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By Kenichi Ohmae

Kenichi Ohmae, managing director of Ohmae and Associates, has written many books on the globalization of the economy, including ''The Borderless World'' and ''The Invisible Continent'' (HarperCollins).

TOKYO -- With the recent warning by Finance Minister Kiichi Miyazawa that Japan's financial system is near collapse, the liquidity crisis we have long awaited has finally come.

The U.S. Federal Reserve and the Bank of Japan are justifiably concerned over the perils this presents because Japanese banks may now have to sell the American government bonds (USGS) that they hold from the '80s when they financed the large American budget deficit.

The very survival of the Japanese banks, particularly the traditionally better performing ones, is at stake. Independent of this crisis, the same government that is trying to save the banks has unleashed the cruel tiger of the Big Bang of deregulation into the domestic market. So, there is a confusion. Does the Japanese government want the weak banks to exit, or to try to save the fleet as before?

In an apparent contradiction, the Ministry of Finance has promised that there will be no more bankruptcies of the major financial institutions, yet the Big Bang necessarily means the survival of the fittest.

But in reality, it does not matter. When Japan's banks fall, they will all fall together. That is the nature of the Japanese financial practice. The Japanese banks tend to form a syndicate for financing large projects. So no bank will be absolutely safe if one of its members fails.

One of the ways American banks and savings institutions recovered after their crisis was by separating out the good and the bad. In fact, there are no ''good banks'' and ''bad banks'' in Japan. This is because if a good bank wants to write off the bad debts and separate itself from the syndicate, other banks will threaten that they might pull out of the projects the good bank is leading.

This is the behavior of a wolf pack. The wolves gang up to get the prey, but in absolute hunger, they suddenly attack the weakest member of the pack. So far, they have been eating one by one from the bottom of the ranks. But the situation is much worse now.

The Japanese economy is now officially classified as ''deflationary'' because the consumer price index has fallen for the past two consecutive years. This is laudable from the consumer point of view. The prices of goods and services in Tokyo have been the highest of all OECD (Organization for Economic Cooperation and Development) countries. For that to come down to a normal level is the best outcome of the open economy. It is not deflation, but normalization in a borderless world.

With an all-time-high unemployment rate of 4.8 percent, consumers have stopped spending much, and their jitteriness is also escalating. However, they are not shy about purchasing what they really like to have and what they really like to do, such as traveling to Europe for shopping and eating.

At home, however, the policy options aimed at avoiding a major crash seem also to have been exhausted as the once glorious Ministry of Finance and Bank of Japan have lost all credibility in the public's mind to steer through the slippery road ahead.

Clearly, Japan is going to slide down further, perhaps even crash. Even now, though, the worst can be avoided, provided that the government is honest and explains the situation not only to the Japanese people but to the rest of the world as this is a matter of global concern and consequences.

To start with, the government of Japan has more than $4 trillion if it wants to cash in its hidden assets and the properties on its balance sheet. This is more than enough to write off all the problems of Japan, and even enough to cover all of Asia's troubled debts. Furthermore, consumers in Japan have $12 trillion in personal savings and $28 trillion in assets.

Japan, unlike other Asian neighbors who have been hit by financial crisis, does not owe money to others. The Japan problem is an entirely internal one: a simple case of mismanagement. It still has a very strong consumer sector, powerful industries with ample exporting capabilities and, above all, diligent people.

The trouble has skyrocketed because the government tried to hide facts and rescue the wrong industries at the expense of the taxpayers.

Had we the political vision and will, fixing Japan would be a relatively simple matter: let the failed banks and corporations exit the market, and open the economy to the globally competitive ones.

In the process of Japan's normalization, the American and other markets will dip a little, but the recovery is going to be fast.

So, instead of demanding that Japan spend more on public works and artificially create jobs for the special interest groups, the American government should work with the Japanese voters to improve the quality of life at the lowest cost of living, by allowing the goods and services to come from anywhere in the world.

The two jumbo jets, unfortunately, are interlinked in their hydraulic systems. The U.S. pilots' control gear is linked to the flaps of the Japanese jumbo and vice versa. So, if Prime Minister Yoshiro Mori implements the good advice of George W. Bush to clean up the overhang of the Japanese financial institutions, then it is likely that the consequent liquidity crisis will pull the Japanese money pooled up in the United States back home. The Americans may call it capital flight, and the Japanese may interpret it as a welcome homecoming. Certainly, this outcome is not intended by the Bush administration, which is not yet familiar with the intricate financial interdependence between Japan and the United States.

The prosperity of American stock and bond markets has been achieved by attracting capital from all over the world, by demanding of its Japanese ally sometimes wasteful economic stimuli measures and even a zero-interest rate. This obviously is not sustainable, and it will have to end.

Given a good pilot, the choppy ride is going to be over in a few years. Once the Japanese economy starts to pull down the U.S. markets, as it normalizes, I hope the Bush administration does not back away from its demands that Japan clean up its own house.

(c) 2001, Global Viewpoint. Distributed by the Los Angeles Times Syndicate International, a division of Tribune Media Services

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