Fw: The Biggest Risk to the Global economy in 2002

["John Gelles" <johng@xxxxxxxxxx>]

        Thanks again to Jozef Imrich for the article below
        this message.  It's about the WEF.

        My comment relative to the article is:

        The answer to Japanese debt is for their government
        to buy it all at par and stick it away in a ledger.

        This may inflate the yen and require the US and
        other producers to grant credit to China and India
        to get in on consumption of all the output ready to
        be produced.

        If the O'Neil remedy is to destroy Japanese banking
        and production as punishment for producing world
        class products, I say Japan should just follow
        my advice and grant credit itself to China and India
        to buy what Asia is able to produce. Its time to
        to tell the neoliberals to go to hell.



----- Original Message -----
From: Jozef Imrich <chezimrich@xxxxxxxxxxx>
To: <VOW@xxxxxxxxxx>
Sent: Friday, February 01, 2002 4:56 AM
Subject: The Biggest Risk to the Global economy in 2002


WORLD ECONOMIC FORUM Japan's Woes Cast Pall Over Forum

Alan Friedman (International Herald Tribune Friday, February 1, 2002)

'Biggest Risk to the Global Economy in 2002,'

Financier Says NEW YORK International financial leaders are growing
increasingly concerned about Japan's huge debt and dire economic
condition, even to the point of suggesting that further deterioration
could trigger global financial instability.

"It is not an exaggeration to say that this is the biggest risk to the
global economy in 2002," Kenneth Courtis, vice chairman of Goldman Sachs
Asia, said at the start of the World Economic Forum meetings here. "It
would be naïve to expect that the unwinding of a crisis of this
magnitude would not generate vast global volatility," he warned.

Japanese officials arriving at the forum bore grim economic news.
Hidehiro Konno, deputy minister for international affairs at the
Japanese Ministry of Economy, Trade and Industry, admitted that his
country's economy had not "hit the bottom yet." Mr. Konno acknowledged
in an interview with International Herald Tribune Television on Thursday
that the government's forecast of zero growth in 2002 may be optimistic.

Mr. Konno then sidestepped serious concern about Japan's economic
prospects, insisting that macroeconomic projections mattered less than
the ability to carry out reform policies.

"The numbers are not important, I think. The most important thing is our
resolve to work through the reform program," he said.

But many bankers and economists doubted that Japan - in particular,
Prime Minister Junichiro Koizumi - had the political will to dispense
the tough medicine needed to fix the economy. The sense of participants
here at the forum, including those who asked to remain anonymous, was
summarized by the outspoken Mr. Courtis.

"I think the international community should see this for what it is," he
warned, "and that is the biggest economic and financial crisis in any
major economy since the 1930s. And the crisis is not just economic and
financial. It is fundamentally political and resides in the inability of
Mr. Koizumi and of Japanese society to make decisions about its future.
The vested interest in the status quo remain powerful, and so no real
decisions are being made."

A number of financial experts argued that Mr. Koizumi, despite his
popularity, may not be able to match his bold reform rhetoric with
action because he is still a prisoner of the Old Guard of the dominant
Liberal Democratic Party governing coalition.

"What is really going on," said Carl Weinberg, chief economist of High
Frequency Economics, "is a process of denial and benign neglect. I think
the Liberal Democratic Party is unable to accept the responsibility for
the mess in the financial system and has adopted a policy of inaction in
the face of a deteriorating financial system."

Mr. Courtis and others attending forum, said they expected Standard
Poor's and other credit rating agencies to downgrade Japan again,
exacerbating the country's financial problems.

"There is a Himalaya of debt that is crushing the economy at a time of
recession and deflation," said Mr. Courtis. "We have never seen a debt
level this high in any country at any time in history."

Standard Poor's said Thursday that more delays in Japan's economic
reform program could lead it to downgrade the country's sovereign rating
for a third time. S&P twice downgraded Japan last year. "With total
outstanding government debt expected to reach 140 percent of GDP in
fiscal 2002 (ending March 2003), further delays in either structural
reform or economic recovery will increase the possibility of another
sovereign downgrade," S&P said in a statement.

The rating agency published a report Thursday, called "Japan Credit
Trends 2002: The Downside Deepens," in which it stated that "economic
stagnation has evolved into a worrisome deflationary recession, with no
signs of an upturn for the foreseeable future."

Mr. Courtis said that bad debts in the Japanese banking system could
amount to more than 25 percent of the country's entire GDP while he
expected total government debt to rise to more than 150 percent of GDP
next year.

"The bad debts in the banking system are so high that the government is
going to have to fill the hole. Plus you have to add government debt,
insurance company loans, commercial paper and bonds," Mr. Courtis said.
"The level of debt makes Enron look like nothing."

For his part, Mr. Konno conceded that the mountain of bad debts held by
Japanese banks "are a drag on our economy."

He noted that in the past three years Japanese banks had written off bad
debts equivalent to 8 percent of Japan's gross domestic product.

But while the Koizumi government had put pressure on banks to write off
nonperforming loans, Mr. Weinberg contended that it was "not enough to
solve the problems - and that is because to do so would bankrupt some
very big banks, and that is politically unacceptable in Japan."

The real problem, Mr. Weinberg contended, was that "Mr. Koizumi is not
an LDP insider and the people who really run Japan are the backroom
insiders from the LDP."

Mr. Koizumi may be popular, he added, "but he lives at the pleasure of
these people and cannot force the kind of changes needed, because he
doesn't have the power."

The firing of the Japanese foreign minister this week by Mr. Koizumi was
described by conference participants here as more evidence that the
prime minister must still defer to older party hacks and the powerful
and entrenched Japanese bureaucracy.

Mr. Courtis and others said they agreed with calls by Paul O'Neill, the
U.S. Treasury secretary, and by senior officials in China and South
Korea for Japan to not use a weakened yen as a way out of its problems.

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