April 30, 2003
MR JOHN McCARTHY: Well, thank you very much, Philip, and thank you, ladies and gentlemen, for doing me the honour to come along to this luncheon today. I should also like to acknowledge the presence of the Japanese Consul-General in Sydney, Mr Kato here today, as well as the representatives of several Japanese companies. I’m delighted to see them here, although I have to say I am somewhat daunted always by telling people about their own country. I always find that a little bit difficult to do, but I am going to do my best.
What I would like to do is talk to you today - and I emphasise that really I am giving my personal views - I am not representing in a formal sense what the Australian Government’s attitude is to Japan. But I would just like to, I think, give you some impressions that I have after a little bit more than 18 months in Tokyo. You would find, were you to go to Tokyo, there would be plenty of people who disagree with what I have to say, because it is a place now where there are a lot of very well informed views on what is going to happen to Japan and they very often differ considerably from each other. It’s that sort of place and that’s what makes it, I think, very interesting.
Now, if you were to be reading the international press about Japan, the Australian press, but particularly newspapers such as the Asian Wall Street Journal, Financial Times, the international press generally, I think you would be forgiven for having a less than sanguine view about the future of that country. And I don’t want to deny that there are enormous problems in Japan, nor would I wish to deny that the Japanese still have a very long way to go and have, in some respects, moved too slowly on reform. But what I would like to say, I think, essentially, is that perhaps a little bit more progress is being made than the Japanese and this particular Government in Japan, are generally given credit for. I don’t wish to appear as an apologist. It’s merely my impression, but sometimes it is the wrong impression that people have overseas.
But the problems are considerable, and I think a lot of you would be well aware of that. For the last 10 years Japan has been in and out of recession. It has had four recessions. From a country which was booming in the 80s, it has spluttered along during the 90s. It has amassed a very considerable public debt; something like 140 per cent of GDP. It has a very serious non-performing loan problem in the banking sector, which is in clear need of restructuring. Deflation is almost universally acknowledged as a problem which has to be attacked if the Japanese economy is to emerge reasonably successfully from the present doldrums in which it finds itself. The stock market is in very bad shape. It is at its lowest point for some 18 years. To some degree that can be attributed to the worldwide slump in stocks, but by the same token, there are clearly reasons behind this which are peculiarly to do with the state of the Japanese economy.
The Japanese Government has a problem in that there is an enormous amount of pressure on it to put through a successful program of reform. But to put through a successful program of reform a lot of the existing economic structure, quite clearly, has to be damaged; has to be broken before you can rebuild again. You come against the immediate problem when talking to Japanese about what do you do with the people when the structure is broken? There isn’t the safety net in Japan which is sufficient to withstand this sort of damage to the economy that people envisage will occur during the restructuring process. And so the argument that you constantly hear in Japan is whether you should apply the anaesthetic first in sufficient quantities, which means spending and stimulating demand, in order to withstand the pain of restructuring. And there is an argument that the LDP stalwarts will constantly put up that the economy needs restructuring, but not just yet, because it’s going to be a little bit too painful if it’s done right now. But that’s a constant dilemma and a constant debate.