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Monday, June 22, 1998

US steps in to fill Asian economy policy vacuum 

Knut Engelmann  
Tokyo, June 21: A US-orchestrated international show of force this weekend to push Japan into action on its troubled economy has left no doubt that Washington believes the time has come to fill the vacuum left by Tokyo's lack of leadership in battered Asia.

After a two-day emergency trip to Japan, US deputy-treasury secretary Lawrence Summers left Tokyo on Sunday to carry his relentless mantra of economic reforms and financial stability to another Asian trouble-spot, Indonesia.

Having told Japan's beleaguered government that Washington expects speedy and decisive reforms after last week's surprise multibillion-dollar joint rescue effort for Japan's sagging currency, Summers hinted his message finally got through the thick layers of Japanese bureaucracy.

But whether his advice would actually be heeded remained as uncertain as ever before.

"We have a very important window of opportunity and it seems to be very much desirable that...the Japanese take advantage of this window of opportunity as rapidly aspossible," he told a news conference at the end of a hastily convened meeting of officials from the Group of Seven major industrial nations and 11 Asian countries.

The nagging doubts that remained as Summers wrapped up his whirlwind visit were the same as the misgivings that appear to have finally persuaded Washington that it was time to step fully into the Asian breach : whether Tokyo truly has the resolve to seize the "window of opportunity."

A National Upper House election on July 12 has raised fears the campaigning could delay the kind of tough policy decisions Japan needs to make to get out of its economic mess.

Summers' jawboning over Japan's weak economy and its shaky financial system came amid mounting worries that Tokyo's woes may set off another financial storm in Asia, where the world community has already committed billions of dollars to salvage some of the hardest-hit economies.

Eager to see a speedy return to stability and to fend off damage from its own economy -- which by most accountsenjoys the best conditions in a generation -- the United States has played a key role in those rescue efforts.

But Washington is increasingly worried its money and efforts will be wasted unless the world's second-largest economy cleans up its act and truly becomes a "locomotive" to pull the region to health behind its own recovery.

Fear that the sliding yen may pressure China, so far a picture of relative stability in Asia, into devaluing its own currency looms large behind Washington's now hard-nosed approach.

The by now almost routine showdown between Washington and Tokyo came just days before US president Bill Clinton was due to visit Beijing to hammer home the urgency of keeping the yuan's value stable against the dollar and prevent a possible round of tit-for-tat devaluations in the rest of Asia.

In keeping with Washington's role as world financial cop, treasury secretary Robert Rubin was due to join Clinton in China before carrying his message to yet another collection of economic hotspots --Malaysia, Thailand and South Korea.

After months of denial, Japan's once-proud policy elite left the the weekend's meetings with their spirits clearly dented. Finding himself once more at the receiving end, a stonefaced vice finance minister Eisuke Sakakibara promised Japan was serious about tackling its woes.

But asked whether the yen would return to health after the Saturday meeting, the normally decisive Sakakibara could only comment : "You have to ask the market. I cannot control the market."

The government has promised a concrete plan to clean up its banking sector, indicating it is willing to let weak banks fail and allow others to restructure their balance sheets in a bid to spur bank lending and help revive the domestic economy.

But what Washington and the world's financial markets want to see are actions rather than intentions that have begun to carry a tired familiar ring.

Summers left no doubt the United States would keep a close eye on Japan's progress down the long list of issues it hasyet to tackle. "We and the international community will be looking closely," he said, also adding that financial markets would be the final arbiter of any Japanese policy action.

Worries about Japan's gloomy economic outlook had driven the yen's value to eight-year-lows of below 146 to the dollar before Wednesday's joint US-Japan intervention boosted the Japanese currency by some 10 yen.

But whether the yen would be able to hold on to those gains when traders return to their desks on Monday, finding that yet another G7 meeting has ended in yet another pledge of Japanese action, was far from sure.

Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.


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