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Japan's Teetering Economy Could Bring Hashimoto Down

International Outlook


Posters of Prime Minister Ryutaro Hashimoto, clad in a kimono and brandishing a martial-arts kendo pole, adorn walls all over Japan. During his country's severe bout of financial woes, though, his performance has fallen far short of the can-do image he loves to project. Instead of dominating the situation, he has been weak and waffling.

Around Nagata-cho, Tokyo's Capitol Hill, speculation is rife that Hashimoto's political survival is at risk. If he doesn't rebound soon, he could be toppled in a party coup. Ruling Liberal Democratic Party (LDP) factions behind Foreign Minister Keizo Obuchi or even Secretary-General Koichi Kato, a Hashimoto ally, could deliver the fatal blow. "His base within the party isn't that strong," says Minoru Makihara, president of Mitsubishi Corp.

Weakness at the top is wreaking havoc. The more Hashimoto vacillates, the more power slips back to the LDP's zoku-giin--party hacks who have cozy ties to the ministries and the industries they regulate. They nixed Hashimoto's plans to privatize the huge state-run postal savings system. Their revival sounds the death knell for serious economic reform from deregulation to pruning Japan's bloated bureaucracy.

DITHERING. Hashimoto's fate hangs on a package he'll unveil on Dec. 10. To survive, he must revive Japan's comatose economy that fell into recession in the six months through Sept. 30. He must also bolster Tokyo's rickety financial sector. Failure might spark a run on banks that could endanger the economy.

Public confidence in Hashimoto is low following a series of nasty incidents. After four bank and brokerage failures, customers began yanking deposits from Japanese banks and fled to foreign rivals such as Citibank. A distraught stockbroker jumped to his death from an Osaka skyscraper. An infamous sokaiya, or racketeer, pleaded guilty to accepting $96 million in payoffs for concealing from public view the dirty secrets of a major bank and four big securities houses.

Hashimoto has dithered. He flip-flopped on whether the government should protect bank depositors from losses. He opposed the policy, then reversed himself on Dec. 1. Former Prime Minister Kiichi Miyazawa, meanwhile, seized the initiative: With other LDP faction bosses, he has started calling the shots. Miyazawa, for example, heads a hastily formed LDP committee on financial stability. He used the post to torpedo the Finance Ministry's "convoy method" of handling financial squalls, whereby larger banks dealt with the problems at smaller ones. Instead, he decided, the government needed to act.

But the ticklish task of selling a cynical public on a bank bailout still falls to Hashimoto. It's a political minefield that could cost taxpayers $80 billion--and Hashimoto his job. It exposes him to charges of cronyism for rescuing corrupt or inept bankers. Precedents for such a move are unfavorable. In early 1996, a $6 billion scheme to salvage busted jusen, or housing lenders, triggered demonstrations. Hashimoto could avoid unrest by ensuring that public money goes only to depositors, leaving markets to decide the fate of banks and brokers.

Revving up the economy requires equally deft footwork. Hashimoto is fixated on slashing the budget deficit, now 6% of gross domestic product. But analysts say the loss of key export markets in Asia means that Hashimoto must reverse tax hikes he set in April. Even with big tax cuts, an economic revival before 1999 is remote.

That could be too late to save Hashimoto's career. Like the kendo master he aspires to be, the Prime Minister requires quick thinking--and a big stick--to do the job.EDITED BY JOHN TEMPLEMAN By Brian Bremner in TokyoReturn to top


-- Russian Treasury-bill rates soared to 45% on Dec. 3, compared with their 17% low for the year, as a bout of Asian financial flu hit the country full blast. Foreign investors, after waiting the mandatory one month

to repatriate cash, are hot-footing

it from Russia. Central Bank reserves plummeted $3 billion, to $18 billion, in little more than a week. The stock market is off 40% since its fall peak.

The delayed reaction to the late-October Asian meltdown couldn't be worse timed. The Russian economy was showing the first signs of recovery after six years of decline. Higher interest rates could snuff out the upturn and plunge Russia's budget deeper into deficit. Because of weak share prices, the government postponed the privatizations it had planned for December to raise billions of dollars.

The Russian government, in the meantime, is trying to persuade the International Monetary Fund and the World Bank to release as much asBy Patricia Kranz in MoscowReturn to top

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