[Viewpoint] When crisis can be opportunityIn the aftermath of the most powerful earthquake in Japan’s history and the tsunami it unleashed, the country’s economy is now struggling. The damage and number of casualties are horribly difficult to grasp. Roads were destroyed, airports and ports were shut down and factories were shut down. Electricity and water supplies were cut and communication networks were severed.
The economy of Japan’s northeastern region is paralyzed. Fears of explosions at the Fukushima Daiichi plant and the growing possibility of radiation leaks have gripped the island nation. The Japanese stock market is plummeting.
Although the economic hubs in Japan’s southwestern region, south of Tokyo, have been saved from the disaster, the great earthquake and its aftermath are slowly undermining Japan’s economy. The supply of electricity to the northeastern region is limited, and factories, stores and homes in other areas are experiencing the effects. Factories were forced to shorten their operations while daily necessities have become scarce. Will Japan’s economy collapse?
An economic slump will be unavoidable. The direct economic loss from the quake is expected to be $100 billion to $300 billion. The 1995 Kobe earthquake resulted in 100 trillion yen in damages, which could be translated into $120 billion with the current exchange rate.
Recovery work on the infrastructure and basic living foundations in the quake-stricken northeastern region will require about $180 billion to $250 billion. The amount is a burden for the Japanese government, which has long suffered from enormous sovereign debts and fiscal deficits.
Merrill Lynch has estimated that the earthquake will lower Japan’s growth rate for this year by 0.2 to 0.3 percentage points, under the assumption that the damage won’t increase. If another earthquake hits or the nuclear crisis worsens, the economic loss and the cost of the recovery will grow.
But damages from a natural disaster do not always translate into an economic slump. There are many possibilities for recovery depending on how well and fast the rebuilding efforts are carried out. Japan’s economy could even grow faster this year based on the recovery efforts.
For example, production activities in the areas that were not hit by the quake could become more active to meet the demands for recovery work. That could cancel out the decrease in production in the quake-stricken areas.
In other words, the Japanese government’s burden for the enormous reconstruction projects can be interpreted as massive investment demands. The Japanese economy has suffered for a long time due to shrinking domestic demand, which is now quickly being replaced by new demand.
A crisis is an opportunity. After the 1995 Kobe earthquake, Japan’s gross domestic product went up by 2 percent thanks to rebuilding projects. What the Japanese economy needs is a good earthquake, a senior Japanese official was quoted as saying a few years ago by the Financial Times.
The dramatic expression was shocking, but the remark indicated that the Japanese economy was in desperate need of drastic stimulation to escape a depression. It’s clear that he didn’t really want an earthquake, but his intention was that a stimulant was needed to boost domestic demand.
Although no one wished for it, the terrible earthquake took place. Now, Japan must use this crisis as an opportunity to rise again. It should not be afraid of an increasing fiscal deficit and should take a decisive measure for fast recovery. The nation’s sovereign debt may be increased a bit, but the money will be spent on constructive projects to rebuild the economy, differing from the past practice of unnecessary spending. It would be a great bonus if Japan could use the opportunity to turn its economy around to focus more on domestic demand.
The Japanese people have shown extreme self-restraint and have followed social order amid chaos, proving their ability to rise again.
It will be up to Japanese Prime Minister Naoto Kan to use their spirit as the driving force behind the economy’s revival. If he can use this, the worst crisis since World War II, as an opportunity for the rise of the Japanese economy, it will be remembered as a great achievement. It would also be a stepping stone for him to overcome his weak political foundation and become a great leader.
*The writer is an editorial writer of the JoongAng Ilbo.
By Kim Jong-soo