(provisional translation)
Summary of Reports by Study Group Members
Report by Mr. Ito: "The Political Economics of the Asian Currency Crisis - Analysis of the Asian Currency Crisis"
No one factor can explain the Asian currency in its entirety. Japan recognises the significance of separately analysing the common and respective factors involved in order to grasp the political and economic implications inherent in the currency crisis. There are three collective factors: (1) The adoption of the dollar pegging system, (2) the fragility of financial systems, and (3) the vast influx of short-term capital. Individual factors include: the asset bubble and the currency offensive of speculators in Thailand; the flight of capital out of Indonesia; and herding by investors (mainly banks) in the Republic of Korea. There are two directions the role of the International Monetary Foundation (IMF) could take in the future: the lender of last resort, or the bankruptcy court. The two paths that Japan should proceed along in the future are to increase its voice in the IMF and to actively create a framework for regional co-operation in Asia. Further, it is incumbent upon Japan to win Asia's trust not only with its capital but also by systematically and proactively producing both human resources as well as ideas - such as the concept of the Asian Monetary Fund. No matter what, it is essential that Japan forms rational relationships with the United States and China.
Report by Mr. Shinohara: "The Asian Monetary Organisation as a Form of Regional Co-operation"
The concept of the Asian Monetary Organisation (AMO), which was taken up at the general meeting of the IMF and the World Bank in Autumn 1997 in light of the Asian currency crisis, was forced into deadlock with opposition from the United States and the IMF and subsequently discussed by many in numerous countries. Amid the worsening and spread of the crisis in 1998 and the process of revival in 1999, discussion on this has taken on various different forms, and even today its establishment is attracting keen interest. In the regional and international political arena, Japan is expected to resubmit its proposal in a timely manner with strong resolve in the form of a major political agenda item that envelops the Asian region. The effective use of Japanese foreign currency reserves, in other words, the second stage of the New Miyazawa Initiative implemented for the economic recovery of the Asian region's of such a nature that it should be positioned between Japan and its target nations and inherited as one part of AMO activities. Japan should make expressly clear its commitment to the AMO with the enforcement and implementation of the New Miyazawa Initiative. Asian countries will probably view Japan's highly transparent initiatives in high regard. Similarly, the intense development of Asian and Japanese studies in Japan on a greater and more rapid scale is a key issue. The creation of a theoretical framework for defining Japanese market economics is paramount.
Report by Mr. Kusukawa: "Challenges in International Financial Systems"
The modalities for international financial systems continue to be debated. Although the liberalisation of capital transactions at first contributes to the effectiveness and sophisticated advancement of the economy, the Asian crisis served to highlight the hard fact that short-term capital regulations in particular are unavoidable. Nevertheless, we should make efforts to ensure that there are also prospects for liberalisation in regulations. Other areas of necessity - for developed nations as well - include putting in place and standardising the rules of individual markets in the context of international capital markets, and providing financial supervision in line with new financial environments. For Asia in particular, a regional structure for performing work with close linkages to the region that would complement the IMF is essential. Such work would include the collation and analysis of regional information, monitoring of exchange markets and trade trends, extension of assistance to countries' economic policies and emergency financing. At the same time, a drawback in the case of emerging economies is that the market infrastructure for stabilising financial systems - i.e. the banking, legal and judicial systems, administrative philosophies and the human resource infrastructure - is not yet in place. Developed nations must also co-operate with the demands of emerging economies for infrastructure development and human resources on the basis of international standards. Another point at issue here is non-performing debt. Rather than borrowing more than they are capable of handling, borrowers should if possible cultivate long-term capital markets denominated in their own currencies, while at the same time lenders, recognising their individual responsibility, should work to gain an understanding of the circumstances of the borrowers.
