic health of the United States.
       In January, I had the chance to visit the heads of state 
     and economic leaders of Korea, Malaysia, Thailand and Japan. 
     In each of the first three countries, I was impressed with 
     the steps taken to address the problems they face, and the 
     resolve they demonstrated to continue on the right path. Each 
     has made strides in opening up to foreign investment and 
     liberalizing its trade regime.
       In Japan, however, I was disappointed with the seeming 
     inability, and even unwillingness, to do the things necessary 
     to stimulate the country's economy--not only for the sake of 
     Japan, but for the sake of Asia and the global economy as 
     well.
       Let me leave Japan aside for the moment, and begin by 
     addressing the Asian financial situation as a whole. I 
     believe that if the right steps are taken, Asia can and will 
     emerge from its current problems stronger and more dynamic 
     than ever. This will, of course, take time and inevitably 
     there will be pain and hardship.
       The most pressing of the steps necessary to restore Asian 
     growth and prosperity is for Indonesia to implement 
     immediately and forthrightly the conditions the IMF imposed 
     upon it as part of its rescue package. From ending crony 
     capitalism to breaking up the monopolies that control so much 
     of its economy, Indonesia must take the steps outlined by the 
     IMF to realize a more open economy. I fear we are facing 
     renewed regional contagion unless Indonesia proves more 
     flexible on this score.
       Our friends in Thailand, Korea and Malaysia must continue 
     on the path of trade and investment liberalization--a path on 
     which they have embarked and made some significant gains.
       For its part, China must resist any temptation to devalue 
     its currency to avoid a series of regional competitive 
     devaluations.
       All the countries of Asia must make the structural reforms 
     necessary to open their markets to freer flows of capital and 
     goods. These reforms are squarely in the interest of everyone 
     in the region because greater economic openness is 
     fundamental to Asia's future prosperity.
       The agreement to create the ASEAN Free Trade Area was a 
     vital step in this direction. Now, the financial crisis only 
     makes the speed of implementation more critical.
       The nations of Asia must also very significantly improve 
     financial and economic transparency by making available 
     accurate and timely information on both public and private 
     sector institutions. That is the only way market economies 
     can function efficiently.
       For our part, the United States must support the process of 
     economic reform under way in Asia and the role of the 
     International Monetary Fund in that process. At the same 
     time, the Fund must be more transparent, flexible and 
     accountable in its operations. In addition, as the IMF's 
     Articles of Agreement make clear, IMF assistance programs 
     should ``facilitate the expansion and balanced growth of 
     international trade.''
       Finally, Japan: In my view, the single most important step 
     in ensuring the long-term economic health of the Asia Pacific 
     is for Japan to embark immediately on a fundamental, systemic 
     program of economic reform. Simply put, Japan must become a 
     locomotive for regional growth if we are to see our way out 
     of the Asian financial crisis.
       It's also clearly in Japan's interest to get its economy 
     moving. We have been waiting seven years for action by Tokyo, 
     yet here's what we see: Japan's economy is likely to finish 
     fiscal year 1997 with negative growth for the first time 
     since 1974. The so-called diffusion index of coincident 
     indicators used by the Government of Japan to gauge the 
     state of the economy was zero in both November and 
     December. Consumer spending was down 4% in January and 5% 
     in December compared to the same months a year earlier, 
     and the willingness of salaried workers' households to 
     spend--expressed as the amount of money set aside for that 
     purpose--is at a record low. Prices are falling due to 
     lack of demand rather than productivity improvements--
     indicating the potential for a dangerous deflationary 
     spiral. Two-thirds of Japanese polled just last week say 
     they are getting hurt by what most see as a ``severe 
     recession.'' Pre-tax profits of major corporations outside 
     the financial sector are expected to be down by 2.2% for 
     fiscal year 1997. Japan's auto industry--which makes up 
     10% of the country's GDP--is making large-scale production 
     cuts. Housing starts have been down on a year-on-year 
     basis for the past 13 months.
       I could go on, but the point is clear: Japan's economy is 
     in a precarious situation. I believe it should also be clear 
     that the only way for Japan to address the situation is 
     through drastic, fundamental economic change.
       In my view, Japan needs to take action on four fronts. 
     First, Japan needs immediate economic stimulus. Tokyo must 
     deliver a significant package of tax cuts coupled with a 
     campaign to induce the Japanese public to use those tax cuts 
     for consumption rather than savings. The recent, small, 
     temporary tax cut is of negligible significance. What is 
     needed is a large permanent tax cut, perhaps taking the form 
     of a rebate in the first year to get money into the hands of 
     the public so they'll be encouraged to spend rather than 
     save.
