Who are these guys?
Japan, a pebble in a lake of mirrors ripples in a wind that echoes, echoes of Fortress America.
>r. George Friedman
>Chairman
>STRATFOR Systems, Inc.
>_________________________________________________________________
>
>
>ASIA WATCH
>
>* Japan to The Rescue!
>
>The Asian financial meltdown tops the agenda as the world's
>leading finance officials convene in Washington for their annual
>round of IMF/World Bank consultations this week. Following Prime
>Minister Obuchi's failure to extract massive, public support from
>the United States, Japan has focused on these meetings as the
>next venue for pressing its case to the world's still solvent
>leaders. In order to enhance Japan's credibility at the G-7 and
>IMF meetings, Japan has been putting forward a far more assertive
>leadership role in Asia. After announcing a new $30 billion aid
>package for Asian countries last week, Japanese Finance Minister
>Kiichi Miyazawa caucused in Washington yesterday morning
>(Saturday) with officials from Indonesia, South Korea, Malaysia,
>Philippines, Singapore and Thailand. Interestingly, the meeting
>took place just prior to a scheduled meeting with U.S. Treasury
>Secretary Robert Rubin. In a joint statement released by Japan
>and the six other Asian countries, the participants "agreed that
>it is imperative...to take stimulative measures to put their
>economy on the path of recovery and sustainable growth."
>Miyazawa also hinted at a program aimed at fostering "stable
>foreign exchange rates." He even suggested that the new program
>might promote a yen-based trade bloc. Miyazawa was holding out
>the carrot and the stick. On one side, he was promising
>Washington the massive stimulation it has long been asking from
>Japan. On the other side, he was threatening the United States
>with an outcome it does not want: a yen bloc. Of course, Japan
>doesn't want that either, as U.S. officials know well.
>
>* But Can Japan Do It?
>
>In the meantime, Japan is busily contending with its own
>financial difficulties. While the markets haven't yet decided
>whether the passage of a complex financial rescue package by the
>Diet's Lower House last Friday is a good thing or not (the Upper
>House will vote later this week), the Obuchi government has
>already put some new ideas on the table for how to deal with the
>problems of smaller financial institutions. Interestingly, the
>LDP now seems prepared to inject some additional public funds
>into this second-tier rescue effort. And where will these new
>funds come from? Good question, as the Ministry of Finance is
>about to revise downward its real GDP growth forecast for this
>year, consumer confidence continues to plummet, and the
>unemployment rate has hit the ceiling.
>
>* The Malaysian Factor
>
>One of Japan's staunchest supporters in its quest for a stronger
>regional role has been Malaysian Prime Minister Mahathir Mohamad.
>But for better or worse, Dr. Mahathir's strong views on the need
>for stricter currency controls and less U.S.-led intervention in
>Asia's economic difficulties have been overshadowed by the furor
>he created over the dismissal, detention, and apparent beating of
>his former Deputy Prime Minister and Finance Minister, Anwar
>Ibrahim. Last week it was reported that both Philippine
>President Joseph Estrada and Indonesian President B.J. Habibie
>considered canceling their participation in the upcoming APEC
>meeting in Malaysia to demonstrate their displeasure over Anwar's
>treatment. Tensions between Singapore and Malaysia are rising as
>well over Malaysia's decision to require written permission for
>Singapore military flights to enter Malaysian airspace. Certain
>Thai politicians have also expressed misgivings, though in very
>moderate tones. Never one to back down, Dr. Mahathir saw fit
>last Friday to deliver a lecture on morality, remarking that "a
>society with high knowledge but low morals is a destroyed
>society."
>
>* China and Taiwan Try To Renew Their Dialogue, Very Carefully
>
>Economic news aside, China and Taiwan are trying to re-open
>political discussions after a lapse of almost three years. Koo
>Chen-fu, a senior adviser to Taiwanese President Lee Teng-hui, is
>preparing for an important visit to the mainland that begins on
>October 14. While there he will meet with President Jiang Zemin.
