Chapter III.
Regional Developments

With the economy generally in good shape, education, health care and the social security (public pension) system remained the main issues on the domestic political scene, and were addressed as well in the November mid-term election. But no major progress was made in those areas.

In his State of the Union address in January, President Clinton displayed the achievements of his administration, including a robust U.S. economy and the 1997 Balanced Budget Act; identified reforms of the social security system, Medicare, education and election finance as policy tasks to be tackled; and urged that the projected budget surplus be held in reserve until social security reforms have been realized. The Republican Party, which holds a congressional majority, criticized the policies presented by the President as deviating from the balanced budget agreement and aiming for big government. Congressional legislative deliberations gradually deepened partisan aspects as the mid-term elections drew closer. At the same time, conflicting policy views arising within the Republican Party also contributed to leaving many policy matters unresolved. The issue of the relationship between President Clinton and a former White House intern which was uncovered in late January received media attention on an almost daily basis, as well as the 1996 campaign fund-raising issue dating back to the previous year and suspicions of the transfer of satellite-related technology to China. Independent Counsel Kenneth Starr, authorized to investigate the newest problem involving the President, submitted his report to Congress in September. In the November elections, the Democrats, viewed as the weaker of the two parties up until voting day, worked with the Clinton Administration in attempting to dig up support among voters through policy debate on major issues in the domestic agenda; the Republicans, on the other hand, adopted an election strategy focused on personal issues involving the President. The Democrats did better than expected, maintaining their seats in the Senate and increasing their seats in the House of Representatives, the first time in 64 years for the President's party to add House seats in the mid-term elections. While the Republicans held on to their majorities in both Houses, the loss of House seats called into question the responsibility of party leaders, and House Speaker Newt Gingrich, the force behind the Republicans' resounding victory in the 1994 mid-term elections, consequently announced his resignation as Speaker and as a member of Congress. Because the results of the mid-term elections fell hard on the Republicans, it was widely expected that Congressional investigation of personal issues involving the President might lose momentum. Bipartisan confrontation, however, subsequently intensified, and in December, the House of Representatives, where the Republicans enjoy a majority, voted for the impeachment of the President, who was alleged to have given false testimony and obstructed justice.

President Clinton energetically tackled his foreign policy agenda: visiting China (June-July), Russia (September), Japan and the Republic of Korea (November); achieving ratification of NATO expansion (April) which had been a pending question; mediation for the Northern Ireland peace agreement (April) and Wye River Memorandum (October); and receiving congressional approval for a US$18 billion disbursement to the IMF (October). The United States attacked terrorism-related facilities in Afghanistan and Sudan in August following the terrorist bombings of U.S. embassies in Kenya and Tanzania. In December, the United States waged a military attack on Iraq, which had refused to cooperate with UN inspections.

The U.S. economy basically sustained its momentum, underpinned by private consumption. The unemployment rate held at an historical low level of 4.5 percent, and prices were also stable. However, the sluggish Asian economy, Russian economic turmoil and a loss of confidence in Latin American and other emerging markets combined to send high stock prices plummeting at the end of August. From September onward, three Federal Reserve System monetary relaxation moves revived stock prices to the extent that a new high was recorded in late November. The increased tax revenues made possible by a buoyant economy and spending cuts led government finances into the black for the first time in 29 years in FY1998 (October 1997-September 1998), with the surplus standing at a record US$70 billion. However, the question of where to channel this surplus set the administration and Democratic Party and the Republican Party at loggerheads, the former insisting on reserving the surplus for the social security system, the latter on returning it to taxpayers in the form of reduced taxes. Ultimately, the FY1999 Budget Act only included an extension of existing tax incentives. The U.S. trade deficit, on the other hand, reached a new high in 1997, and has since continued to expand, with the trade deficit with Japan beginning to grow again from October 1996 onward. According to the direction which the economy takes, protectionist pressure may begin to increase within the United States in the days ahead