Government Still Needs to Get Macroeconomic Policies Right

HONOLULU (June 23) -- Although it may be hard to see from outside Japan, dramatic economic reforms have taken place in that country, according to an East-West Center specialist. A few extra pushes could be all that's needed to kick start the economy if the government can get its macroeconomic policies in line.

Sumner La Croix, a senior research fellow at the East-West Center who specializes in Japan's economic reforms, said extensive deregulations have occurred in a third to a half of major Japanese industries; corporate laws and commercial codes have undergone extensive amendments in the 1990s; and the number of non-performing loans has dropped substantially.

"Japan is changing incrementally, and we don't notice it," La Croix said. "There has been massive and ongoing structural change."

"Pushing reforms one extra step" could be all that it takes to reinvigorate the economy, which has seen less than 1 percent average annual growth since 1991, he said. For example, institutional investors need to take a more activist role in their demands on investment returns; limits need to be placed on how much the postal savings system can invest in semi-private companies; the government needs to pursue more free trade agreements in Asia in addition to the single one it now holds with Singapore; and it should pay off some of the economic "losers" such as farmers so it can shut down interest groups that hamper recovery.

Macroeconomic policies remain the No. 1 priority, however. Monetary policy remains too restrictive, La Croix said, comparing the constraints on printing more money to central banking policies in the United States during the Great Depression.

"Entry barriers have been removed and there have been massive deregulation laws. But firms are still not interested. They don't want to enter if consumers are not buying.

"Getting the macroeconomic policy right is critical for the deregulation to succeed."

Sumner La Croix can be reached at 808-944-7508 or lacroixs@eastwestcenter.org 

The East-West Wire is a news service provided by the East-West Center in Honolulu. Any or all of this report may be used with attribution to the East-West Center or to the person quoted. 

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