Japan is the global economy's equivalent of a terminal patient. Once a strong and vibrant force, it's now bedridden and struggling to survive. So far, conventional cures and even extraordinary measures have failed to stabilize Japan's economy, which continues to flatline.
As this drama unfolds, the rest of Asia is watching with a mixture of wonder and dread. Wonder, because a formerly imposing economic power has fallen and can't get up. Dread, because Japan's failing health is forcing neighbors to look elsewhere to sell their exports. It's the latter emotion -- dread -- that may turn out to be the longer-lived of the two. That's because the rest of Asia may soon develop many of the same problems now plaguing Japan.
Japan's economic model, after all, is the blueprint followed by many Asian countries. Watching Japan emerge from the ashes of World War II to become an economic superpower was enough to convince Asian leaders to do the same. The success of Japan's style of active government planning and close links between politicians, companies and financial institutions became the standard against which Asian nations measured themselves.
Eleven years of malaise has Tokyo dismantling its post-war playbook. Voters recently embraced an unconventional politician, Junichiro Koizumi, to return Japan's ailing economy to the health it enjoyed in the 1980s, when "Japan Inc" was the envy of the world.
Yet are Japan's current problems merely the precursor of Asia's in the years ahead? "In terms of attitude, I'd say yes," says Simon Ogus, chief executive at DSG Asia Ltd. in Hong Kong. "But they have two advantages; they're not as rich as Japan and the demographics are better. Young, poorer, debtor nations have far less scope to [delay reform] for 10 years.
This won't stop many of them trying, though." In many parts of Asia, economies suffer from too much capacity, large public and private debt loads, fragile banking systems, weak domestic demand and low interest rates that aren't doing much good. These Japan-like structural problems mean there's less latitude to increase government spending or loosen monetary policy as growth slows. That's a problem, considering that throughout Asia, gross domestic product is grinding lower at the moment.
Taiwan's economy, for example, shrank for the first time in 26 years during the second quarter. The 2.4 percent slide, which reflected a massive drop in electronics exports, prompted the central bank to cut rates for the eighth time since December. Singapore is in recession for the second time in less than four years; its economy shrank at a 10 percent annual rate in the first half of this year.
Malaysia, which is heavily dependent on US demand for its exports, probably contracted in the second quarter -- the first decline in two years. Gross domestic product fell in Thailand and the Philippines in the first quarter.
Complicating things is growing evidence that Asia's snapback from the 1997 to 1998 financial crisis was a mirage. A year ago, the region was congratulating itself for quick recoveries that surprised even the optimists. While it took Latin America a decade to lure back investors after its meltdown in the 1980s, Asia was back in business within a year or two. Leaders and policy makers were quick to take credit for rebounds in their economies, currencies and stock markets.
RSS