>Preparations for this visit were going smoothly at the beginning
>of last week, following some intense preliminary negotiations to
>settle details of protocol. However, things became bumpy by mid-
>week, when the Deputy Chairman of Taiwan's Mainland Affairs
>Council Lin Chong-pin predicted instabilities in China's social
>and political structure in 1999. At almost the same time,
>Taipei's Independence Morning Post reported that China was
>preparing to test fire an updated cruise missile, stirring
>concern about China's true intentions. By week's end, however,
>Taiwan was able to smooth things over by announcing it was
>canceling a large military exercise scheduled to take place just
>before Koo's visit. A key focus this week will be whether or not
>this critical mission is able to get of the ground.
>
>* Korea-Japan Reconciliation?
>
>This week South Korean President Kim Dae-jung will visit Japan,
>where he expects to receive the most explicit apology ever from a
>Japanese government about its past misdeeds on the Korean
>peninsula. This will no doubt be an emotional visit for Kim, who
>was forcefully abducted from a Tokyo hotel 25 years ago by South
>Korean intelligence agents while he was in self-imposed exile.
>Of course, the circumstances surrounding that abduction, which
>are still somewhat obscure, will not be on the table for
>discussion. However, the Japanese are planning to put some money
>on the table to smooth things over, reportedly up to $3 billion
>in loans to smaller firms. The Japanese may also raise the touchy
>subject of their exclusion from the upcoming Korean Peninsula
>peace talks in Geneva on October 21, now limited to a four-way
>meeting between North Korea, South Korea, China, and the United
>States. Japan has finally found a good reason to be included in
>the talks, namely the North Korean August 31 missile launch, and
>has put forth a joint proposal, with Russia, that both countries
>be involved in six-way discussions. Japan's pushiness has raised
>eyebrows in China, which has no desire to see Japan's power in
>the region expand. China-Japan relations are already a bit
>stressed over Japan's recent decision to cut back on some loans
>to China, while at the same time allocating new funds to South
>Korea and some other countries.
>________________________________________________________________
>
>
>RED ALERT
>
>* Myanmar Prepares for Deportation of Opposition Leader
>
>Myanmar's ruling junta appears to be preparing to deport
>opposition leader and Nobel laureate Aung San Suu Kyi. The ruling
>junta, known as the State Peace and Development Council (SPDC),
>has staged four massive, pro-government rallies over the past two
>weeks, the most recent being a gathering of 29,000 demonstrators
>in Myitkyina on October 1. Speakers at the rallies have been
>building the case for deportation, charging Suu Kyi and her
>National League for Democracy (NLD) with attempting to undermine
>stability in Myanmar and unravel the country's economic
>development.
>
>At a demonstration at Monywa, on September 30, speakers condemned
>the NLD for calling for sanctions on Myanmar and demanded Suu
>Kyi's deportation, a demand heard at the other three rallies and
>echoing a threat already made by the SPDC. At Myitkyina,
>demonstration chairman U Yup Sau Khaw accused the NLD of
>undermining peace, stability, and national interests. He called
>on the government to "take decisive action against these unlawful
>acts," and called on the people "to continue opposing and
>crushing the power-mad NLD, which gives priority to confrontation
>over peace and stability." He called Suu Kyi a lackey of foreign
>powers that are trying to economically destroy Myanmar, and
>claimed that Suu Kyi and her family "are enjoying sufficient life
>despite the economic sanctions imposed on Myanmar and however
>much we face social difficulties."
>
>Also at Myitkyina, speakers identified as Rawan and Shan minority
>representatives blasted the NLD's "malicious designs" that
>undermined the progress being achieved by the SPDC in the
>development of a market-oriented economy in Myanmar. U Sai Chit
>U, a Shan national, charged that the NLD was deliberately
>attempting to impoverish the people by undermining economic
>development with confrontational tactics. He also claimed that
>the NLD is "causing public anxiety and fluctuation of prices of
>commodities." Other speakers called for the disbanding and
>banning of the NLD.
