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Sell Some Sizzle, Mr. Prime Minister

By David R. FrancisStaff writer of The Christian Science Monitor / April 13, 1998



Merrill Lynch chief economist Bruce Steinberg dubs Japan's prime minister "that great leader Herbert Hoover Hashimoto."

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He calls Hashimoto "seemingly incapable of action," a criticism some historians have leveled at US President Hoover for hesitating during the Great Depression.

The comparison is an exaggeration. The Japanese economy has stagnated in the 1990s. But there is no depression in the world's second-largest economy.

"Maybe he's a Japanese George Bush," says economist Douglas Ostrom of the Japanese Economic Institute in Washington.

In 1991, the last US recession, national output fell 0.9 percent after inflation - not the 20-plus percent of the 1930s.

But the mild 1990-91 slump was enough to cost President Bush his job.

Japan's economy has grown mostly in the 1 or 2 percent annual range in the 1990s.

A big question for the world's welfare is whether Japan will and can step on the economic gas.

Ryhutaro Hashimoto took some action last Thursday to avoid Mr. Bush's fate. The prime minister shifted from a policy of tightening the budget and closing a deficit to stimulating the economy, a policy shift that President Hoover also made, but inadequately to end the Depression.

Tokyo's stock market rose sharply before and after Hashimoto's news.

The stimulus package was described by US Ambassador Thomas Foley as "bold action." It includes a much-campaigned-for tax cut - $30.5 billion over two years.

By comparison, House majority leader Richard Armey has been dreaming of a $60 billion tax cut for the US, which has an economy more than double the size of Japan's $3.85 trillion economy.

The action may not satisfy the many critics of Japanese economic policy. Hashimoto himself said he was unsure whether the Japanese consumers would spend the tax cut, thus boosting the economy, or add it to their abundant savings.

It was Norio Ohga, chairman of Sony Corp., who first compared Hashimoto to Hoover. He also said Japan's economy was on the verge of unraveling and caused a big stir, since Japanese executives rarely make such critical remarks in public.

Visiting Tokyo last week, Stanley Fischer, No. 2 at the International Monetary Fund (IMF), warned that a decline in the Japanese economy would be a "shock" for the fragile economies of the region.

"But it's not a factor that will cause a world economic crisis," he said. It won't damage the US economy much.

Most economists forecast a mild downturn in Japan this year. The Paris-based Organization for Economic Cooperation and Development says output will drop 0.3 percentage points.

It won't be the "meltdown" foreseen by some observers, says Gail Fosler, a Conference Board economist in New York.

In fact, she says, recent devaluations of the yen and other East Asian currencies should boost profits at Japan's giant multinational corporations. Weak currencies mean cheaper labor, and the companies have 25 percent of their manufacturing capacity in these nations.

Last year, Japan's economy grew a meager 0.9 percent, weighed down in part by an unfortunate sales-tax hike a year ago.

Japan hasn't lacked advice from abroad on ways to pep up its economy.

Ms. Fosler would like Japan to modernize its retail industry. Then Japanese consumers would likely find more bargains at home, rather than in Singapore, Hong Kong, Hawaii, and along New York's Fifth Avenue.

Japan's service industries are roughly 60 percent as efficient as those in the US, says Mr. Ostrom. Moves to fix that would allow more rapid Japanese expansion.

Mr. Fischer urges Japan to clean up the books of its banks, fouled by the collapse of the nation's real estate market in 1992. Property prices in big cities fell another 7.5 percent last year. These banks still carry $571 billion in bad loans.