Alleviating Japan's ''Post-Bubble Blues'' (int'l edition)

As you say in ''The tsunami threatening Japan'' (Asian Business, July 10), rising government debt is one of Japan's serious headaches. Japan has to reduce its heavy debt burden as soon as possible. How and when to do that are controversial issues.

First, it is urgent that Japan's wasteful public investment be reduced. America's success at cutting its federal debt during the 1990s tells us that structural reform--an effort to increase tax revenue and to decrease spending--is most helpful. From 1992 to 1998, the contribution of the noncyclical effect was 7 out of 10 in improving the U.S. budget tally; on the other hand, the cyclical effect--the contribution of rapid economic growth to the budget surplus--influenced merely 30% of the total improvement.

In Japan, a flood of public investment in construction survives the so-called Old Economy and hinders a new economy from emerging. In the U.S., shrinking the federal expenditure helped more capital shift to private activities, especially in information-technology-related ventures, lowering interest rates.

Should Japan cut the government expenditures drastically? This is a difficult question. Drawing a medium-term budget-cut plan and gradual deficit reduction with prudent supply-side economic measures would be the best policy. It was fortunate that the U.S. could cut military spending as a result of the end of the cold war. Military spending was a large part of the federal budget, but reducing it had no bad effect on the economy.

Government outlays in Japan, however, have been stimuli that have helped Japan avoid entering a deeper recession during the late 1990s. Furthermore, Japan has rural areas where there is still not enough infrastructure, such as sewage systems. A dramatic budget cut at a time when the economy is weak will not bring a good result. Of course, reviewing the budget process thoroughly now is important, but it would not be too late to cut after Japan's recovery becomes solid.

Kosuke Suzuki
Tokyo

With respect to ameliorating Japan's mounting public-debt problem, Japan has some advantages that could turn out to be crucial. The yen is armed against speculative attack by Japan's huge foreign-exchange reserves, its chronic surplus on trade and interest income, the absence of any inflationary momentum in the economy, and the traditional willingness of Japan's private sector to respect the national interest along with its colloquial interests. In addition, the world's central banks and the IMF would almost certainly help Japan defend the yen's value. These advantages position Japan, almost uniquely, to begin an approach to financing part or all of its central-government budget deficit.

If the enabling legislation--and this is absolutely crucial--requires that the procedure cease immediately if and when the country's year-over-year inflation rate exceeds some very low figure, preferably zero, Japan could finance part or all of its future central-government deficits with so-called printed money. Sovereign governments do have the authority to ''coin'' money. The term, logically, if not historically, means that something that was not money becomes money by government fiat. Coining money by the stroke of a pen is really more efficient than digging gold out of the ground for subsequent reburial in an underground bank vault. Central banks do it already--normally, to a limited extent, though the process may not be widely understood outside of financial circles.

And Japan's now-independent central bank need not be the originator of the money in question. The Finance Ministry can simply issue additional, noninterest-bearing, legal-tender Treasury notes. Take note of the resemblance to long-term zero-coupon government bonds.

Jetson E. Lincoln
Montclair, N.J.

''The Global 1000'': Don't Disqualify Emerging Markets (int'l edition)

I was excited (yet disappointed to some degree in the categorization) to see the 1,000 most valuable companies listed in the cream of the crop (Global 1000, July l0). Calling it the ''Global 1000'' list, though, is by no means accurate when you separate the emerging markets from the rest of the world. Maybe you should call it the ''Western Countries + Japan (and a nonexistent country: Hong Kong) 1000'' instead. By excluding emerging markets, which include most of the world's population, you are giving readers a narrow view of the world.

The No. 1 company from the emerging-companies list would have made No. 42 on the global list. And companies up to about No. 87 on the emerging-markets list have comparable market valuations to those on the global list. But, of course, this would have caused a number of Western companies to drop off, replaced by relatively unknown companies (to the Western world). I challenge you to include the entire world in the list next year.

Henri Welling
Oak Forest, Ill.

Further Rate Hikes? Not with These Indicators (int'l edition)

''The Fed watches and waits'' (Business Outlook, July 10) was informative about the general state of the U.S. economy, but I cannot agree with the concluding statement, warning of a further interest-rate hike in the face of a cooling-down economy. Housing starts remain strong, inflation is slowing, and in the wake of employment applications showing a downtrend, further hikes can only be unnecessary. Gas prices alone will create the adequate belt-tightening effect.

Mathew Cherian
Kochi, India