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"The effects of the financial and economic crisis, and measures for overcoming the crisis in the case of Japan"
Presentation at the conversation between Dr. Lippold, MdB and Ambassadors of the ASEAN+3
Paul-Löbe-Haus, Berlin
on 7 May 2009
Dr. Lippold,
Honoured guests,
It is a great honour for me to be able to address you here at this important meeting between the Members of the German Bundestag whose portfolios cover the ASEAN+3 and the Ambassadors of these countries.
Without a doubt, the international community is currently experiencing a financial and economic crisis without parallel, the kind which occurs "once in a hundred years". In Japan, too, the simultaneous worldwide collapse of the economy led to a negative growth rate in the last quarter of 2008 which, if extrapolated to the whole year, amounts to 12.1%. The growth forecasts for Japan this year are minus 3.3% according to the government, minus 6.5% according to the OECD, and minus 6.2% according to the IMF. All these figures are exceptionally bleak. For Germany, the federal government and the five leading economic research institutes are unanimous in their forecast of negative growth of 6%. The situation is thus of a similar gravity to that in Japan. The banking and finance market in Japan is relatively stable, and the cause of the economic decline in my country is not to be found in the financial sector. The cooling down of foreign markets as a result of the worldwide economic downturn, and a comprehensive reduction in exports as a consequence of the strong Yen, may be seen as the most important reasons for the economic decline.
As you know, Japan is the only leading industrialized country to have experienced the collapse of a bubble economy and a resulting period of deflation. I believe that the lessons Japan learned from this experience can certainly serve as guidelines in overcoming the current crisis. In Japan, the collapse of the Bubble Economy and the subsequent period of economic recession in the 1990s is referred to as the "lost decade". For my country, it was the first experience of its kind since the war. Without any textbooks, and with no proven methods available, various measures were employed on a principle of trial and error. The general lessons drawn from this were that the following things were necessary: a comprehensive purging of the loans defaulting as a result of the banking and financial crisis, provision of essential financial policy support (e.g. injections of capital), and the setting up of generous economic stimulus packages.
In the financial sector, measures were implemented which had been coordinated with each other, such as the guarantee of all savings, the write-off of defaulting loans, the nationalisation of banks, and the deployment of public funds. On top of these, comprehensive economic stimulus packages were created which contained a concerted financial policy commitment. With the help of all these steps, it was finally possible to master the crisis. This took ten years.
At the second summit meeting to discuss the financial markets and the world economy, which took place on 2nd April in London, an agreement was reached which may be called historic, in view of the great decisiveness by the heads of state and government not to allow such a crisis to reoccur. In particular, an emphatic message was sent out with regard to the following points: (1) the recovery of growth and employment, (2) strengthening financial supervision and regulations, (3) upgrading the international financial institutions, (4) the battle against protectionism, and (5) development. Already at an early stage, at the Washington Summit in November last year to be precise, Japan had announced that it would be increasing its aid for the IMF to 100 billion Dollars, as well as making funds available to finance trade. My country is proud that it acted as a driving force behind the agreement reached at the London Summit. It is now necessary that the steps agreed on in London be decisively and quickly implemented.
I would like now to say briefly what steps Japan has taken so far in response to the current crisis. Prime Minister Aso called Japan’s economic stimulus measures, which were put into effect between autumn last year and spring this year, a "three-stage missile". The first and second supplementary budgets and the budget for 2009 were passed in quick succession, with an aim of expanding domestic demand. This three-stage missile has a scope of 577 billion Euros (75 trillion Yen), of which 92 billion Euros (12 trillion Yen) go on financial measures. In addition to these measures, the cabinet has now decided to pass a so-called fourth level, a further supplementary budget of 483 billion Euros (57 trillion Yen). Of this, 115 billion Euros (15 trillion Yen) will go on financial policy measures. Extraordinary situations call for extraordinary solutions. Furthermore, from the point of view of the three Ts – Targeted, Timely and Temporary – the money needs to be spent wisely. The newly approved "Countermeasures to Address the Economic Crisis" not only serve to prevent a further economic collapse, but also place great emphasis on two points. Namely, the calming of consumers affected by the recession directly, where the focus is on employment and social security, as well as support for parenting. The second point links these measures with the future growth of the economy. One example of this is the low-carbon revolution. Here, the government promotes the installation of solar power systems on the roofs of residential and office properties and state primary and secondary schools, the purchase of environmentally friendly vehicles and the use of environmentally friendly household appliances. For this, 18.3 billion Euros (2.2 trillion Yen) of funds and an assignment of a further 12.3 billion Euros (1.6 trillion Yen) of state resources have been set aside.
In order for the world economy to find its way back to growth, it is of course not enough that just the Japanese economy recovers. Asia, a region in which forty percent of the world’s population lives, and which in recent years has achieved average growth rates of four percent, also disposes over the greatest latent potential. It is hugely important that this region contributes to the world economy as "the centre of growth open to the world".
