[talk] Learn Lessons of Economic Surgery from South Korea

Takashi Anzai: President I.Y. Bank

Born 1941. B.A. from Department of Law - Tohoku University in 1963 and joined the Bank of Japan. Worked as: Director of the Niigata Branch, Assistant Director - Operations Department, Director - Bank Examination and Surveillance Dept. and Executive Director. President - The Long Term Credit Bank of Japan in 1998. In 2000, Executive Advisor - Ito Yokado Inc. Current job since 2001.

Yukiko Fukagawa: Associate professor of the department of economics of Aoyama Gakuin University.

She also works as a faculty fellow of the Research Institute of Economy, Trade and Industry (RIETI). She has specialized into East Asian economic development and published "Kankoku senshinkoku keizairon("Korea's economic development: a micro analysis on the maturity process") , "Chugoku no WTO kamei to NiChuKan boueki no mirai"("China's membership in the WTO and the future of Japan-China-Korea trade"). She received her B.A. in Economics from Waseda University, M.A. in International Economics from Yale University and finished PhD in Business History from Waseda University.

The Japanese financial system is already about to fall into a serious phase. The Koizumi administration clarified its stance to accelerate the final disposition of the problems of non-performing loans with the change of his Cabinet, which comes from the recognition that a financial crisis is about to emerge before our very eyes. Unless the proper steps are to be taken now, the Japanese economy will fall further into recession. To avoid a financial crisis, what should we do?

One answer might come from our neighboring country, South Korea. At the end of he 1990’s, South Korea’s short-term debts far exceeded its government reserves of foreign reserves, and South Korea experienced a hard time of its currency, the Won collapse. However, under the strict guidance of the International Monetary Fund (IMF), its growth recovered starting from the year 2000 (Fukagawa). The structural reforms were implemented during the three years from 1998 to 2000, and if we look at these three years in South Korea, we should be able to learn lessons for Japan regarding how to implement structural reforms.

The most important lesson from the South Korean case was that “South Korea did not permit postponement” (Fukagawa). Corporations and financial institutions implemented structural reforms together under strict time limits. From this, “the market moved in a direction which gained confidence” (Anzai). There was also strong intervention by the government. President Kim Dae Jung required “sharing of the pain” by the South Korean people, and showed that if temporary pain is borne, there is an exit towards revitalization.

Because there are many differences between South Korea and Japan in the political and economic situations, it is not necessarily possible for the every lesson from South Korea to be applied to the case of structural reform in Japan. However, looking at the present situation of Japanese reforms, “even if we are in the phase where postponement is impossible, there is too little sense of crisis in Japan” (Anzai). People neither see the exit from this serious situation, nor they will hear the government message that the exit is this way. In the South Korean structural reforms, there was a clear message of the exit because there was a sense of crisis. The decision by the Koizumi administration to undergo surgery must proceed with the communication of such a message.