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Fri, Mar 08, 2002 - Page 19 News List

Japan losing its relevance when viewed from Manila

Asian countries used to look to Japan for economic leadership. But 11 stagnant years have taught smaller economies to create their own economic agendas rather than wait for a turnaround

By William Pesek Jr  /  BLOOMBERG , MANILA

Here in the Philippines, it's not what businesspeople are talking about that's interesting, but what they're not.

There's lots of chatter about the US economy and China's growing influence. South Korea's impressive performance comes up, too. So does Indonesia's worsening situation. What doesn't come up in conversation is Japan, Asia's biggest economy and its traditional engine of growth.

"Japan is less of a factor in Asia's economy and it's role is getting smaller and smaller," says Raul Concepcion, chairman of the Federation of Philippine Industries.

Adds Jose Cuisia, president of Philippine American Life and General Insurance Corp, a unit of biggest insurer American International Group Inc, "There seems to be no real direction in Japan, no real leadership. Pretty soon, Japan will be overtaken by others in Asia anyway."

Such views raise a touchy question: Is Japan's economy sliding into irrelevance? To many here, the answer is that it already has. True, Japan's financial markets remain too big for investors to ignore its economy. The yen also is Asia's most international currency, making markets and policy makers equally loath to write off Japan just yet.

Yet 11 years after Asia's locomotive sputtered to a stop, Tokyo is no closer to getting its engines going again. In fact, Japan's current leadership is at a complete loss over how to fix things. It's taken a while for this sad reality to make its way around Asian capitals, but it's sinking in.

From Beijing to Manila to Seoul to Singapore, officials are forging their own economic futures independent of Japan. In decades past, Asia's smaller players could rely on Japanese consumers to buy their exports. With Japan awash in deflation, bad loans and political gridlock, that's no longer an option.

Publicly, government officials are far less inclined to dismiss Japan. One reason is that it remains Asia's most generous donor country. Even though Tokyo has cut its Official Development Assistance (ODA) budget, countries like the Philippines still rely on Japanese funding for key infrastructure projects. Biting the hand that feeds Manila is hardly diplomatic.

Yet Philippine Finance Minister Jose Isidro Camacho leaves little doubt that he doesn't expect Japan to contribute much to growth in Asia in the near future. "Japan has been in recession for so many years that there's very little downside anymore," Camacho explains. "Whatever it's done to our trade has already happened."

A full-blown banking crisis that sends shockwaves around the region is a different story, of course. But Tokyo seems determined to avoid a meltdown; more likely, Japan will continue muddling along for a few more years. Unfortunately, muddling along is the best Asia can expect from Japan in the years ahead.

A report released Wednesday by the Japan Center for Economic Research predicts that if structural reforms were ever to be implemented, economic growth would be around 1.5 percent to 3 percent by 2010. If correct, this scenario could all but assure Japan's irrelevance. Yet Tokyo isn't implementing reforms.

Politicians are talking lots about the need for change, but doing nothing to exact it.

"If the Japanese government continues to favor short-term comfort over long-term reform, Japan seems to me likely to remain on a road characterized by stagnation," former US trade representative Charlene Barshefsky said in Tokyo on Monday.

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