Japan's financial role in the 1990s - presented by the author at the 32nd Annual Meeting of the National Association of Business Economists, September 23-27, 1990 - International Perspective

Business Economics, Jan, 1991 by Takeshi Ohta

countries and the Soviet Union.

In addition to these problem and tasks, there is another, but most crucial problem: How to finance the cost to absorb these East European and Soviet economies into one international market economy and how large the cost will be.

No plausible estimates about this cost have yet been made. What we could only presume at the moment is that the size of the financial needs and cost will be formidable, but net savings available for this purpose around the world is rather limited even in the medium term, taking into account the overhanging needs to finance LDC debt and the U.S. budget deficits. But, the task to absorb East European and Soviet economies into the international market economy is the most important historical challenge with which the world economy has been faced since the end of World War Il. We have to accomplish this task, and, thus, financially speaking, all the major countries have to try to save more and/or spend less in the medium or long term in order to cope with this task.

CONCLUSION

In concluding, I would like to reiterate that, in order to implement the historical task with which we are now faced, the U.S., Europe and Japan should bear collective responsibility under U.S. leadership, further enhancing international policy coordination.

In this context, what should be done first of all is to incorporate fiscal policy discipline in the framework of macroeconomic policy coordination among nations and, in particular, for the U.S. to reduce its budget deficits. More globally speaking, in order to enhance policy coordination among nations, we have to improve our multilateral surveillance process. And for that process:

1. We, the major countries, should be prepared to

pursue firmly the common policy objective of "noninflation"

through prudent fiscal and monetary policies,

2. We should act forcefully as well as flexibly in a way

to convince markets fully, and

3. We should be prepared to subordinate our national

interests to international objectives when really

necessary.

As you are well aware, now the U. S. and Japanese financial markets are almost completely integrated. But the U. S. and Japanese manufacturing industries are also multinationalized and intertwined in their operations. Money and capital move around across the border throughout twenty-four hours. Under the globalized and interdepended world, no matter which country a corporation comes from, what really matters is whether new capital, technological knowhow and managerial expertise are contributing to the innovations, improvement of productivity and the prevention of undue conflicts among nations.

As we see in such a close and interdependent relationship between the U.S. and Japan, as with marriage, the close international economic cooperation can be enjoyed only at the expense of something. Further enhancement of a good relationship between the U.S. and Japan is all the more crucial in the 1990s to all countries in the world.

* Takeshi Ohta is a Special Adviser to Daiwa Bank, Tokyo, Japan. He was former Deputy Governor for International Relations, The Bank of Japan. This article was presented at the 32sd Annual Meeting of the National Association of Business Economists, September 23-27, 1990, Washington DC.