Friday, November 9, 2001

The Japanese government is drawing up its midterm economic policies on the assumption that the economy will shrink in fiscal 2001 and 2002. The Bank of Japan expects the economy to contract by 1.2 percent to 0.9 percent for 2001.
Negative economic growth for the two consecutive years through March 2003 would be a first for Japan since World War II. When and how is economic recovery possible?
Mainstream opinion in the United States and Japan seems to agree that Japan’s economy may recover in two to three years, thanks to the structural-reform proposals put forth by Prime Minister Junichiro Koizumi.
Unlike his predecessors, Mr. Koizumi, who outlined seven major reforms in June, promised medium- and long-term economic reforms and limited use of public spending a typical short-term stimulus that was favored, or some say abused, in Japan in the 1990s. He also calls for resolving banks’ nonperforming loans within two to three years.
Analysts agree that although Mr. Koizumi’s reforms may inflict economic pain in the short term, the intensive adjustment period is needed to achieve steady growth in the future.
The Koizumi administration is not only pushing structural reform, but also is protecting people affected by it.
To offset the impact of recession, the Japanese government approved a draft $25 billion extra budget on Wednesday to tackle the high unemployment rate and speed up its midterm reform plan. About $2.9 billion would be allocated for the creation of 1 million new jobs, such as part-time police officers, forest rangers, nursing aides and teaching assistants.
High on the list of major reforms is privatization of the three post-office businesses: mail delivery, savings and life insurance.
Other reforms include introduction of the free-market process into such fields as health, nursing care, social welfare and education, introduction of private management methods in, for example, the operation of Japan’s national universities, and reduction of national involvement in local government.
Edward J. Lincoln, senior fellow of foreign policy studies at Brookings Institution, said Japan’s economy may recover within four years and grow by as much as 5 percent for a year or two.
“The constraint here is the amount of time it takes for clearing up the bad-loan problems,” he said. “Once that’s done, I believe the economy would be in a much more better position to resume more rapid economic growth.”
In a move to secure lifetime employment, Japan’s Electrical, Electronic and Information Union said last month it would draw up rules for employers to follow when firing any of the union’s 750,000 members.
Eisuke Sakakibara, professor at Keio University in Tokyo and former vice minister of finance for international affairs, told a forum in Washington in September that Japan must abandon its seniority system.
“Long-term employment is useful,” said Mr. Sakakibara, called “Mr. Yen” when he was in the Japanese government. “But we should impose meritocracy.”
Mr. Lincoln said the key for Japan in the next 20 years is demographics. The shrinking population and a rapid shift in age structure indicate that Japan will not grow rapidly, he said.

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