Sumner La Croix, Anil Kashyap: QUICK FIX FOR JAPAN'S ECONOMY: PUMP MONEY, STOP DEFLATION

Date: 04-05-2002

The East-West Wire is a news service provided by the East-West Center in Honolulu. For more information, contact Susan Kreifels at 808-944-7176 or EastWestWire@EastWestCenter.org

***"Fixing Japan's Economy" will be held from 9 a.m.-2 p.m. Monday, April 8, at the National Press Club, First Amendment Room, 529 14th St. NW, Washington, D.C.

Speakers: Magnus Blomstrom of the Stockholm School of Economics, and Anil Kashyap of the University of Chicago, leading European and U.S. experts respectively on Japan's financial system; R. Glenn Hubbard, chair of the Council of Economic Advisers from Colombia University; Sumner La Croix, senior fellow at the East-West Center and chair of the Department of Economics at the University of Hawaii; Hiroshi Ono of the Stockholm School of Economics; and Jay Tate of the University of California, Berkeley. Gillian Tett, former Tokyo correspondent for the Financial Times, will serve as moderator. For more information, contact Japan Information Access Project at (202)822-6040 or access@jiaponline.org

QUICK FIX FOR JAPAN'S ECONOMY: PUMP MONEY, STOP DEFLATION

HONOLULU (April 5) -- The Bank of Japan needs to pump more money into Japan's economy to end deflation, a move that should not raise U.S. concerns about exchange rates, an East-West Center economist says.

"A burst of inflation of 5-7 percent would be extremely healthy for Japan," said Sumner La Croix, a senior fellow at the East-West Center. "The United States should not worry about the exchange rate. The yen will stage a comeback when the economy rebounds."

La Croix will be one of six speakers on "Fixing Japan's Economy," being held Monday at the National Press Club in Washington, D.C.

La Croix said deflation raises the burden of firms' debts, increases the likelihood that firms will not be able to service bank loans, and reduces or eliminates bank profits.

"Business firms cannot be expected to welcome a new economic environment when their balance sheets are in poor shape and they are unable to service their loans," La Croix said. "Eliminating deflation would improve balance sheets and put firms in a better position to grasp the new opportunities that economic reform offers them."

Anil Kashyap, a U.S. expert on Japan's financial system from the University of Chicago, offers additional recommendations: stopping Japanese banks from supplying credit to dead-beat borrowers; selectively recapitalizing banks; genuinely reforming the government-sponsored financial agencies; and forcing life insurance companies to renegotiate their promised pay-out rates rather than bailing them out.

"The financial crisis involves the life insurance companies and the government financial institutions, not just the commercial banks," Kashyap said. "All three sectors are connected and a failure to tackle concurrently the problems of each will doom any reform plan. Time for the current government to act is running out."

Sumner La Croix can be reached by cell phone through next week in Washington D.C. at (808) 375-2397 or lacroix@hawaii.edu Anil Kashyap can be reached at (773) 702-7260 or anil.kashyap@gsb.uchichago.edu