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Mon, Mar 04, 2002 - Page 19 News List

Japan blaming foreigners for economic woes

When officials start railing against speculators -- especially foreign ones -- that's a good sign that economic chaos may be just around the corner

By William Pesek Jr  /  BLOOMBERG , TOKYO

Those trying to predict the next big financial crisis spend countless hours weeding through statistics and charts. Maybe there's an easier way: Look at who's railing against speculators -- especially foreign ones.

An uncanny correlation exists between economic chaos and governments that turn on investors. Think of Malaysia in 1997, Russia in 1998, Brazil in 1999, Argentina in 2001 and the UK a decade ago. Like clockwork, governments that blame speculators for their troubles seem to slide into crisis.

Makes you wonder about Japan and its sudden preoccupation with speculators. It's short sellers that Tokyo finds most objectionable and it's clamping down on this rogue element. Short sellers make money by betting stocks will fall. And if you're watching Japan these days, only foreigners seem to be getting caught.

The Tokyo branches of Bear Stearns Cos and Credit Lyonnais SA received stock trading bans. Deutsche Bank AG's Tokyo brokerage unit and Nikko Salomon Smith Barney Ltd were instructed to improve internal controls. Goldman Sachs Group Inc's Japan unit in December also ran afoul of Japan's Financial Services Agency for short-sale infractions.

Blatant discrimination? It sure seems that way, especially when you consider how regulators turn a blind eye to deficiencies in domestic institutions. Take the issue of inadequate bad-loan provisions at many of Japan's more fragile banks. The FSA sure isn't cracking down on them.

It's a classic missing-the-forest-beyond-the-trees scenario. Tokyo's aggressive pursuit of foreign short sellers raises troubling questions of fairness, objectivity and political motivation. It's easier to blame foreigners for your economic woes than admit your stock market is falling because investors lack confidence in it.

Where economic philosophy is concerned, "this is more Mahathir than market," says David Gilmore, a partner at Foreign Exchange Analytics, referring to Malaysian Prime Minister Mahathir Mohamad, a fan of capital controls.

One astute reader asks: "What school of capitalism did these guys go to? The Moscow Institute of Socialist Studies?"

Tokyo has every right to worry about the stock market. As the Nikkei 225 stock average falls, banks that hold shares on their balance sheets become more insolvent.

Yet Japan is merely the latest example of policy makers blaming the messenger and missing the point. Investors put their money where profits are to be made. If an economy is weakening and government officials or monetary authorities aren't taking prudent steps to correct things, investors sell. It's their job. And, surprise, surprise, they're in it for the money.

If you want to attract investors and keep them engaged in your country, sound economic policies will do the trick. Solid banking systems, transparency and sober leadership are what pulls in capital. Without them, investors leave. And many know it's time to go when politicians and policy makers begin railing against markets. Investors know officials tend to blame markets for their own failures out of desperation.

Japanese officials who think stock sellers are undermining the economy should give investors reasons to buy. Of course the world is dumping Japanese stocks. What else are investors to do when an economy is as bad as this one? Buy and hold? Not when deflation is worsening and the bank sector is on the verge of another crisis.

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