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The Many Faces of Privatization in Asia
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14144 |
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Section : |
CURRENT ISSUES
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1 / 1988 |
3,812 Words |
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John Tepper Marlin
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The remarkable range of Asian experience offers important lessons for other countries on the value and dangers of privatization--and differences among the economic systems in Asian countries.
The lessons are important for the United States and Canada as these two countries try to emulate the British experience by developing strategic approaches to privatization--in the United States through a presidential commission and campaign by the Office of Management and Budget, and in Canada through a cabinet-level minister.
Understanding the Asian experience in this arena will also prove valuable to investors who have learned from the painful aftermath of Black Monday (on the New York Stock Exchange) about the relevance to them of overnight developments in Asian capital markets.
The following review of privatization in some Asian countries is selective, focusing on the lessons to be learned.
Japan
Privatization in Japan dwarfs in economic significance anything happening elsewhere in Asia. The privatization--deregulation--of Japanese finance is having worldwide implications. The largest four banks in the world today (the so-called Big Four) are Japanese. The head of U.S. operations of the world's largest bank, Dai-Ichi Kangyo, when asked the bank's total assets, responded: "$240 billion. No, I am wrong. The dollar was down today. It is $250 billion." Of this quarter-trillion, 10 percent is at the disposal of the U.S. branch; this $24 billion or so would make the U.S. operations of Dai-Ichi Kangyo about the 11th largest U.S. bank.
Unlike British Prime Minister Margaret Thatcher or President Reagan, former Japanese Prime Minister Yasuhiro Nakasone had few ideological predilections toward privatization. His motivations were pragmatic. The Nakasone administration is said to have been traumatized in 1979-1980 by two events:
(1)The 1979 government securities crisis, when the Big Four refused to accept more government debt on the old terms into their already-swollen, illiquid, and low-yielding portfolios. (The Japanese government had been running a deficit every year since 1973, and Federal Reserve Board Chairman Paul Volcker had just raised U.S. interest rates from 9 percent to 13 percent; Japanese rates went from 7 percent to 10 percent, wiping out a large proportion of the value of outstanding Japanese bonds.)
(2)The 1980 elections, when Japanese voters shocked the incumbent Liberal Democratic Party by showing their deep hostility to the party's suggestions that the government might have to raise taxes to pay for the higher cost of debts incurred by government deficits and the need to refund old bonds.
Privatization offered a solution to both of these problems. Eliminating foreign exchange controls and deregulation of the financial sector would broaden the market in Tokyo for Japanese debt, while allowing the Big Four the ability to diversify into the debt of other countries. Furthermore, privatization of government-owned corporations like Japanese National Railways offered the promise of cutting government spending by eliminating the
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