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World: Asian Summit Seeks To Steady Economic Nerves

  • Breffni O'Rourke



Prague, 25 November 1997 (RFE/RL) -- The summit of 18 Pacific rim nations in Vancouver, Canada, has taken place against a background of widening financial and economic turmoil in Asia.

The annual meeting of the Asia Pacific Economic Cooperation forum brought together some of the world's economic giants -- the United States, Japan and China -- as well as the one-time miracle economies of eastern Asia.

The summit, which was in previous years mostly a celebration of continued prosperity, has been deeply overshadowed this year: the South East Asian countries lie devastated by currency crises, mighty Japan is being rocked by the collapse of financial houses, South Korea has sought international financial support, and dread is growing that instability might spread to China.

Therefore behind the sober talks in Vancouver was the knowledge that the threat of global recession is visible on the horizon. Only as line of far storm-clouds, but with the potential quickly to engulf the hopes of people around the world for material well-being. Especially worrying is that a steady flow of predictions, that the worst is over in Asia, have proven wrong.

Japan is the latest to suffer, despite assertions by Japanese Prime Minister Ryutaro Hashimoto that his country's powerful economy cannot be seen as another falling domino. Japan has been stunned by the closure of Yamaichi Securities, the oldest and one of the biggest investment brokers in Japan. This is the country's biggest business failure since the Second World War, and comes on top of the collapse in the last few weeks of an important bank (Hokkaido Takuhshoku) and another brokerage.

A Japanese finance ministry official in Vancouver, Haruhiko Kuroda, said Yamaichi would meet all its responsibilities, because its assets outweigh liabilities. The central Bank of Japan in any case is standing behind Yamaichi to ensure there is no defaulting. Kuroda also made the prediction -- now ominously familiar -- that the worst is over.

The present reverses are humiliating for Japan, which over decades has been a model of spectacular economic growth with social harmony. Putting the best face on things, Kuroda noted that Japan is the world's top creditor nation, with about $1 trillion in foreign assets.

Unwittingly, Kuroda thereby touched on the burning issue. Japan has, among other things, huge holdings on the U.S. bond market. Analysts say a sudden sell-out of these would destabilize the markets in the U.S. and Europe -- with dire results for the world. A leading Tokyo-based analyst (Kenneth Courtis of Deutsche Morgan Grenfell) recently described the South East Asian troubles as a mere "sideshow" of the main event, which he said was what could happen in Japan.

A major part of the problem lies with the country's banking system. Japan has been the major investor in the South East Asia, and banks which loaned out hundreds of millions of dollars in the boom times are now deeply exposed to bad debts in that region. In addition, the trend downward of the Tokyo stock exchange has put heavy pressure on the banks, which habitually have part of their asset reserves in the form of shares in large corporations. As these shares have lost value on the stock exchange, the banks' assets have been wiped out. The Tokyo stock exchange took a another steep plunge today (Nov.25) in reaction to the Yamaichi collapse.

Beyond the banks' troubles, Japanese manufacturers have been hard-hit by the regional economic downturn, as almost half Japan's total exports go the developing Asian countries.

With all this in mind, the Vancouver meeting has been trying to calm the jitters around the world. A draft communique has circulated to summit participants which describes the fundamentals for long-term growth in the Asian-Pacific region as exceptionally strong, and expressing continued faith in open markets. The draft communique also endorses the recently-developed financial stabilization program for Asian countries, which is to be led by the International Monetary Fund.

President Bill Clinton has been holding a series of bilateral meetings with leaders, during which he has said the U.S. will be as supportive as possible. But he has suggested that the remedy lies in the hands of the affected countries themselves. He told Japan's Premier Hashimoto that Japan must act to eliminate the weaknesses in its economic system, and he expressed confidence that Japan's strong economy will be able to lead the region out of danger.
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