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NO. 23 — June 19, 1998

 

Feature Article

GROWING PAINS: ASEAN AT 30 by Eric Altbach

Summary

In its three decades, the Association of Southeast Asian Nations has become a central player in Asian economic and political affairs. Asean has grown into a coherent regional institution that has facilitated both economic and security cooperation in the Pacific region. As a result, it has come to occupy a prominent place in the foreign policy of both the United States and Japan toward Asia. But the troubles of the past year may affect Asean’s future contributions. Economic and political problems in member states could damage the cohesion and the effectiveness that Asean has developed in recent years. Also, its larger and more diverse membership could prevent the diplomatic consensus that Asean has been able to reach in the past and strain its relationships with key partners. In light of the weaknesses exposed by the Asian financial crisis and its aftermath, policymakers in both Washington and Tokyo may need to rethink the place of Asean in their regional strategies.

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Weekly Review

JAPAN'S GDP PLUMMETED IN FIRST QUARTER by Douglas Ostrom

The Japanese economy is in worse shape than at any other time in the postwar period, according to the normally cautious Nihon Keizai Shimbun, Japan's leading economic daily. That sweeping editorial conclusion is widely shared by analysts everywhere. It received support with the Economic Planning Agency's June 12 release of gross domestic product statistics for 1998's first quarter. Preliminary figures showed that price-adjusted GDP plunged 5.3 percent on an annualized basis from the previous quarter (see Table). Clinton administration economic policymakers worry, however, that their Japanese counterparts still have not gotten the message.

 

TRIPLE YASU ROCKS JAPAN; JARS GLOBAL ECONOMY by Jon Choy

The recent, rapid-fire release of negative Japanese economic statistics and indicators delivered a heavy blow to domestic stock prices, government bond yields and the yen-dollar exchange rate. The yasu (fall) of each of these markets left them at levels that have exacerbated local and global concerns of an economic tailspin in Japan that threatens to drag down all of Asia. Japanese economic policymakers are trying to soothe these fears, arguing that the country's real economic fundamentals do not merit such pessimism. Economists outside the government say, however, that the numbers do look bad for Japan and imply that the cabinet and ruling Liberal Democratic Party officials are concerned more about the upcoming elections for the Diet's upper chamber than about the economy.

 

WEAKENING YEN SPARKS WIDESPREAD ASIAN CRITICISM by Eric Altbach

The continued fall of the yen, which plunged to an eight-year low of ¥146.15 against the dollar in New York trading June 15, is raising fears that Japan could drag Asia into a new cycle of currency devaluations and stock market losses. Tokyo has come under mounting pressure from many regional governments to do more to stem the yen's slide, and calls have increased for concerted action by the United States and other Group of Seven countries to support the Japanese currency. Many analysts worry that if the yen keeps dropping against the dollar, the People's Republic of China may be tempted to devalue its currency, leading to trouble for the Hong Kong dollar and the currencies of struggling Southeast Asian economies.

 

DPJ SETBACKS SUGGEST STRONG LDP SHOWING IN UPCOMING UPPER HOUSE POLLS by Barbara Wanner

The Democratic Party of Japan suffered a one-two punch in mid-June, suggesting that, notwithstanding DPJ chief Naoto Kan's enormous nationwide popularity, the largest opposition party still lacks sufficient political clout at both the local and the national level to wrest control from the ruling Liberal Democratic Party. Although supported by the Liberal Party and the Japan Communist Party, the DPJ's June 11 no-confidence motion against the government of Prime Minister Ryutaro Hashimoto was killed the following day in the 500-seat House of Representatives by a 273-207 vote. (Eighteen members abstained, while two seats were vacant.)

 

TOKYO, WASHINGTON FILE CONFLICTING INSURANCE CLAIMS by Susan MacKnight

Has Japan made the competition-enhancing changes in its heavily regulated mainstream life and property and casualty insurance sectors that were detailed in the December 1996 transpacific insurance accord? On paper at least, the answer to that question determines whether the countdown starts July 1 toward the January 2001 elimination of safeguards on the operations of American and other foreign insurers in their stronghold, the roughly 5 percent of the market known as the third sector. Not surprisingly given the history of this arrangement and the original October 1994 framework pact on insurance, Washington and Tokyo vehemently disagree on whether Japan has met its primary-sector deregulation obligations. This stalemate notwithstanding, spokesmen for the Ministry of Finance indicated June 12 that the government planned to let the cross-market subsidiaries of Japan's biggest life and nonlife insurers move into the third sector on schedule.

 

Notes:

The upper house of the Diet June 9 endorsed Prime Minister Ryutaro Hashimoto's grand scheme to reorganize and streamline the central government bureaucracy (see JEI Report No. 1B, January 9, 1998). By January 1, 2001, Mr. Hashimoto hopes to reshuffle the current 22 government ministries and agencies into one Cabinet Office and 12 ministries or agencies. After the reorganization is complete, the number of cabinet-level ministers will be limited to between 15 and 17, the ranks of ministry bureaus will drop from 128 to around 90 and the central government payroll will be shaved by 10 percent. A special corporation will be created by 2003 to take over the delivery of mail and the management of the postal savings and insurance systems, although this shift could be delayed for two years until 2005. Other quasi-governmental organizations modeled after Great Britain's executive agencies will be created to perform administrative tasks not related to policymaking.

 

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