Japan's Architect of Recovery Calls His Plan `Near Perfect'
SEVEN weeks after he launched a rescue plan for Japan's foundering economy, the government's leading economist is jumping ship.
Masaru Yoshitomi says he can confidently leave his job as chief economist for Japan's Economic Planning Agency (EPA) to teach at the Wharton School of Economics in Philadelphia because his rescue package is "near perfect."
The $89 billion package, aimed at boosting prices in Japan's sagging land and stock markets, is well balanced, Dr. Yoshitomi said in an interview, because it has two opposing sets of critics: On one side is Japanese business which claims the package is "too little, too late," while the Organization for Economic Cooperation and Development (OECD) in Paris describes it as "too early, too big."
Playing it down the middle has been Yoshitomi's talent during his nearly two years as director-general of the coordination bureau in the EPA. He also has worked at the OECD and the International Monetary Fund and written six books, including one on America's Great Depression.
Japan's economy, he notes, is better off than widely perceived, but a full recovery will not come until next spring.
Industrial production has dropped 8 percent since the peak of the "bubble" economy in March 1991, he says. But factories are operating at a capacity rate that is 3 to 4 percent above the last recession in 1987. That recession was triggered by the 1985 Plaza Accord that led to rapid appreciation of the yen and a drop in exports. The government's bailout plan of low interest rates helped to create a "bubble" economy of wild speculation in Tokyo properties and on the stock exchanges.
In the current "post-bubble" recession, the most important figure is not the rate of growth but the "GNP gap," that is, the difference between the potential gross national product and the actual economy, Yoshitomi says. The gap is now about 1.5 percent compared to double that in 1987. But what has been worrisome, he says, is that the latest GNP gap began to widen unusually fast in early 1992 as the economy came down from the long boom period. "There was the possibility of a vicious circle within the econ omy," he says. In August, the government decided to intervene.
The main problem was a credit crunch. The government's package included $10 billion in loans for small and medium-sized companies, a big boost in public works, a diversion of government-held private savings to the stock market, and creation of a new organization to sell off bank-owned properties. "The balance-sheet deterioration of banks is very serious," Yoshitomi says. "Banks are lending less." Many financial institutions will likely be given a tax break to help write off bad loans.
THE sudden falloff of the economy means that Japan will not fulfill its promise to the US, made during President Bush's January trip to Tokyo, that it would achieve 3.5 percent GNP growth during this fiscal year.
The US wanted faster domestic growth in Japan to reduce Tokyo's trade surplus, boost US exports, and help the world economy. Most economists say the present growth rate is 1.7 to 2.4 percent.
"To spur the Japanese economy any faster for the sake of world growth would leave inflationary problems in the future that Japan itself would have to clean up," Yoshitomi says.
He defends the rapid rise in the trade surplus, which is expected to reach $130 billion this fiscal year, up from $113 billion last year. Yoshitomi says the increase is "nominal," caused by changes in oil prices and the exchange rate, as well as a drop in gold imports.
"The slowing down of the economy does not account for the external trade surplus," he says. "The nature of the Japanese surplus is very different from the late 1980s." In the early 1980s, he says, "The political ground for trade friction was created" when the US doubled imports while its GNP remained stagnant. "Now, the nominal increase does not hurt any trading partner in real terms," he says.