>
>The confrontation between the NLD and the government has been
>building since a wave of mass arrests in May, and peaked
>following Suu Kyi's efforts to convene a shadow government. Suu
>Kyi issued an ultimatum to the government to convene the
>parliament, whose election the junta had overturned in 1990
>following a landslide victory by the NLD, or else the opposition
>would convene it. When the government ignored the ultimatum and
>arrested over 200 of the parliament members, Suu Kyi announced on
>September 16 the formation of the ten-member Committee
>Representing the Parliament (CRP). The CRP, which includes Suu
>Kyi, eight NLD leaders, and a representative of Myanmar's ethnic
>minority groups, was formed to "carry out parliament's
>functions". It immediately set about making a show of
>"repealing" the state security laws that have been used against
>the opposition.
>
>While the formation of the CRP may have been the immediate cause
>of stepped up efforts by the SPDC against the opposition, it is
>by no means the most significant cause. The current
>confrontation in Myanmar has intensified due, in part, to the
>10th anniversaries of the 1988 uprising, the subsequent formation
>of the current military junta, and the founding of the NLD.
>Additionally, Suu Kyi's creation of the CRP has invigorated the
>opposition. But more important, already an economic wreck,
>Myanmar is bracing for the impact of the general Asian economic
>crisis. And most important, support from Myanmar's ethnic
>minorities for Suu Kyi's latest maneuvering poses a genuine
>threat to stability in the country.
>
>The junta's primary concern is the support the NLD has garnered
>from Myanmar's formerly militant ethnic minority groups.
>Myanmar's ethnic groups have been a major, long-standing source
>of instability in the country. The SPDC has managed to sign
>cease-fire accords with most of Myanmar's minority groups, though
>some continue to battle government troops along the Thai border.
>Yet despite government efforts to win their support, the Shan
>Nationalities People's Liberation Organization (SPLO), the Kayan
>New Land Party (KNLP), and the Karenni National People's
>Liberation Front (KNPLF), together signed a statement supporting
>the NLD's plan to convene the parliament. Junta officials met
>with the groups and claim to have convinced them to withdraw
>their support, though the opposition insists that the ethnic
>groups only backed down under government threats. On September
>28, the SPDC issued a statement charging that the NLD's efforts
>to convene parliament endangered the peace accords with the
>ethnic minorities. The statement charged that NLD activities
>"would lead to the disintegration of the Union and cause
>suspicion between the government and the national groups."
>
>The SPDC's other concern is the state of Myanmar's economy. One
>major factor leading to the 1988 uprising was a sudden decline in
>the standard of living in Myanmar. Ten years later, the
>potential for the general Asian economic collapse to drag the
>already crippled Myanmar economy along with it has the junta
>worried. With financial decline in sight, the SPDC must quickly
>gain control of Myanmar's internal politics, lest economic
>pressures boost opposition support.
>
>The SPDC has seen what Malaysia's Mahatir has seen. Attempting
>to pander to the West and its multi-national financial
>institutions makes no sense any longer, since Western financial
>institutions no longer have much to offer. Bowing to pressure
>from Western financial institutions for social and economic
>reform serves only to destabilize regional regimes, without
>promising sufficient funds for an economic bailout. This was
>driven home to Rangoon in the case of Indonesia's Suharto, whose
>policy of dwifungsi--the dual political and defensive role for
>the military--had been a model for the SPDC.
>
>The World Bank has already severed financial ties with Myanmar,
>as Rangoon has failed to service its debt for six months.
>Rangoon has little incentive to service its debt, as it can not
>expect to receive any further loans anyway. Despite the meetings
>in Washington this weekend, global lending bodies do not have
>sufficient resources to bail out Asia, and even if they try,
>Myanmar could only expect to get the scraps left from bailing out
>countries like Indonesia and Japan. And that is even leaving
>aside U.S., Canadian, and European Union sanctions that Myanmar
>faces. No, like the rest of Asia, Myanmar has to get its own
>fiscal house in order, in its own way.
>
>Myanmar's economic troubles also carry with them a short-term
>benefit for the junta. Aung San Suu Kyi has spoken out in favor
>of sanctions against Myanmar as a means of pressuring the regime,
>and this has provided the SPDC with a powerful tool to use
>against her. The fact that she is married to a Briton and has
>lived in the UK only enhances the perception that she is a tool
>of Westerners, eager to destroy Myanmar's economy with sanctions.