Report by Mr. Ogawa: "Challenges in Exchange Systems and the International Currency Structure"
The currency crisis that occurred in East Asia originated from financial fragility. In an age in which financial globalism gained forward momentum, the currency crisis also caused a ripple effect elsewhere on account of the actions of investors and speculators. The lesson learned from the Asian currency crisis is that there is inherent risk in adopting the dollar pegging system when the trade structure does not solely focus on the United States. Reasons for adopting the dollar pegging system were: that this system would be beneficial for international price competitiveness with Japanese corporations in a strong yen and weak dollar trend; that trade transactions were settled in US dollars; and that there would not be an excess of US dollar-denominated debt in a weak yen, strong dollar situation. In considering the second two reasons in particular, promoting the internationalisation of the yen would allow for a conducive environment for adopting a more suitable exchange rate system than the dollar pegging. But what would be a "suitable exchange rate system"? If the objective is to minimise trade expenditure fluctuations that stem from fluctuations in the exchange rate, then the best method would be to effect exchange rate policies that target a currency basket that includes both the dollar and the yen. Considering the reciprocal effect on the exchange rate systems of individual countries, international currency harmonisation is also essential.
Report by Mr. Urata: "The World Trade System on Trial"
The Third Ministerial Conference in Seattle of the World Trade Organization (WTO), whose purpose is to liberalise trade and investment, broke down and as a result the beginning of the next round will be considerably delayed. The backdrop to this was such that while on the one hand trade and investment liberalisation was fuelling world trade, on the other hand a situation had arisen of a stand-off between developed and developing countries. In the WTO, with the sudden globalisation of corporate activities, discussion is also arising in new fields such as the creation of rules for investment and competition and environmental and labour issues. In addition, in the midst of progressing economic globalisation, the move toward regionalisation is also strengthening and bilateral and multilateral free trade agreements are springing up. In such an environment, Japan must present solutions to the issues that can be carried by the WTO, which is still in its infancy, and contribute to the build-up of the world trade system and smooth management, by on the one hand offering positive solutions to issues, and by using effectively and properly the many channels for unilateral liberalisation, together with bilateral, regional and global liberalisation. Contribution to the WTO can be identified by, for example, the creation of an education system to cultivate human resources that can make an impact in international organisations and on the world stage, the provision of such human resources to the WTO secretariat and building interest in the WTO through public relations activities.
Report by Mr. Washio: "Governance of the Global Markets and Strengthening of Social Aspects
Since the Asian financial crisis resistance to global markets has been strengthened, and in the background to such resistance, the gap between the rich and the poor widened even further between states and also domestically in each state. The solution to this negative aspect of global markets is not only economic growth, but also the strengthening of social aspects. For this purpose, the strengthening of social safety nets and observance of a core labour standard have been cited. As for the former, from the perspective not only of relief for the disadvantaged, but also for social contracts and income redistribution, promotion of such a safety net in the areas of both public policy and private-sector contracts is needed. In the case of the latter, concrete issues are: the rights of the group, the right to group discussions, the abolition of enforced labour, the abolition of discrimination and the eradication of child labour, but the latter three categories fall under the area of labour union rights. In order to ensure economic growth and social stability in global markets, labour unions have pointed out the importance of currency stability and the need to control speculative capital movements. As concrete measures to tackle the above-mentioned, various options have been identified, such as the establishment of an international financial market regulation committee, policies pertaining to corporate governance, monitoring of the activities of multi-national enterprises and the establishment of an Asian partnership fund. Moreover, the break-down of the WTO Ministerial Conference in Seattle came out of the situation where the integration of the market gave rise to the increasing difficulty of co-ordination of interests and dispute arbitration between nations and regions. The key to solution of such co-ordination is a structure, which includes labour unions, of a tri-partite composition of government, labour and management.
Report by Mr. Hasegawa: "Current Status of and Issues for the Automobile Production Industry in ASEAN"
Due to the financial crisis the production and sales of automobiles in ASEAN countries dropped markedly and companies in the region found themselves spiralling into superfluous personnel, excess capacity and excess borrowing. In order to escape this vicious circle various measures were taken, including stock-piles being reduced through a reduction in production, capital being increased in companies in the region, changes in export accounting conditions of automobile parts from Japan to regional companies, postponement of further investment, reduction in cost prices and reduction in costs. By the beginning of 1999 the ASEAN market was showing signs of recovery, but from 2000, due to liberalisation of the automobile market in line with WTO rules, the development of business strategy based on these structural changes has become an important issue. In addition, competition is becoming fiercer, due to the penetration US and European automobile manufacturers are making again to the ASEAN market. An important key for future ASEAN economic recovery is support from Japan. In order to provide effective support, not only capital aid, but investment aid are required (such as the purchase of equity of companies with insufficient capital, response to capital increase and the purchasing of debt). The dispatch of human resources for guidance in corporate management is also valuable. It is vital that exchange stability is accomplished for the creation of a stable business environment and the liberalisation of the establishment of specialist educational facilities such as technical schools is desirable. We also expect the Government of Japan to offer support through the cultivation of regional bond markets and the promotion of active use of the Japanese market.
