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No. 31 — August 13, 1999

 

Feature Article

SOUTH KOREA'S RESPONSE TO THE EAST ASIAN FINANCIAL CRISIS: ARE THERE LESSONS FOR JAPAN? by Douglas Ostrom

Summary

South Korea made headlines less than two years ago when it was hit by the tsunami-like force of the East Asian financial and economic crisis. The country's recent performance seems to suggest, however, that it has surmounted virtually all the problems that it faced at the time. Although assessments of the reforms implemented by the government of President Kim Dae Jung differ, few observers doubt that South Korea's economy has recovered significantly since mid-1998 when most indicators hit bottom.

Japan, in contrast, escaped the direct impact of the East Asian crisis. With an economy 10 times larger than that of South Korea, the biggest casualty, and a long history as a mature industrial nation, Japan differs in important respects from South Korea and its other neighbors. "Crony capitalism," which has become a catchphrase for many of the problems in South Korea and fellow East Asian countries, is far less prevalent in Japan than elsewhere in the region. Yet, Japan has suffered similar difficulties that began earlier and appear to be lasting longer. Its lagging relative economic performance, both before and after the onset of the regional crisis, points to the need for restructuring. More than a few observers have suggested that this process trails far behind the efforts of South Korea and other East Asian countries.

Japan's apparently sluggish pace of reform needs to be put in perspective, however. A comparison of the economic restructuring efforts of Tokyo and Seoul suggests that South Korean reforms, even when they have been implemented, have in some instances merely brought South Korean practices closer to those of Japan. On the critical question of how well each economy deploys its resources, the differences between the impact of the regional crisis on the two countries indicate that Japan is still ahead of its neighbor. At the same time, the need for restructuring in Japan may be greater because, without it, medium-term growth could be more difficult to achieve than has proved to be the case in South Korea.

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Weekly Review

JAPAN'S ECONOMIC OUTLOOK STILL GUARDED by Douglas Ostrom

Experts on the Japanese economy are still scratching their heads over a statistic more than two months old: the annualized 7.9 percent surge in price-adjusted gross domestic product during the January-March period (see JEI Report No. 23B, June 18, 1999). Now they are wondering what comes next. Did the first quarter presage a strong recovery? Or was it a fluke in an otherwise long series of dreary economic statistics that otherwise continues unabated?

 

NTT REORGANIZATION SPARKS TELECOMMUNICATIONS MARKET RESHUFFLE by Jon Choy

July 1 marked the beginning of a new era in Japan's communications market, at least according to Tokyo, because Nippon Telegraph and Telephone Corp. was completely restructured and its monopoly on local telephone service ended (see JEI Report No. 26B, July 9, 1999). The restructured NTT has moved quickly to take advantage of its new freedom, just as competitors are shifting their operations to respond to new opportunities and challenges. For instance, the Ministry of Posts and Telecommunications has licensed 13 companies to build wireless, fixed telephone systems, meaning that businesses and consumers soon could have a much wider choice of local call providers.

 

DEADLOCK OVER ELECTORAL REFORM MAY FOIL PLANS FOR TRIPARTY GOVERNMENT by Barbara Wanner

As the clock ticks toward the August 13 conclusion of the current Diet session, the Liberal Democratic Party is scrambling to reach an accommodation with its governing ally, the Liberal Party. At issue is an electoral reform proposal that would keep the LDP's junior partner in the fold but that might prevent the second-largest opposition party, the New Komeito, from coming on board. If Prime Minister Keizo Obuchi fails to make good on his promise to Liberal Party chief Ichiro Ozawa to secure timely Diet action on a bill that embodies a key plank of the January 1999 agreement between the LDP and the Liberal Party to join forces — a plan to reduce lower house proportional representation by 50 seats (see JEI Report No. 3B, January 22, 1999) — the Liberal Party may bolt from the coalition government. Mr. Obuchi, in turn, could be helped and, at the same time, be hurt by such an outcome.

 

VIETNAM STRENGTHENS TIES WITH UNITED STATES, JAPAN by Marc Castellano

Washington and Hanoi announced the conclusion of an agreement in principle July 25 that would give American companies greater access to Vietnam's markets. Deputy U.S. Trade Representative Richard Fisher called the pending trade pact — the culmination of more than three years of negotiations — a "historic event." He described the proposed agreement as one of the most comprehensive ever reached by the United States.

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