>Foreign companies are pulling out of Myanmar but, though couched
>in the rhetoric of support for democracy and human rights, their
>decisions are being driven primarily by the Asian economic
>downturn. Nevertheless, despite the marginal impact that
>sanctions have had on Myanmar, the perception that Aung San Suu
>Kyi has called down economic hardship on the country is being
>used against her in the case for deportation.
>
>Already outside of Western fiscal structures, Myanmar must make
>sure that it can get in on the new Asian economic bloc. Myanmar
>is not yet a complete outcast in Asia. While Japanese Foreign
>Minister Masahiko Komura assured the U.S. that Japan will not
>resume aid to Myanmar "in the near future," Japan has joined the
>EU in protesting Massachusetts sanctions on Myanmar to the World
>Trade Organization. Furthermore, in February, Japan announced
>plans to help finance reconstruction of the airport at Yangon.
>Myanmar, in turn, is attempting to find something to contribute
>to the Asian economic bloc. On September 29, SPDC First
>Secretary, Lieutenant General Khin Nyunt, met with regional
>leaders to discuss increasing agricultural production by 20
>percent this year. He claimed that the goal of increased
>production was for Myanmar to "be able to give humanitarian
>assistance to some Southeast Asian countries suffering from crop
>shortages due to the financial crisis." While deporting Suu Kyi
>might do nothing to convince Myanmar's Asian neighbors to welcome
>it into a new regional economic bloc, it certainly won't hurt it
>as much as would following the Malaysian model of arresting and
>battering opposition figures.
>
>The SPDC must act quickly to shut down the opposition, in
>preparation for dealing with the impacts of the Asian economic
>crisis on Myanmar. By deporting Suu Kyi, the junta beheads the
>opposition while avoiding the additional political damage of
>actually having to repress her. Abroad, Suu Kyi will likely be
>as effective as the former Soviet Union's Solzhynetsin or Tibet's
>Dalai Lama -- that is, a colorful addition to a benefit rock
>concert or an academic conference, but essentially toothless as a
>leader of the opposition.
>
>The only thing apparently delaying Suu Kyi's actual deportation
>is a rumored split within the junta, specifically between
>intelligence chief Khin Nyut and army commander General Maung
>Aye, over how to deal with her. The options seem to be boiling
>down to arresting or deporting her, and Khin Nyut, apparently
>supporting deportation, has been orchestrating the junta's recent
>campaign. Given Myanmar's ethnic and economic troubles, we tend
>to believe the SPDC's assertions that they will not tolerate Suu
>Kyi and the NLD much longer, and we look forward to attending her
>speaking tour in the near future.
>_________________________________________________________________
>
>
>THE WORLD AND ASIA
>
>>From Bangkok to Iowa: Asia's Future and the American Heartland
>
>This weekend's meetings of the G-7 and the IMF have cleared up
>little in terms of actual policy. What have been made
>inescapable, however, are the following:
>
>* The Asian crisis cannot begin to be solved unless Japan is
>prepared to bear the very real and painful burdens of leadership
>within Asia.
>* The Asian crisis cannot be solved within the structure of the
>post-war liberal trade regime without substantial and painful
>outside assistance to Japan.
>* Outside assistance to Japan will not happen unless the United
>States is willing to bear the real and painful burdens of world
>financial leadership.
>* The United States cannot lead the world on a rescue mission
>unless it is willing to make historical transfers of money and
>credits to Japan and other Asian countries.
>* These transfers cannot be made unless the Clinton
>administration can create a national consensus in favor of such a
>rescue effort.
>
>Thus, the fate of Asia rests neither in Tokyo nor in Washington,
>but in the American heartland. The political geography of this
>crisis requires that we think about places like Chicago's
>suburbs, Minneapolis or Austin, Texas. Any agreement hammered
>out at the G-7 and IMF meetings will require congressional
>approval. Congress' actions are going to be determined by
>American public sentiment. Therefore, Asia's fate and perhaps
>the fate of the international economic system will be determined
>in the coming days and weeks in places that many Japanese have
>never heard of, among people who care little for the Japanese and
>hardly know who Indonesians or Malaysians are.