Report by Mr. Tanaka: "The Situation Surrounding Asia-Pacific Security"
The two concrete security problems facing the Asia-Pacific region today are the Korean Peninsula and the Taiwan Straits. In the case of the former, even though some say that circumstances are moving toward stabilisation, if the current domestic economic situation falters where it is now, trouble will be caused in that it is forecast that violent change could occur. In the case of the latter, there is inherent instability that cannot be assuaged in that how China-Taiwan relations will progress after the Taiwan Presidential election is unclear. One can also point to general anxieties concerning the situation in China in general. In this way, the Asia-Pacific security environment is one where instability remains, such as the relatively unstable US-China relations. However, although the relations between the four main regional powers - Japan, the US, China and Russia - are fluctuating, there is salvation in the fact that they are not expected to worsen to any great extent. As regards the issue of the creation of a comprehensive regional security framework and that of how Japan should view the rest of East Asia in its diplomacy, such issues are of paramount importance as to what substance Japan can add to a regional framework and how such an East Asian framework should be constructively built up. In the late 1990s within the processes of APEC and ARF, frameworks such as ASEM and ASEAN + 3 (Japan, China, Republic of Korea), which focus on the East Asian aspects of APEC and ARF, were considered as frameworks with an East Asian component.
Report by Mr. Yamasawa: "Moving Towards a Closer Economic Relationship with the Republic of Korea"
In comparison to previous decades, the 1990s were a time of relatively estranged relations between Japan and the Republic of Korea, but due to the Asian currency and economic crises and Japan's persisting recession there was a heightened inclination on the part of both countries to move to improve relations during the recovery process. In response to President Kim Dae Jung's proposal to create a New Partnership for the 21st Century, Prime Minister Obuchi proposed a strengthening of Japan-ROK relations through the "Japan-Republic of Korea Economic Agenda 21," in which co-operation in the five fields of investment promotion, tax treaties, standard certification, intellectual property rights and negotiations on the next round of the WTO are included. In addition, the Japan-Republic of Korea FTA represented a first for both countries. As a result of this, various effects are expected, such as the expansion of mutual trade through the abolition of tariff and non-tariff measures, the promotion of competition between Japanese and Korean business and a change in business structure due to the link-up between Japanese and Korean firms and co-operation from US/European firms, which will result in the invigoration of both economies and an increase in trade. In order to include not only liberalisation but also wide-ranging economic co-operation, the FTA framework, which is at the centre of the Japan-Republic of Korea FTA has become increasingly necessary. Due to this fact the FTA negotiations will probably be continued in conjunction with individual negotiations. In addition it must also be transmitted to other countries that the Japan-Republic of Korea FTA will make a direct contribution to the invigoration of the countries of the Asia-Pacific and the region as a whole and can be implemented in co-ordination with the FTA specifications for the GATT/WTO. Further currency and financial co-operation is also vital to deepen Japanese-Republic of Korea ties and efforts are thus required to unify the Japan and Korean financial and capital markets.
