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No. 41 — October 30, 1998

 

Feature Article

GROWTH AND REGIONAL INTEGRATION IN LATIN AMERICA: WILL JAPAN MISS THE BOAT? by Eric Altbach

Summary

Latin America has staged a remarkable economic comeback. After the 1980s, the so-called lost decade of debt crises and economic stagnation, the area running from Mexico down to Argentina and Chile experienced a rejuvenation. Between 1990 and 1997, Latin America as a whole grew at robust rates of 3 percent to 5 percent each year but 1995, making it second only to Asia as the world's fastest-growing region. Moreover, movement toward democratization and greater political stability have accompanied this healthy expansion. The 1990s also have brought significant trade and investment liberalization — notably, the Southern Common Market known by its Spanish acronym MERCOSUR and the North American Free Trade Agreement, which has lowered barriers among Mexico, the United States and Canada.

Despite its increasing attractiveness as a market and as a destination for offshore investment, Latin America remains relatively peripheral to Japan. While modest gains have occurred in Japan's trade with and investment in the area in recent years, Latin America continues to represent only 4 percent to 5 percent of the country's combined exports and imports and just 10 percent to 12 percent of its foreign direct investment. However, there are signs that Japanese interest in the region may be growing. In both FY 1996 and FY 1997, direct investment in Latin America increased at a faster rate than in any other region. The disruptive effects of the economic turmoil in East Asia could further heighten the attractiveness of the area, or at least of such countries as Brazil, Argentina, Chile, and Mexico.

It is not clear, however, whether corporate Japan is ready to abandon its customary caution about Latin America. Memories of the region's past debt crises, currency instability and economic policy mismanagement — combined with the barriers of distance and unfamiliar cultures — may continue to impede closer economic ties.

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Weekly Review

TOKYO EMPLOYES NEW BANK BILLS TO NATIONALIZE AILING LTCB by Jon Choy

After months of debate and whirlwind legislating, a package of laws went into effect October 23 that creates a structure for handling bank failures in an orderly fashion and institutes a system for recapitalizing banks struggling under a mountain of nonperforming loans. On the same day, the president of Long-Term Credit Bank of Japan, Ltd. asked the administration of Prime Minister Keizo Obuchi to exercise its new authority and temporarily nationalize the ailing financial institution. Mr. Obuchi accepted the petition, and the government quickly reassured LTCB's customers and business partners that it would guarantee the bank's obligations.

 

JAPAN'S TRADE SURPLUS CONTINUES TO CLIMB by Douglas Ostrom

Japan's customs-clearance trade surplus registered its sixth straight quarterly increase in the July-September period, jumping 43.2 percent from the same time a year earlier. The surge reflected the combined effects of weak economic conditions at home, a depressed currency and continuing economic turmoil among Japan's East Asian neighbors.

The impact of the fragile state of the Japanese economy can be seen most easily in the import figures. As measured in yen, imports slumped 6 percent in the July-September time frame, the third consecutive quarterly decline. The Ministry of Finance no longer releases dollar-denominated trade figures, but the weak yen of the past year implies that the drop in purchases from abroad was more dramatic in dollar terms.

 

JDA CHIEF CENSURED FOR PROCUREMENT SCANDAL, NEC HEAD RESIGNS by Barbara Wanner

For the first time in Japan's postwar history, the upper house of the Diet has adopted a resolution of censure against a cabinet member. The target is Japan Defense Agency Director General Fukushiro Nukaga, who was singled out for his handling of a defense equipment overcharging scam. The October 16 measure was sponsored by three opposition parties: the Democratic Party of Japan, the Liberal Party and the Komei Party. It passed the 252-member House of Councillors by a 140-103 vote.

Just as Mr. Nukaga has been under pressure to fall on his sword, as is customary for disgraced Japanese in high business and government positions, so, too, have the NEC brass been pressured to engage in self-sacrifice for the good of the company. After nearly 20 years in the upper reaches of NEC's corporate leadership, Chairman Tadahiro Sekimoto resigned October 23 to, in his words, "put an end socially and morally to this sensational scandal."

 

JAPAN PLEDGES NEW AID FOR AFRICA by Eric Altbach

Tokyo, which hosted the Second Tokyo International Conference on African Development October 19 to October 21, has announced a series of foreign aid initiatives headlined by $776 million for health and education projects in Africa. The decision seemed to signal that, despite a rash of ambitious aid programs for its troubled East Asian neighbors, Japan will not abandon its efforts to support socioeconomic development in Africa. At the same time, Tokyo appeared to use the conference as an opportunity to boost its status among developing African countries and gain their support for a permanent Japanese seat on an expanded United Nations Security Council. On the fringes of the TICAD II meeting, Prime Minister Keizo Obuchi pushed Tokyo's U.N. reform agenda in separate meetings with a number of African leaders and with U.N. Secretary General Kofi Annan.

 

Notes

The varietal testing regime employed by Japan has no scientific foundation, a World Trade Organization dispute-settlement panel concluded October 27. It also is more trade-restrictive than necessary and lacks transparency. Accordingly, the demand for proof that treatment procedures accepted as effective in killing prohibited pests on one variety of fruit, vegetables or nuts work just as well on other varieties violates Tokyo's obligations under the WTO Agreement on the Application of Sanitary and Phytosanitary Measures.

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