       Second, to absorb more of the exports from troubled Asian 
     economies, Japan should more quickly open its markets to 
     foreign imports. Keep in mind that there is already a great 
     deal of concern in Congress over the flood of imports that 
     the United States is expecting from Asia. The resulting surge 
     in our trade deficit could lead to increased protectionist 
     pressures.
       Third, to rid itself of a major source of economic drag, 
     Japan must finally come to terms with its enormous, festering 
     bad loan problem.
       And finally, Tokyo needs speedier--and real--deregulation.
       Now, what is Japan doing on these four fronts? 
     Unfortunately, as we all know, very little. The next fiscal 
     stimulus package will consist mainly of public works 
     projects--more bridges and tunnels to nowhere. More pork-
     barrel projects that help politicians in the elections later 
     this year, but do almost nothing to stimulate the economy.
       On opening its markets and absorbing imports, Japan has 
     already seen a sharp drop in imports from Asia, and a sharp 
     rise in exports to the United States.
       In the banking sector, the large amount of funds made 
     available recently to deal with the problem appear headed for 
     use instead to prop up the archaic convoy system. Moreover, 
     the government of Japan is planning yet another ``Price-
     Keeping Operation'' to boost share prices before FY97 ends on 
     March 31. It seems we will have to wait once again before the 
     Ministry of Finance lets the bad banks fail and deals 
     forthrightly with the massive bad loan problem.
       On deregulation, the next three-year plan is due out at the 
     end of this month. Meanwhile aspects of the so-called ``Big 
     Bang'' financial deregulation are set to go into effect. The 
     problem is that so far, deregulatory efforts in Japan have 
     yielded little in terms of tangible results. Because of this, 
     and because deregulation is opposed by the bureaucracy, until 
     we see such results, many--including myself--remain skeptical 
     about the Japan's efforts in this area.
       The bottom line on all four fronts is that Japan is not 
     facing up to the challenges presented by its own economic 
     problems, let alone those of the region as a whole. Instead 
     of stimulating its economy by reducing tax burdens and 
     encouraging its public to spend, Japan is relying again on 
     public works projects that will have no real impact. Instead 
     of opening its markets to the exports crucial to Asia's 
     recovery, Japan is increasing its exports to levels that will 
     soon be politically unsustainable. Instead of finally dealing 
     with its banking mess, Japan is still propping up failed 
     banks.
       Now, I recognize that Japan has done some significant 
     things to address the Asian financial crisis. Tokyo has 
     committed more funds on a bilateral basis to the various IMF 
     bail-out packages than any other country. I also commend 
     Prime Minister Hashimoto for his attempts to move President 
     Suharto of Indonesia in the right direction.
       But at this critical moment in Asia's future, when Japan's 
     role is so vital, Tokyo has so far failed to provide 
     leadership of any lasting consequence. Japan still 
     constitutes more than two-thirds of the East Asia's GDP. 
     Regional recovery, therefore, is impossible without economic 
     recovery in Japan.
       Ironically, it is Japan's enormous resources--its $11 
     trillion in savings and its massive foreign reserves--that 
     make it too easy for Japan to resist the sorts of changes 
     being forced upon other countries in Asia. Korea and Thailand 
     have no choice but to institute the IMF conditions requiring 
     systemic economic reforms. Those countries face a crisis that 
     has enabled them thus far to advance economic reforms that 
     only months ago were unthinkable.
       Japan does not face a financial crisis--not yet anyway. 
     Given weak leadership in Tokyo

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     and resistance to the fundamental reforms necessary, I fear 
     that Japan may actually need a crisis if it is ever to get 
     its economic house in order. I hope that I am wrong and that 
     Japan will begin to take the steps necessary to boost its 
     economy and serve as an engine of economic growth. Clearly, 
     it is in Japan's interest to do so, as it is in the interest 
     of Asia and of the United States. Toward this end, we must 
     all remain engaged in encouraging and persuading Japan to 
     move forward.
       Japan faces enormous challenges in the coming months and 
     years, as does all of Asia. The challenges, however, are far 
     from insurmountable. And global prosperity depends on meeting 
     those challenges head-on. As I have outlined, the road back 
     to prosperity and growth should be fairly clear, though in 
     some instances, politically treacherous. The good news is 
     that most of the steps on that road require increased 
     economic liberalization, greater transparency and reduced 
     regulation. If that road is taken, the Asian financial crisis 
     will have had the positive result of moving the global 
     economy toward a new level of growth and prosperity.

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