Report by Mr. Okamoto: "Asia-Pacific Stability and Japan"
In considerations revolving around future Asian stability, the direction of future US activities are of undoubted importance. Against a backdrop whereby the American standard has become the de facto global standard, Asia is inclining ever more towards the United States, but concerns are arising that in the wake of the Cold War the United States has lost its discipline. In particular, the Asian diplomacy of the Clinton Administration has been observed to be of a kind where policies are in response to and reflect domestic politics. In particular, US-China relations have a large influence on Japan and in this regard Japan has to discuss with the US on the essential commitment to the Japan-US security alliance. In such circumstances Japan's relations with other Asian countries could become subordinate to that of the relations the US maintains with the same countries. An issue facing Japan is to whether the Asia policies it takes will prevent an influence from this tendency. It is to be commended that in economic aspects, Japan takes an independent approach to the Asian economy. What needs to be flagged for caution now is that it is becoming increasingly difficult to form a construct whereby Japan acts as a bridge between Asia and the US/Europe. An important framework for Japan could be to establish an identity for itself as a member of Asia and in doing this enter into a circle to formulate Asia's shared feeling where such creations as, for example, a Japan-Republic of Korea partnership or an economic friendly relationship have great importance.
Report by Mr. Shimomura: "A Proposal on the "Factors for Strategic Governance""
With regard to support for the economic development of developing countries, two points that have recently come to the fore with their importance are the more serious consideration of the poverty issue and the shift of emphasis from economic reform to political reform. Concerning the former, it fails to deal with the largest problem in the background to the worsening of the poverty problem and it is important to consider how to protect developing countries from the negative influences of globalisation. In the background to the latter various points can be cited, such as the end of the Cold War, exposure to the limits of a structural adjustment approach and the stiffening of demands by donor countries for more effective aid. Against this backdrop "political conditionality" appears, which links the political variable with aid donations, and the World Bank and IMF put more and more emphasis on good governance among the political variables. Although governance which enables appropriate economic management is called for, there is a problem with the concept of political reform instigated by donor countries. It is therefore necessary to reconsider the concept of good governance. Rather than suggest theoretical governance conditions, it would be meaningful for developing countries to have specific proposals, of which the most important are the specifics of "factors for strategic governance" in the form of "Governance conditions as the key to initiate sustainable development." In my opinion, "factors of strategic governance" cites three foundations: private sector investment as the engine for economic growth, the importance of competent public departments, and the certainty that power corrupts.
Report by Mr. Hara: "Asia and Japan: Issues for the 21st Century"
With the onset of the East Asian economic crisis, western nations demanded large structural reform of the cronyism of the political and economic systems of East Asia. However, the problems facing the countries of Asia today are not ones of a clash of civilisation between East and West. The problem is rather one of global scale confrontation, with global capitalism on the one hand, which while continuing to progress at a truly startling pace, puts in relative terms and discards all ethical value, and on the other hand the preservation of regional differences. Japan already finds difficulty in making contact with the Asian region, with the developmental theory dichotomy of being "developed Japan vs. developing Asia". Concerning the confrontation between global capitalism and the preservation of tradition, Japan faces exactly the same problem as its Asian neighbours. Japan has to well understand the problems confronting Asian countries in this regard and to explore the modalities for effective co-operation. In addition, Japan is a unique civilisation that has succeeded in achieving the quickest route to modernisation of all the non-western civilisations. The task for Japan, looking back on its past experiences, is to gain a clear understanding of the relationship between modern civilisation and Japanese tradition and, having recognised its own position, formulate a world vision.
Report by Special Group Member Mr. Komatsu: "Current Status of the Indonesian Economy"
One of the main characteristics of the recent crisis was that as international recognition was lost in the confidence crisis in the wake of the currency and financial crises, this resulted in the large-scale flight of both ethnic Chinese and capital, which led to a socio-political crisis and the crumbling of the social system. Another characteristic of the crisis was the criticism of cronyism, yet this social system of mutual aid remains unchanged to date and doubts are being raised over Indonesia's commitment to improve cronyism. In addition, the group which has carried much of the responsibility for the Indonesian economy is the ethnic Chinese, and if this group cannot regain the confidence and reorganise the economy, there is little hope for the rebuilding of the economy. To regain the confidence of the ethnic Chinese, ensuring security is a key issue. On the aid side, a future task will be to continue aid on international balance of payments together with financial aid. Future aid will be in the form not of projects or development expenditure aid, but the necessity will arise for aid on interest payments or ordinary expenditure. In addition, with regard to foreign debt, there is a possibility that there will be a request for debt reduction. Whatever the case, it is now necessary to consider what the Indonesian people want in aid, otherwise, to stray from the necessities would lead to a failure in both policy and aid. The hopes of the Indonesian people are surely for democratic government and a fair economy. In the case of the latter, an important task is to continue with technocratic economic policy management.