>
>Normally, the functioning of the international financial system
>is of little interest to the American public. By default,
>specialists in the U.S. Treasury Department and Federal Reserve
>Bank have tremendous power over U.S. policy. Foreign governments
>have become used to quiet meetings with Deputy Assistant Under-
>Secretaries, who have the power and knowledge to make decisions.
>The more critically important an international financial issue
>is, the less power these functionaries have. U.S. public opinion
>tends to focus on a few issues at a time. If a given issue isn't
>on their agenda, there is little oversight. The functionaries
>"own" the issue. When the issue is important enough to be
>noticed by the public, oversight increases and the freedom of
>action by functionaries collapses.
>
>For much of the Asian crisis, U.S. public interest in the problem
>has been fleeting. There was a great sense of unease about what
>was happening "over there" but no real sense either that Asia's
>problems were America's problems or that the U.S. would be
>expected to play a role in resolving the problems. Even deeper,
>there was a sense of satisfaction towards Asia's, and
>particularly Japan's, problems. The period 1980-1992 was
>extraordinarily traumatic for many Americans. The sense that
>Asia in general, and especially Japan, were defeating the United
>States in economic competition was unbearable. Foreigners cannot
>fully grasp the depths of American anguish. This anguish was
>combined with a suspicion that the Japanese were "winning"
>because they were, in some unspecified way, cheating.
>
>Interestingly, most Americans were unaware of the economic
>reversals suffered by the Japanese between 1992 and 1998. The
>Asian economic crisis came as a complete surprise to many who
>still thought of the Japanese as economically invincible. It was
>also a moment of deep satisfaction. No one should underestimate
>how psychologically satisfying 1998 has been to most Americans.
>This satisfaction has competed with anxiety about the
>consequences of the Asian crisis for the United States.
>
>Thus, the idea of U.S. intervention in order to save Japan and
>Asia immediately touches deep veins in the American psyche.
>Satisfaction with victory in the competition with Japan,
>resentment at Japan's "unfairness" during its triumph, and fear
>of Asia's crisis triggering an American economic collapse, all
>collide to assure that this will be a highly visible issue. This
>means that figures as highly placed as Robert Rubin will not be
>the final arbiters of U.S. policy. Congress will control this
>and it will be listening very carefully to its constituents.
>
>Do not assume for a moment that Clinton's proposals to the G-7
>will pass Congress. They may, but many forces will be mobilized
>against them. The policies that are most frequently rejected by
>Congress are those that are most important to a President. The
>issues that are most important to the President usually get the
>most public attention and are the most vulnerable. Clinton's
>health care plan is an example.
>
>* What Americans Will be Saying
>
>The first impulse of most Americans will be to reject the idea
>that the United States should do anything to help save Japan. It
>may also be the last impulse. A powerful counter-argument will
>be made: that the long-term consequence of Asia's economic
>dysfunction would be disastrous for the United States. This
>argument will be extremely persuasive. There is a deep sense of
>unease in the United States, a feeling that global and national
>institutions are fragile and likely to collapse. Concerns about
>the Y2K problem are rooted in this strange uneasiness, this sense
>that there is a deep and potentially fatal flaw in the system.
>This feeling extends very much to the international economy.
>There is a sense that in spite of the unprecedented boom since
>1992, everything is about to come apart. The recent fall of the
>U.S. stock markets fits in with this sense of impending gloom.
>Since the general consensus about the cause of the market
>contraction is that it was caused by Asia's problems, the
>argument that America must save Asia, in order to save itself,
>will resonate.
>
>The weakness with the argument will be that the same sense of
>unease that makes this a strong argument for intervention also
>leads to deep distrust of political institutions and leadership.
