STRATFOR

pms laflame at mindspring.com
Tue Sep 29 11:17:32 PDT 1998


Yo folks-

Sounds plausable to me. It' a Brave World, after all. tra-la.

How would lending of US treasuries by BOJ fit this scene?

Doesn't Japan still have a big stash of cash, or whatever?

And who first posted this orgs address?

I'm goofin off again-bye paula


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>From: alert at stratfor.com
>Date: Mon, 28 Sep 1998 17:57:34 -0500 (CDT)
>To: alert at stratfor.com
>Subject: Japan
>
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>
>Global Intelligence Update
>Red Alert
>September 29, 1998
>
>Obuchi Refloats Idea of Asian Monetary Fund
>
>President Clinton clearly resisted the temptation to play the
>savior last week, sending Japanese Prime Minister Obuchi home
>empty handed. Whether Clinton was showing extraordinary good
>sense, was relieved at public reaction to his Grand Jury
>testimony, or was hemmed in by Federal Reserve Chairman Alan
>Greenspan's refusal to countenance a coordinated interest rate
>cut is immaterial. Clinton resisted. Interestingly, Greenspan
>then went on to announce the likelihood of interest rate cuts,
>which buoyed world markets without decreasing pressure on
>Japanese banks.
>
>The consequences of Obuchi's failure to extract American help
>started to appear Sunday night, as Japan Leasing Corporation went
>bankrupt -- over $16 billion in debt and with no hope of
>recovery. The hopelessness of its situation was made clear in
>Japan's Diet, which finally hammered out an agreement that
>appeared to have some possibility of lasting longer than a day.
>The agreement saw the Japanese ruling LDP abandon its position
>that government funds should be used to save ailing financial
>institutions. In a compromise with its opponents, the LDP agreed
>that funding would be provided to buyers of ailing banks, but not
>to the banks themselves. In other words, depositors would be
>saved, along with some investors, but the management of the banks
>would be punished. With all hope lost, Japan Leasing, a
>subsidiary of the ailing Long Term Credit Bank of Japan, went
>under. Japanese markets actually rose on the news, relieved that
>the blood-letting was about to begin.
>
>In the midst of this excruciating process, the Japanese
>leadership is desperately searching for a policy to call its own.
>Recognizing finally that Japan's problem and Asia's are one and
>the same, Japan is refloating a potentially historical idea.
>According to Japan's Kyodo News Service, Japan will propose at
>the upcoming G-7 meeting that an Asian Monetary Fund be
>organized. According to Kyodo, which is usually well informed,
>Japanese diplomats are now in the process of coordinating with
>other Asian countries to present a coherent framework. This idea
>was proposed previously by Japan and other Asian countries, but
>was rejected by the United States. Obuchi seems to have decided
>that if Clinton was not prepared to help Japan, then Japan was
>under no obligation to remain within the American conceptual
>framework.
>
>The basic idea of an Asian Monetary Fund is the same one that
>underlies the International Monetary Fund. Asian countries would
>pool their remaining foreign reserves and use that war chest to
>defend the currencies of weaker countries when faced by sudden
>and unexpected outflows of capital. This is the role that the
>IMF is supposed to play. However, IMF funding usually comes with
>strict requirements, including budget cuts, closing failing
>financial institutions, writing off bad loans, and opening
>markets to foreign competition. In this sense, the IMF is
>increasingly seen by Asia as an American tool, used to pry open
>closed markets and destabilize potential competitors.
>
>Since the Japanese are not getting much direct help from the
>U.S., and since the IMF has become increasingly suspect
>throughout the region, an Asian Monetary Fund has become an
>increasingly important idea. It would be expected that it would
>provide funds without the onerous requirements of the IMF. This
>would mean that the existing social and economic structures would
>not be destabilized. In other words, an Asian Monetary Fund
>would do what the IMF does without the toll that IMF help exacts.
>
>Of course, there is more than a bit of fantasy involved here.
>All of Asia is in financial meltdown and monetary reserves have
>drained out of the region. The idea that Asia can collectively
>protect their currency, where not one of them has been able to do
>so, is arithmetically dubious. First, it assumes that there is a
>reserve to draw on. Second, it assumes that financial imbalances
>will courteously queue up, allowing a limited asset to be
>sequentially allocated. Finally, it assumes that stronger
>nations will willingly pool sufficient cash to protect weaker
>nations, in spite of the fact that this will increase their own
>vulnerability.
>
>In spite of these obvious weaknesses, the idea has a growing body
>of supporters in Asia. It is a logical expression of the growing
>Asianist bloc in the region. It also is said to have some
>American supporters, like Paul Volcker, former Federal Reserve
>Chairman, whom former Prime Minister Miyazawa claims is in favor
>of it. It is certainly not something entirely against U.S.
>interests, since it forces Asia to clean up its own mess and
>excuses the U.S. from any action. In the long run, however, an
>Asian Monetary Fund has profound implications.
>
>Given its obvious weaknesses, such a fund could not function in
>the short-term without some degree of regional currency control.
>For the reasons given, the AMF could not, by itself, stanch the
>outflow of money from a major country, like Korea. However, its
>infrastructure could serve as an instrument for the
>administration of regional currency controls. If that were done,
>short-term fluctuations could be avoided, while the reserve fund
>could be organized as an Asian version of the Eurodollar to
>facilitate regional trade.
>
>It is extraordinary how far we have gone. Japan, which has
>eschewed regional political leadership and which has benefitted
>most from Breton Woods, is now essentially moving to create a yen
>bloc. We suspect that this is not what Obuchi really wants. By
>leaking that he is planning to offer the proposal at the G-7
>meeting, he is trying to warn the United States of the
>consequences of its unwillingness to help Japan. As a bluff it
>is unlikely to work. A massive U.S. bailout of Asia is not going
>to happen in the current American political climate.
>
>Therefore we are in a classic situation where a desperate bluff
>may well turn out to be policy. Since Japan and the rest of Asia
>cannot genuinely restructure their economies without being
>willing to endure social upheaval, they are going to trade long-
>term recovery for short-term stability. This has been their
>policy all along. It is a policy that has so enervated their
>economies that the only way to maintain their dilatory policies
>is with a modest step with radical implications. If Asia creates
>an Asian Monetary Fund, it will not stop until it creates an
>Asian currency bloc under Japanese leadership. When that
>happens, and we believe it will, the very texture of the
>international system will have changed irretrievably. We are
>entering a world of regions, replacing the much-vaunted global
>economy.
>
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