Report by Special Group Member Mr. Fukagawa: "Sustaining Structural Adjustment in the Republic of Korea and Future Prospects"
The recent growth recovery of the Republic of Korea has demonstrated dynamism in line with the emergence of a new infrastructure for growth stemming from (1) a liquidity recovery, (2) an avoidance of deflation, and (3) the development of venture businesses. As structural adjustments swiftly carried out over the last two years in the financial and corporate sectors have gained the trust of the market the influx of foreign capital has steadily increased. However, with non-bank adjustments still insufficient the financial sector and business sector workouts almost complete, it cannot be said that targets have been achieved to the point that the crisis surround the Daewoo group is completely over. In order to achieve liberalisation of exchange controls in 2000, the Republic of Korea will have to undertake macroeconomic management enduring mass capital inflows and outflows as it faces the uncertain situation in North Korea. As such, the following are becoming key issues: (1) effective management of fiscal, financial and exchange control measures, (2) strengthening of financial monitoring capacities and enhancement of independent market functions, and (3) maintaining governance over zaibatsu, the financial combines. The rapid liberalization of the Republic of Korea would, for Japan, mean greater possibilities for trade and personal exchange, as well as exchange of capital. As far as Japan is concerned, the Republic of Korea is considered a target for investment and, furthermore, an essential partner for promoting the internationalisation of the yen. In this context, it is hoped that the Republic of Korea can develop a stable environment for exchange through its policy dialogue.
Report by Mr. Takenaka: "Sustainability of the Asia-Pacific Economy: Surmounting the Economic Crisis and Japan's Role"
The collective factors that form the backdrop to the Asian crisis have been identified as the adoption of the dollar pegging system, the influx of vast amounts of short-term capital and the fragility of domestic financial systems. Other additional factors which served to exacerbate the crisis have been observed: excessive investment from the private sector; the considerable volumes of debt of general corporations; and the fallacy of composition in a highly interdependent region. While the Asian economy has posted a swift recovery epitomised by a V-shaped upturn following the crisis, this has stemmed from the demand side, and in general terms structural fragility on the economic supply side remains. Factors in the expansion of this demand have been identified as domestic demand growth supported by stimulative fiscal policy, as well as external demand supported by the US current balance deficit and Japan's fiscal deficits. Thus the Asian economy recovery has stemmed from unique demand factors and is not a sustainable one. The future challenge will be to first identify the aspects of the basic problems inherent in global capitalism (i.e. rapid movements of short-term capital), and to envision complex crisis management measures to overcome them. It is basically essential to advance preparations by drawing a distinction between the policy framework in place for when a crisis occurs and the framework for working as much as possible to prevent the outbreak of a crisis. In terms of the first framework, consideration of the role that could be played by a regional monetary fund, such as an Asian Monetary Fund, is a key issue. As for the latter, there is a need in the long-term to consider the introduction of the Tobin tax on all capital movements.
Report by Mr. Kojima: "Japan's Contribution to Preventing a Reoccurrence of the Economic Crisis in Developing Countries and Stimulating Their Economic Development"
The Asian crisis originated in Thailand before permeating through to and afflicting a number of other countries. The causes of the crisis were many and varied, including factors within each Asian country, collective factors for all Asian countries, and factors stemming from global systemic issues. These all served to extend and exacerbate the crisis. As a result the measures to prevent reoccurrence of crisis will also be multi-faceted. There is a need for developing countries to create their own crisis prevention measures, which should include: the firm maintenance of economic fundamentals; the enforcement of flexible exchange rate policy; placing emphasis on the ratio of overseas foreign currency-denominated debt and monitoring short-term capital; the creation of a systemic structure to allow for the steady promotion of direct investment; strengthening of financial systems and corporate governance; and enhancement of information disclosure systems. On a regional basis, effective measures would be the creation of a regional organisation for financial co-operation and the cultivation of regional capital markets. Finally, at the global level, reviewing the modalities for IMF policy is a prevalent issue. In this context, Japan's contribution to preventing a reoccurrence of the Asian crisis can be envisaged by: Japan first and foremost effecting the healthy recovery of its own economy and consequently offering to Asian countries both a new model of an economic superpower and a reliable market in the long term; appropriate use of official development assistance (ODA) and development of Japanese human resources capable of contributing and co-operating on an intellectual basis; and proactive involvement in the creation of a regional organisation for financial co-operation, as well as in international systemic reforms and building financial architecture.