>Many accept the argument that Asia's decline will lead to a
>catastrophe for America. But they also believe that the linkage
>is not only unfortunate but the result of mismanagement by the
>international institutions that they are now called on to empower
>to solve the problem. Thus, the argument that America's fate is
>tied to Asia's is believed, but is seen as the problem. From
>this point of view, the solution is to accept the losses and
>sever the connection not only with Asia's economy but also with
>multilateral organizations like the IMF that created the linkage
>and problem in the first place. Indeed, this argument goes, the
>problem extends to U.S. institutions as well, which have fallen
>into the hands of internationalists with more regard for
>international trade than for the well being of Americans. In its
>most extreme form, this argument becomes conspiratorial and
>extremist. In more moderate forms, it represents the views of
>many Americans who feel that American institutions have become
>vulnerable to international forces with very different interests.
>
>America is divided into two camps. On one side there are those
>who are internationalists. They believe that American prosperity
>is dependent on international trade and that international trade
>is dependent on international economic well being. They also
>argue that the post-World War II institutions that were designed
>to create international economic well-being work well, and that
>the political elites that manage those institutions should be
>given the tools needed to continue to manage the system. On the
>other side are the nationalists. They believe that American
>prosperity has been undermined by the international economic
>system, which they believe is structurally biased against the
>United States. Issues ranging from wage differentials, to the
>cost and enforcement of environmental regulations, to impediments
>to U.S. exports, create a situation that is to the massive
>disadvantage of the United States.
>
>This does not have anything to do with Republicans and Democrats.
>Newt Gingrich and Bill Clinton are both members of the
>internationalist group. Pat Buchanan and Dick Gephardt are both
>members of the nationalist group. To be more precise, the
>internationalists currently control both parties, but there are
>very strong nationalist factions in each party.
>
>The issue now is whether the internationalists can convince the
>American public that without a bailout of Japan, the U.S. economy
>will collapse as well. If they convince it of this, they must
>convince the public that the institutions to be used to solve the
>problem from the IMF, to the U.S. Federal Reserve, to the Office
>of the President, can be trusted. Many political and economic
>forces are converging to make this difficult.
>
>* We doubt that a meaningful aid package can pass Congress.
>
>It is our view that the more meaningful the solution, the more
>difficult it will be to persuade the public to go along with it.
>The more meaningful the solution, the larger the dollar amount of
>U.S. loan guarantees. The larger the dollar amount, the more
>visceral the reaction to it. The suspicion will be that not only
>will the problem not be solved, but that the same people who
>created the problem will now be bailed out at the United States'
>expense. In a sense, they will be right. And in that sense,
>there is an excellent chance of defeat for any proposal.
>
>Even today, Japan's levels of unemployment are below U.S.
>unemployment. Japan's interest rates are below U.S. interest
>rates. Japan sells more goods to the United States than the U.S.
>sells to Japan. Whatever the deeper merits of a rescue package,
>the surface arguments against help are powerful and persuasive.
>There will be a sense that U.S. dollars will be used to allow
>Japan both to avoid the consequences of its own actions and to
>emerge, once again, as a devastatingly efficient competitor of
>the United States. It is our opinion that a small and
>ineffective rescue package under $30 billion might have a chance
>of passing Congress. A bailout package large enough to make a
>difference would not pass. Indeed, the battle over passage would
>be brutal and would redefine American politics, bringing to the
>surface organized internationalist and nationalist factions, with
>one of the political parties being seized by the nationalists.
>We, therefore, believe that Asia must devise its own solutions.
>
>It is essential that Japan participate in the solution by
>imposing the austerities it has avoided. Japan's unemployment
>must rise dramatically above U.S. unemployment, Japan's interest
>rates must rise, Japan's trade balance with the U.S. must shift.
>But, of course, if those things were to happen, Japan would sink
>deeper into disaster in spite of U.S. assistance. Thus, we wish
>to extend our warnings from the economic to the political.
>American nationalists may block assistance to Asia, which will
>strengthen the hand of Asian nationalists in a nasty and
>dangerous cycle. There is far more at stake here than the
>economic issues that are currently on the table.
>_________________________________________________________________
>
>
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