10/12/98 TWO REFORM TARGETS: JAPAN'S TAX RATE AND DERIVATIVES (int'l edition)

TWO REFORM TARGETS: JAPAN'S TAX RATE AND DERIVATIVES (int'l edition)

Whenever opinions on how to fix Japan are put forward, no one seems to focus on the fact that Japan should reduce its ridiculously high corporate tax rate (''Time to act,'' Cover Story, Sept. 14). If the tax rate were reduced from 51% to 40%, this would have the inherent effect of raising corporate earnings by 22%. Assuming the current price-earnings ratios are maintained, stock prices would rise by 22%. Even with a slight reduction in the p-es, this should still cause a stock price rise of at least 10%. Even a 10% rise would provide a much-needed boost to the assets value and liquidity of Japanese banks, insurance companies, and pension funds.
This should result in an increase in overall financial well-being, not to mention the increase in the sense of security of the Japanese workforce which would result from employers becoming more profitable. The best part of this plan is that the results should be instant and the costs (lower taxes) paid much later.

Rick James
Helsinki

The current international economic crisis again caught our leaders by surprise, very much like the Mexican crisis of 1995. We now have the surreal sight of President Clinton advising the Russians to proceed with market reforms--equivalent to advising a patient in intensive care to jog every morning.
It is clear by now that the Bretton Woods system designed to deal with postwar reconstruction has outlived its usefulness and that a new economic order is needed to deal with the aftermath of the cold war. Hopefully, our generation of statesmen will prove as responsible and creative as their World War II predecessors.
A matter that needs immediate attention is that of international capital flows. Use and misuse of derivatives on a massive scale has turned our capital markets into a vast and mad casino. Just as investment ''pools'' and low-margin credit paved the way for the crash of 1929, today's hedge funds and use of derivatives on essentially no margin have already led to major disruptions and huge losses. These can only multiply until the situation is brought under control by our authorities--hopefully before and not after a major crash.

Milo Vesel
Geneva