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The Reluctant Giant: Japan and the Latin American Debt Crisis1

Published online by Cambridge University Press:  05 February 2009

Barbara Stallings
Barbara Stallings
Affiliation:
Professor of Political Science, University of Wisconsin-Madison.
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Extract

The debt crisis has been the dominant feature of Latin American economic and political life since 1982. While the Reagan Administration gave greater priority to Central America, it nevertheless managed the international response to the debt crisis. US management initially seemed logical for several reasons: US hegemony worldwide, the traditionally close relationship between the United States and Latin America, and the leading exposure of US banks in Latin American debt. During the period since 1982, however, two of these three elements have changed. Japan has challenged US hegemony, although it certainly has not displaced the United States, and Japanese banks have caught up with their US counterparts as holders of Latin American debt.2 Despite their lack of traditional relations with Latin America, then, the Japanese are becoming increasingly – although perhaps reluctantly – involved in the region.

Type
Research Article
Information
Journal of Latin American Studies , Volume 22 , Issue 1-2 , March 1990 , pp. 1 - 30
Copyright
Copyright © Cambridge University Press 1990

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References

2 According to the New York Times, 17 April 1989, Japanese banks have actually overtaken the US banks. An examination of the Ministry of Finance statistics that are cited, however, shows that several Latin American debtor countries were left out of the US totals.

3 On supply-side explanations, see Kindleberger, Charles, Manias, Panics, and Crashes (New York, 1978)CrossRefGoogle Scholar; Devlin, Robert, Debt and Crisis in Latin America: The Supply Side of the Story (Princeton, NJ, 1989)Google Scholar; and Darity, William and Horn, Bobbie L., The Loan Pushers (Cambridge, Mass., 1988).Google Scholar

4 On demand-side explanations, see Frieden, Jeffry, ‘Third World Indebted Industrialization’, International Organization, vol. 35, no. 3 (Summer 1981)CrossRefGoogle Scholar; Karl, Terry, ‘The Paradox of the Rich Debtor: Foreign Borrowing of Oil-Exporting Countries’, paper presented at Annual Meeting of American Political Science Association, Chicago, 1983Google Scholar; Riner, Deborah, ‘Bankers and Borrowers: Peru and Chile in the Euromarkets’, PhD dissertation, Princeton University, 1982.Google Scholar For an argument on the necessity of considering the interaction of supply and demand explanations, see Stallings, Barbara, Banker to the Third World (Berkeley, 1987).Google Scholar

5 World Bank, World Debt Tables, 1985–86, p. 2.Google Scholar These figures are for public-sector debt to financial markets with maturities over one year.

6 Calculated from Ibid.

7 At issue here is how to determine the nationality of subsidiaries of banks which are not directly under the control of the parent organisation. Is their nationality to be defined as that of the parent firm, or is it determined by their location?

8 See Spindler, J. Andrew, The Politics of International Credit (Washington, D.C., 1984)Google Scholar and Wellons, Philip, Passing the Buck (Cambridge, MA, 1987).Google Scholar Wellons, in particular, felt it necessary to go to some length to justify his focus on differentiating lenders by national origin.

9 During the 1970s and early 1980s, when Third World lending was considered a prestigious activity, banks issued statements to publicise their loan transactions. Publications such as Euromoney and the Institutional Investor then aggregated the data. Until 1981, the Financial Studies Division of the World Bank's Program and Budgeting Department also provided compilations via its quarterly report, Borrowing in International Capital Markets. Through using the files of the World Bank, and of Morgan Guaranty Trust's World Financial Markets for the period before the World Bank survey began, I put together a database on country origin of loan managers for Latin America over the period 1970–80. For a description, see Stallings, Banker to the Third World, Appendix 5.

10 Wellons claims that French banks also followed a stop-go pattern, but the residual category in Table 1 does not show it.

11 In this sense, Japanese banks were similar to US regional banks. For comparative figures on smaller banks' portfolio shares compared to their management role, see Country Exposure Lending Survey (banks other than top nine and top fifteen) and the ‘league tables’ calculated by Euromoney or the Institutional Investor.

12 Spreads began to decline in this period; see Stallings, , Banker to the Third World, pp. 234–40.Google Scholar

13 See Spindler, , The Politics of International Credit, pp. 145–62.Google Scholar

14 The Country Exposure Lending Survey is produced by the Federal Financial Institutions Examination Council, which is composed of the Federal Reserve, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation.

15 British data are published in the Quarterly Bulletin of the Bank of England, and West German data can be found in the Monthly Report of the Bundesbank.

16 One explanation offered is that Bank of Tokyo's share is sufficiently large that it would be difficult to disguise its activities. While that might have been true in the early 1970s, it is unlikely to have been true by the early 1980s. For a discussion of Japanese government policy on disclosure, see Far Eastern Economic Review, 9 April 1987.

17 These percentages vary, depending on the figure used for total debt to the banks. For example, the World Bank figure for Latin America's long-term public and private debt to the financial markets in 1982 is $190 billion, while the BIS figure is only $116 billion. The ratio of US to Japanese participation, however, will not be affected by the denominator.

