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NO. 4 — January 30, 1998

 

Feature Article

JAPAN TAKES THE SLOW ROAD IN EASTERN EUROPE by Jon Choy

Summary

The collapse of the Iron Curtain in 1989 and the fragmentation of the Union of Soviet Socialist Republics in 1991 opened up a new frontier to Western-style capitalists, including the Japanese. While American and Western European executives dove headlong into this virgin territory, Japanese businesspeople just dipped their toes in, holding back for a long list of reasons.

In the years since those early days, conditions in both Eastern Europe and Japan have become more conducive to building bilateral trade and investment ties. Even though a slumping economy presents problems at home, Japanese firms are upbeat about the potential of Eastern European markets. This optimistic attitude is leavened, however, with a sizable measure of caution. While leaders of the business community concur that Japan can play a larger role in the ongoing transition of Eastern European economies from socialism to capitalism, they also agree that many factors will limit their participation to a secondary position, behind American and Western European competitors.

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Weekly Review

DEFENSE GUIDELINES, OKINAWA ISUES DOMINATE TWO-PLUS-TWO MEETING by Barbara Wanner

Against the uncertain backdrop caused by Asia's economic turmoil, the United States and Japan recently agreed to establish a coordinating mechanism to facilitate a cooperative response to possible security threats in areas surrounding Japan. Secretary of Defense William Cohen and his counterpart, Japan Defense Agency Director General Fumio Kyuma, initialed the accord January 20 at the so-called two-plus-two defense ministerial dialogue. The meeting also included Foreign Minister Keizo Obuchi and U.S. Ambassador to Japan Thomas Foley. Mr. Foley participated on behalf of Secretary of State Madeleine K. Albright, who ordinarily would have completed the foursome.

 

JAPAN'S TRADE SURPLUS SURGED IN 1997 by Douglas Ostrom

At another time, news that Japan's customs-clearance trade surplus had soared 48.5 percent in 1997 would have unleashed pointed warnings from the United States and elsewhere that Japan risked destabilizing the international trading system. Talk of unfair Japanese trade practices, even trade wars, would have quickly followed. The January 22 announcement, however, fell into the old news category. Not only had media coverage of the monthly ballooning of Japan's trade surplus prepared policymakers and analysts around the world for an inflated full-year figure, but other problems, including the currency and financial turmoil wracking developing Asia and the shaky state of Japan's banking system, appeared more pressing.

 

BANKRUPTCIES HIT NEW RECORD IN 1997 by Jon Choy

The prolonged slowdown of the Japanese economy has led to a boom in at least one activity: bankruptcy filings. Data from various sources show that 1997 was a record-setting year in both the number of business failures and the value of declared liabilities. The second half of the year was particularly gloomy, with the failures of several large financial and nonfinancial firms inflating the bankruptcy totals well beyond previous records. While most firms continued to list poor economic conditions as the main reason that they filed for protection from creditors, December statistics showed that a more disturbing reason was gaining currency: banks' reluctance to lend. The government already is rushing measures through the Diet to combat this problem, but with most economists predicting another year of slow growth (see JEI Report No. 2B, January 16, 1998), 1997's bankruptcy records could be surpassed sooner than most Japanese would like.

 

INDONESIA ANNOUNCES BANK REFORMS, DEBT FREEZE; JAPAN PLEDGES MORE AID by Eric Altbach

Jakarta, rocked by the continued plunge of the rupiah, announced January 27 a temporary freeze on corporate debt servicing by Indonesian companies and a bank reform plan that would create a new government agency to oversee sweeping changes in the industry. Finance Minister Hiroshi Mitsuzuka welcomed the steps shortly before he was forced to resign to take responsibility for a corruption scandal involving two senior Ministry of Finance bureaucrats. Five days earlier, Parliamentary Vice Minister for Foreign Affairs Masahiko Komura, visiting Indonesia as a special envoy of Prime Minister Ryutaro Hashimoto, announced that Japan would provide an additional ¥50 billion ($416.7 million at ¥120=$1.00) in official development assistance loans to help ease the economic crisis of its troubled Asian neighbor.

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