Kato Koichi Official Site

The financial crisis that struck Asia in the summer of 1997 seems to have bottomed out, at least in terms of macroeconomic indicators. I admit that the clouds of pessimism have not yet cleared. People are still concerned that Asia may be unable to recover. But if we review the past two years, we find that countries around the region have been vigorously implementing bold reforms of a sort that none of them had been able to accomplish for decades. I do think it's fair to say that these structural reforms are themselves another "Asian miracle. "
For human beings, the years of puberty and adolescence are the time of greatest development, both physical and psychological. They are also a time when bodies and minds are liable to become temporarily imbalanced. When this happens, a spell of adjustment is necessary. The same may be said of Asia. In the wake of the crisis, a number of problems have burst to the surface, including inadequate financial infrastructure, opacity in business management, and excessive levels of bureaucratic control. But these are like the pains that a fast-growing adolescent is likely to feel in his joints. They are a difficult but probably unavoidable part of the growth process.

First, I believe the key is technological transfer. Japan, as an advanced electronics-oriented nation, has taken substantial measures to facilitate technological innovation. Such technological innovation can then be disseminated and shared with Asian countries through technological transfer. Such innovations will be of critical importance in the recovery process, for they will support and accelerate economic revitalization. Innovation in the field of information and communications technologies will then lay a firm foundation for enhanced interlinkage among Asian economies. Also, sharing the same innovative technologies in the region would be a strong basis for enhanced cooperation in other areas.

Second, ultimately, it will be appropriate for Asian economies to consider introducing some stable currency arrangement. One of the reasons that the Asian crisis broke out despite Asiasymbol 146 \f "Times New Roman"s sound economic fundamentals was that Asian currencies were pegged to the U.S. dollar. Stability in exchange markets not only prevents future crises but also is one of the critical prerequisites for sound growth in the region. Although this idea may sound unrealistic at this moment, it would be beneficial for us to work closely under the spirit of mutual cooperation toward such an idealistic goal. Meanwhile, for the immediate future, I think it is probably appropriate to consider a regional cooperation scheme for currency support in Asia. One important lesson we learned from the crisis was that during a crisis, we should complement IMF loans with some kind of regional cooperation. Japan is willing to play a leading role to this end.

Third, Japan will make every effort to ensure Japanese recovery in order to sustain and supplement efforts in other Asian countries. Japan has taken, and will continue to take as and when necessary, every measure to increase domestic demand and secure the sound growth of the Japanese economy. The Japanese economy should serve as an engine for growth in the Asian economies. Also, Japan will continue its support programs, such as the New Miyazawa Initiative. This initiative provides a 30 billion dollar fund to secure sufficient public capital flows needed for the recovery. If necessary, such programs will be expedited and expanded further.

This brings us to the question: "Does Asia have what it takes to achieve another round of development? " To this, my answer is a resounding yes.

Growth requires a number of conditions-a good labor force, an accumulation of capital, infrastructure, technology, and markets. If we consider Asia by these criteria, what strikes us first of all is the high level of education. This is supplemented by a deeply rooted work ethic. The region also has an exceptionally high rate of savings. And it has built up considerable stores of infrastructure and technology over the course of its development. Furthermore, most of its countries have large populations, meaning large domestic markets, along with major endowments of natural resources. For the former communist countries, the process of reform is complicated by the difficulty of implanting free-market concepts, but Asia is well positioned in this respect as well, having a longer history of international economic dealings than any other region in the world. Finally, the countries of Asia are fortunate to have relatively stable political systems overall and leaders who are firmly committed to reform.

Needless to say, in order for the reform process to succeed, the rest of the world must both support the reforms and maintain its own growth in the meantime. In particular, it's essential that Japan achieve a recovery in its own economy, which accounts for two-thirds of the region's total output.

Within Japan, both the government and the private sector are now working in concert to achieve structural reform. It's true that the 1998 fiscal year has been one of economic contraction, with gross domestic product expected to be down by 2.2 percent. But this contraction was an inevitable by-product of the reform process. Politicians, business executives, and ordinary citizens in Japan have recently come around to the realization that the only way to escape from the current recession is to speed up the reshaping of our society into one based fundamentally on a market economy. Japan has been reaching a watershed on the road to reform, and from now on we can expect to see a rapid transformation.

Even though our country is busy with reform at home, we have absolutely no intention of shirking our economic responsibilities toward the rest of the world, particularly toward the rest of Asia. The Japanese government has come out with a two-pronged set of aid programs consisting of financial support to help tide Asian countries over their immediate problems and assistance for structural reform aimed at strengthening the competitiveness of their real economies. In the area of financial support, last fall Tokyo announced the New Miyazawa Initiative, which provides 30 billion dollars in aid on top of the 41 billion dollars that had already been promised by last summer. And in the area of assistance for structural reform, Japan has set up a special yen loan facility to provide approximately 5 billion dollars; we are also committed to helping out with human resources development, including a program to provide local training for 10,000 people who will play a core role in industrial development. This is three quarters of the global total of bilateral aid to the region, and it is 1.5 times the total of multilateral aid provided through the IMF, World Bank, and Asian Development Bank. I believe the firmness of our commitment to the region should be obvious.

The countries of Asia are now experiencing a variety of difficulties as they implement their programs of structural reform. But the conditions necessary to make these reforms succeed are now being met. I am confident that Asia will develop as the world's leader in innovation for the twenty-first century. And Japan is doing its part to make this happen.
My dream for the new century is of an Asia where Europeans and North Americans will come to learn technology-in other words, a world of true technological exchange. To those of you who think Asia is in the pits, I would offer a reminder that the biggest profits come from buying low. Asia's potential is huge. We mustn't let it go untapped.

Thank you.