Prime Minister Aso has also mentioned how important it is that Japan takes up a stance which enables "Asia to grow as a whole across national boundaries". We need a positive cycle in which wealth is created in Asia, and then feeds back to fund employment and innovations in Japan. This in turn leads to the further development of Asia. Regarding my country’s engagement as we overcome the current crisis in Asia together, I would like to explain some further details to strengthening growth in Asia, and increasing internal demand within the region. First, to strengthen the growth potential of Asia, we may anticipate that with a unified and systematic expansion of regional infrastructure, with the development of industries and with improvements to the various systems, the neighbouring regions to Japan, and their respective industries, may develop in leaps and bounds. Japan is operating with the various countries and has proposed the creation of a comprehensive development plan which contains, among other things, initiatives to expand infrastructure, plans for industrial development, mechanisms to provide capital, and improvements to the systems surrounding, for example, customs duty. It is estimated that infrastructure requires 538 billion Euros (70 trillion Yen) over five years, with the emphasis on ASEAN and India. From this money, 77 billion Euros (10 trillion Yen) is already involved in the conception and planning stage.
On top of this, Japan is supporting this engagement via the mobilisation of ODA and other public financial means as well as through private capital. In order to obtain new private investment to expand infrastructure in Asia, trade guarantees of 15.4 billion Euros (2 trillion Yen) are being prepared, to be used above all for joint projects between the public and private sectors. The 15.4 billion Euros (2 trillion Yen) ODA which Japan recently made available to Asia and the 3.8 billion Euros (500 billion Yen) for the "Initiative to Support Investments in the Environmental Sector" of JBIC (Japan Bank for International Cooperation) are being used to contribute to shaping infrastructure in Asia. In addition, JBIC has made two billion Dollars (1.5 billion Euros) available and, together with the World Bank, set up a fund to expand the capital of banks in developing countries.
In addition, as stability in Asian market is critically important for the region, Japan will offer swap arrangements to ASEAN countries to provide Yen in case of financial crises separate from the Multilateralised Chiang Mai Initiative (CMIM). Its total amount will be up to 60 billion US dollar equivalent. Combined with the contributions to the CMIM, Japan will provide in total about 100 billion Dollars of liquidity support through swap arrangements.
In order to attain sustainable growth in Asia, engagement in the environmental sector must not be forgotten either. Using the excellent Japanese environmental technologies as well as technologies for new energy sources and for saving energy, projects to increase the circulation of resources and promote sophisticated water circulation are being supported across Asia. In view of the still increasing demand for food and energy, and given the quest for sustainable growth shared by all countries, an engagement to stabilise supply and demand is desirable. Japan is supporting improvements in food production in Asia over the next five years with one billion Dollars (770 million Euros) and is offering training in this field to 1200 people.
The second point, which gains great importance with respect to the development of Asia, is the expansion of internal demand in the region. In addition to the incentives for investment within the framework of the development plan for the whole region, it is also important that consumption in Asia increase.
So that the middle classes in this region feel secure and increase their consumption, a social network needs to be created. At the same time, the middle classes also need to grow, through improvements in education. In order for individual countries to be able to undertake these tasks of their own accord, collaboration across the whole of Asia is important, so that, for instance, examples of best practice can be shared or common indicators set up. We stand at the threshold of a new era, in which a middle class will emerge across the whole of Asia, and strong growth will be achieved on the back of internal demand.
As has been demonstrated here, Japan has not forgotten its global responsibility, as the second largest economy in the world, to lead not only its own economy, but also the economy of the region and the world economy as a whole, back to a course of growth.
The national economies of Japan, China and South Korea create 15.9% of worldwide Gross Domestic Product. The three countries thus have a greater joint Gross Domestic Product than Germany, Great Britain and France. In December last year, Japan organised a summit at which Japan, China and South Korea came together for the first time independently of other forums. This event will take place regularly from now on and the heads of state and government will push forward directly the future increase in collaboration between their three countries. I think that this is an incredibly important step forward for collaboration in East Asia. The financial and economic crisis will further advance the intensification of collaboration between Japan, China and South Korea. This regional collaboration within Asia must now be connected organically with the worldwide response – the measures agreed at the London Summit, for example – in order to overcome this worldwide crisis via global collaboration.
If we direct our attention to Germany, I would like to point out with reference to the commonalities between Japan and Germany that both countries not only possess strengths in the manufacturing of goods (Jap. Monozukuri). As market economies with relatively small differences in their economies and their income, they can also take on an active role in the restructuring of the future financial and economic order. Both Japan and Germany possess economic structures based on exports, and it is difficult to reshape these structures into a domestically oriented economy overnight.
However, economic measures must be sought which gradually create a balance between a dependence on exports and domestic demand. The question of how Asia’s economic growth can be linked to the expansion of domestic demand in Japan presents a good opportunity both for the government and for businesses to apply all their wisdom.
Japan must not give up its strengths; rather, it must strive to deepen collaboration within Asia further, on the basis of precisely these strengths. At the same time, I feel that Germany, as the motor for growth in Europe, should expand its collaboration with the other European countries further. Both countries should then, as a result of deepening collaboration projects which cleverly exploit the strengths of Japan and Germany in monozukuri, be able to contribute to the recovery of the world economy.
Thank you for your attention.
(Exchange rate: 1 Euro = 130 Yen)
- German Version: "Die Auswirkungen der Finanz- und Wirtschaftskrise sowie Maßnahmen zur Überwindung der Krise im Falle Japans"