Report by Mr. Mogi: "Doubts and Expectations in Economics"
The fundamental mission of economics is to "rule the nation and take care of the people," and "to offer a theoretical framework for the better management of human society, and to play a useful role in proposing and formulating government policy." We can further define the ideal for human society as an environment in which "all humans can perpetually lead peaceful and as comfortable lives as possible." The basic issues in achieving this society are "the response to global environmental issues" and "the establishment of a total global security system." The nature of global environmental issues is that although the burden exerted on the environment by the activities of humans is moving beyond Earth's capacities to cope, economics rarely factors in this consideration. Indeed, it is thought that future population increases and rapid worsening of environmental issues will in turn lead to conflict. The response to global environmental issues and the establishment of a total global security system are therefore issues of utmost importance for humankind which must also be squarely faced by economics. In my mind, the only measure that we can take is to deepen awareness in population issues and dynamically promote the various technological developments that reduce the burden on the environment, while engaging in co-operation toward the economic advancement of developing countries. In other words, we must establish a recycling society that makes sustainable development possible. To this end, I believe that as many people as possible must be aware of the very nature of these issues.
Report by Mr. Yoshitomi: "The Asian Crisis: Real Structural Issues and International Financial Systems"
The Asian crisis was characterised by capital expenditure. It involved a vast influx of short-term capital incorporating a double mismatch in terms of maturity and currency, with international liquidity and domestic banking crises emerging as a consequence. However there was only one domestic financial policy in place, and this was used to focus on the first crisis, thereby serving to further exacerbate the second. This led to a rapid decline in domestic demand, although the process of adjusting international expenditure has allowed for the beginnings of a recovery. The real structural issue at stake in the Asian economy concerns the corporate governance of the zaibatsu, the financial combines, which cannot be reformed without revolutionary change. The Asian crisis also exposed the systemic problems of international finance. This highlights the need for a regional monetary fund (in a similar vein to the Asian Monetary Fund) to complement the IMF in an international liquidity crisis. It would then be important for the AMF to have regional monitoring, and a framework for exerting peer pressure. The conditionalities for receiving emergency financing must also be considered. Furthermore, reliable information on international finance is paramount for regional monitoring, and for this we must turn to the investment bankers. However, being weak in this area, the biggest challenge for Japan is to encourage corporate governance in the banks that hinder the development of investment bankers.
Report of Mr. Kondo: "The Desire for the Stability and Sustained Growth of the Global Economy"
Against the background of the Asian crisis lies a distortion in macro-economic policy. In this regard three specific points can be identified: the sequencing of liberalisation; the imbalance between liberalisation and the provision of domestic systems; and a distortion in exchange policy. At the same time the Asian crisis highlighted the existence of challenges in international systems. These challenges can be divided into three areas: the shortcomings of monitoring systems; flaws in the systems and functions for providing appropriate remedies (i.e. policy programs); and exchange instability. There are movements underway to rectify micro-economic structural problems of the developing countries, and I hope that these will be ensured, while at the same time structural reforms geared toward the creation of highly-transparent domestic economic systems will be unequivocally promoted. The implications on policy for Japan can be identified by three needs: the need to gear the structural reform of the Japanese economy toward a domestic demand-led economy; the need for qualitative enhancement of development assistance; and the need for Japan to spearhead initiatives for strengthening international systems. With the Kyushu-Okinawa Summit in mind, there are also specific short-term agendas toward which Japan must demonstrate initiative, including the strengthening of the WTO and the early launching of a new round of negotiations, strengthening the IMF, and exchange stability. In this regard, Japan is expected to make active proposals on its specific ideas and exert strong political leadership toward forming consensus.
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