There will be no independent Asian Monetary Fund to threaten the primacy of the International Monetary Fund's role in coordinating world responses to financial crises, at least for the time being. Ministry of Finance officials had pushed this idea beginning with the Group of Seven-IMF meetings in Hong Kong in September. By the time the leaders of the 18 Asia Pacific Economic Cooperation forum members met in Vancouver, British Columbia in late November, however, Tokyo had decided to bow to the consensus that future rescues of financially strapped Asian countries should be led by the IMF. The form of this cooperation was outlined in the Manila Framework, named after the agreement reached at a mid-November meeting of Asian finance ministers in the Philippines. Under this arrangement, Asian countries will commit additional resources to a loan package only after an IMF economic reform program has been negotiated with the recipient country. In essence, Asia's finance ministers ratified the structure of the IMF-orchestrated bailouts for Thailand, Indonesia and South Korea.
In light of its failure, why is the Asian Monetary Fund proposal deserving of attention? The short answer is that sometimes it is worth investigating the equivalent of the dog that did not bark. The rise and the apparent fall of the AMF initiative can be used as a case study to evaluate the prospects for Japanese leadership in Asia. It also provides valuable insights into why the Manila Framework proved to be the preferred mechanism for responding to the financial crisis sweeping through Asia.
LDP PRESENTS PLAN FOR BANK BAILOUTS by Douglas Ostrom
The Liberal Democratic Party proposed December 16 that the government cross the Rubicon into the rough political and economic terrain of public-sector support on a massive scale for the nation's beleaguered financial institutions. Whether Japan's taxpayers will take up the challenge to spend ¥10 trillion ($100 billion at ¥100=$1.00) the equivalent of 2 percent of gross domestic product on this initiative remains to be seen. Effective implementation will depend on widespread public acceptance as well as on bureaucratic decisions still to be made.
HASHIMOTO SPRINGS TAX-CUT SURPRISE AIMED AT ECONOMY'S PROBLEMS by Jon Choy
With recently released gross domestic product figures showing that the economy stuttered in the third quarter and surveys indicating that executives are pessimistic about future growth, politicians and bureaucrats are seeking ways to turn things around. One means is fleshing out a late October economic stimulus plan (see JEI Report No. 40B, October 24, 1997). To this end, the ruling Liberal Democratic Party adopted a package of tax proposals for FY 1998 the same day, December 16, that a government advisory panel submitted its tax recommendations for the upcoming fiscal year to Prime Minister Ryutaro Hashimoto.
TAX CUT PLAN MAY PUT HASHIMOTO ON FIRMER POLITICAL GROUND by Barbara Wanner
Probably no one in Tokyo was more cheered and relieved by the positive response to Prime Minister Ryutaro Hashimoto's December 17 surprise announcement of a ¥2 trillion ($20 billion at ¥100=$1.00) temporary cut in personal income taxes than the premier himself. Mr. Hashimoto's recent hammering in public opinion polls over his less-than-stellar management of Japan's multiple problems had set the rumor mill churning in Tokyo that he would be out of a job in the near future. That talk has ended for now. Admittedly, the prime minister faces some daunting short-run tasks that still could cost him his office. Those include shepherding the FY 1997 supplementary budget containing the tax cut through the Diet as well as selling the public on a ¥10 trillion ($100 billion) bank bailout scheme approved by his Liberal Democratic Party the day before. For the time being, though, Mr. Hashimoto's job as prime minister appears to be safe.
JAPAN'S CURRENT ACCOUNT SURGED OVER LATE SUMMER by Douglas Ostrom
Japan's broadest measure of trade the current account ballooned for the second straight quarter in the July-September period, climbing 67.1 percent compared with the same time a year earlier on top of an 85.1 percent jump in the spring. The late summer quarterly surplus of ¥2.9 trillion ($28.9 billion at ¥100=$1.00) was roughly equal to the balance on trade alone of ¥3.2 trillion ($32.2 billion), inasmuch as the two major components of the current account beside the trade balance (services and income) roughly offset each other.
KYOTO PACT ON GREENHOUSE GAS REDUCTIONS TERMED A FIRST STEP BUT TOWARD WHAT? by Pat Murdo
In decades to come, the United Nations conference on climate change that came to an overdue close December 11 with more than 160 nations approving the so-called Kyoto Protocol will stand as either the first international step toward stemming "global warming" or a stopgap effort engineered by politicians to whom a partial agreement with loopholes was better than nothing. Officials in both Tokyo and Washington acknowledge the difficulties of meeting the protocol's targets without affecting economic performance. They have high hopes, however, that improved technological efficiencies will enable Japan and the United States to achieve their net reductions in carbon dioxide and other greenhouse gas emissions of 6 percent and 7 percent, respectively, from 1990 levels between the years 2008 and 2012.
LAST-MINUTE PUSH YIELDS WTO FINANCIAL SERVICES PACT by Jon Choy
The horse-trading went not just down to the wire but past it. However, representatives of more than 100 World Trade Organization members finally forged an agreement in the early hours of December 13 to liberalize global trade in financial services. The pact, which will go into effect at the beginning of March 1999, brings financial services under international trade rules and dispute-settlement procedures for the first time. It also creates a solid foundation for the next round of multilateral trade liberalization talks, which are scheduled to begin in the year 2000. The fact that a broad spectrum of countries managed to hammer out a consensus on this complex subject even as several Asian nations were grappling with financial crises was almost as significant to global financial markets as the contents of the agreement itself.
JAPAN BALKS AT ASEAN'S PLEA FOR MORE FINANCIAL SUPPORT by Eric Altbach
Leaders of the nine members of the Association of Southeast Asian Nations ended a three-day summit in Kuala Lumpur, Malaysia December 16 with a request for more financial support from Japan and the world's other economic powers. Prime Minister Ryutaro Hashimoto, however, had little help to offer. Tokyo remains unwilling to offer aid outside the framework established by the International Monetary Fund (see JEI Report No. 47A, December 19, 1997).