NO. 15 &emdash; April 17, 1998


Feature Article


  • Summary
  • The Lid Stays On &emdash; For The Time Being
  • China Wages Diplomatic Offensive
  • Washington, Tokyo Clash Over Regional Response
  • Outlook


The economic crisis that has swept through developing Asia since last summer has raised concerns in government offices, corporate boardrooms and think tanks the world over that the region's security is at risk. Some observers fear widespread social unrest, refugee outpourings and sea-lane disruption from Indonesia's economic nosedive. Similarly, South Korea's financial problems may destabilize the always-problematic Korean peninsula. Tensions between the People's Republic of China and Taiwan also could escalate as the two countries strive to profit diplomatically from the so-called Asian contagion. Too, belt-tightening in many Asian countries could limit confidence-building initiatives that in the past have helped to defuse regional powder kegs.

Yet on closer examination, the security implications of the economic problems confronting most of Asia are not clear-cut. In Indonesia's case, predictions of rampant upheaval and state disintegration may be a bit overblown. The economic crisis on the Korean peninsula actually may help to pave the way for a tension-reducing dialogue between North Korea and South Korea. Still other decades-old disputes involving territorial claims or sovereignty issues continue to be driven primarily by politics rather than economic forces.

Developments in East Asia have caused strain in the U.S.-Japan alliance, however. In recent months, Washington has indicated, in no uncertain terms, its frustration with Tokyo's unwillingness to implement timely, effective measures to revive the stagnant economy. Such actions not only would benefit Japan, American policymakers have pointed out, but also would help to lift its Asian neighbors' economies and ensure their political and social stability. Some observers are worried that the Japanese government's inaction on the economic front could begin to undermine the foundation of trust between the two countries at a critical juncture in the post-Cold War evolution of the transpacific security partnership.

Recent indications from Tokyo that it will prime the economic pump may improve bilateral atmospherics. Nevertheless, the U.S.-Japan partnership will continue to be tested by the challenges of implementing new guidelines for defense cooperation, restructuring the U.S. base presence on Okinawa, cooperating to ensure peace on the Korean peninsula and dealing with China's regional ambitions, among other noneconomic issues. However, domestic politics &emdash; specifically, weak leadership in Japan and midterm election pressures in the United States &emdash; may impede progress on economic stimulus as well as regional security matters. Such an outcome could inject more rancor into transpacific relations.

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Weekly Review

by Douglas Ostrom

Details continue to be added to Japan's latest economic stimulus package, but doubts remain about the plan's impact on Japan' stumbling economic performance. Prime Minister Ryutaro Hashimoto announced April 9 that the ¥16 trillion ($133.3 billion at ¥120=$1.00) initiative would include what he called a ¥4 trillion ($33.3 billion) reduction in national and local personal income taxes, thereby supplying an ingredient missing when the Liberal Democratic Party unveiled the program March 27 (see JEI Report No. 13B, April 3, 1998). However, specifics about the rest of the package still are unclear. Tokyo expects to develop a concrete proposal ahead of the mid-May summit of Group of Seven industrial nations in Birmingham, England.


by Jon Choy

Eight days after FY 1998 began, the upper house of the Diet completed work on the government's initial general account budget for the April 1998-March 1999 period and passed it into law. The delay in enacting the budget bills could have stretched to April 19. Then, the constitution would have mandated implementation because 30 days had lapsed since the lower house gave its approval.


by Barbara Wanner

While hailed by U.S. officials for taking "bold action," Prime Minister Ryutaro Hashimoto faced a storm of criticism at home following his April 9 announcement of ¥4 trillion ($33.3 billion at ¥120=$1.00) in personal income tax cuts for 1998 and 1999. Members of the political opposition lambasted Mr. Hashimoto for backtracking on his commitment to fiscal reform, while some business representatives charged that the initiative was too little, too late. Added to this, a not insignificant number of politicians from his own Liberal Democratic Party questioned whether the tax cuts truly would boost consumer spending or simply would amount to a huge waste of government revenues.


by Eric Altbach

Indonesia and the International Monetary Fund settled on a new program of economic reform April 8, ending a standoff that had caused the multilateral lender to suspend its part of a $43 billion rescue package for the teetering nation. Under the new arrangement, designed to facilitate IMF monitoring of Jakarta's implementation efforts, loans will be disbursed in a greater number of stages separated by shorter intervals. Secretary of the Treasury Robert Rubin welcomed the news, but he warned that the key to the new program's success would be Jakarta's commitment to reform. Prime Minister Ryutaro Hashimoto also responded favorably, promising that Japan would provide $2 billion in aid to Indonesia in conjunction with the resumed IMF funding.



Months ago, Washington decided to send Tokyo a single, unified message on the economic front: jump-start the stalled economy through tax cuts and spending hikes and then deregulate to provide the means for long-term growth. This big-picture strategy has forced the White House to skip opportunities both ready-made and manufactured to press Japan on specific U.S. market access concerns. For instance, the Clinton administration passed on the chance afforded by this year's review of foreign compliance with bilateral telecommunications trade agreements and the new World Trade Organization telecommunications services accord to highlight its complaints about the competitive environment in Japan.

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