18 Even more important is a figure that is harder to calculate – loans as a percentage of capital plus reserves. Japanese banks generally have a lower ratio of capital to assets than do US banks, but their reserves may more than make up for the difference. The problem in determining the situation is the so-called hidden reserves of the Japanese banks, in the form of unrealised capital gains on stock market shares and real estate.

19 Figures from Hosono, Akio, ‘Economic Relations between Japan and Latin America: Towards a New Direction of Cooperation’, in IDB, Third Symposium on Finance and Business Cooperation between Japan and Latin America (Tokyo, 1985), p. 250.Google Scholar Other sources have somewhat different percentages.

20 On the US banking industry, and relations with the government, see Zysman, John, Governments, Markets, and Growth: Financial Systems and the Politics of Industrial Change (Ithaca, 1983)Google Scholar; Spindler, The Politics of International Credit, ch. 7; Wellons, Passing the Buck, passim.

21 The figure of 200 comes from the Country Exposure Lending Survey. A much higher estimate is that of then Treasury Secretary Donald Regan, who stated in 1983 that 1500 US banks had lent to Latin America (Wall Street Journal, 25 March 1983).

22 On Japanese banks and bank–government relations, see Zysman, Governments, Markets and Growth; Spindler, The Politics of International Credit, chs. 5–6; Wellons, Passing the Buck, passim; Home, James, Japan's Financial Markets (London, 1985)Google Scholar; Henry, and Wallich, Mabel, ‘Banking and Finance’, in Patrick, Hugh and Rosovsky, Henry (eds.), Asia's New Giant (Washington, D.C., 1976)Google Scholar; and Rosenbluth, Frances McCall, ‘The Politics of Japanese Banking Deregulation’, PhD dissertation, Columbia University, 1988.Google Scholar

23 Spindler, The Politics of International Credit, pp. 145–62.Google Scholar

24 Devlin, Robert, Los bancos transnacionales y el financiamiento externo de América Latina: La experiencia del Perú 1965–76 (Santiago, 1980), pp. 158–62.Google Scholar

25 Spindler, , The Politics of International Credit, pp. 166–75.Google Scholar

26 Wellons, Passing the Buck, ch. 1.

27 Hollerman, Leon, Japan's Economic Strategy in Brazil: Challenge for the United States (Lexington, MA, 1987), especially chs. 3–4.Google Scholar

28 Two in-depth studies of the Mexican crisis of 1982 are Leeds, Roger and Thompson, Gale, The 1982 Mexican Debt Negotiations (Washington, D.C., 1987)Google Scholar and Kraft, Joseph, The Mexican Rescue (New York; 1984).Google Scholar

29 The major source of statistical information on the negotiations is the UN Economic Commission on Latin America and the Caribbean (ECLAC). For information on the early rounds of rescheduling, see External Debt in Latin America (Boulder, CO, 1985), pp. 57–72Google Scholar and ‘Recent Economic Developments in Latin America and the Caribbean’, document prepared for the 13th session of the Committee of High-Level Government Experts, New York, 08 1987, pp. 41–8. ECLAC's annual Economic Survey of Latin America also contains a section on debt negotiations.

30 On creditor policies, see Sachs, Jeffrey, ‘Managing the LDC Debt Crisis’, Brookings Papers on Economic Activity 2 (1986)Google Scholar and Roett, Riordan, ‘How the “Haves” Manage the “Have-Nots”: Latin America and the Debt Crisis’, in Stallings, Barbara and Kaufman, Robert (eds.), Debt and Democracy in Latin America (Boulder, CO, 1989).Google Scholar On Latin American attempts to organise, see O'Donnell, Guillermo, ‘External Debt: Why Don't Our Governments Do the Obvious?’ CEPAL Review (12 1985)Google Scholar, and Griffith-Jones, Stephany (ed.), Managing World Debt (New York, 1988)Google Scholar, especially chapters by Griffith-Jones, Tussie, and Fortín.

31 Interviews with bankers in New York and Tokyo, April 1987 and January 1988.

32 A useful summary of US regulation and its development is Lissakers, Karin, ‘Bank Regulation and International Debt’, in Feinberg, Richard and Kallab, Valeriana (eds.), Uncertain Future: Commercial Banks and the Third World (New Brunswick, NJ, 1984).Google Scholar

33 On the Baker Plan, see Bogdanowicz-Bindert, Christine, ‘World Debt: The United States Reconsiders’, Foreign Affairs (Winter 1985/1986)Google Scholar; Roett, Riordan, ‘Beyond the Baker Initiative’, SA1S Review (Summer/Fall 1986)Google Scholar; Conway, Patrick, ‘The Baker Plan and International Indebtedness’, The World Economy (06 1987)Google Scholar; and Payer, Cheryl, ‘The World Bank: A New Role in the Debt Crisis?’ Third World Quarterly (04 1986).Google Scholar A Latin American view is Rosales, Oswaldo, ‘El Plan Baker y la deuda externa latinoamericana’, in Mendoza, Miguel Rodríguez (ed.), Una coexistencia difícil (Caracas, 1987).Google Scholar

34 Interviews with bankers and Ministry of Finance officials, Tokyo, January 1988.

35 See comparison of Baker, and Bradley, plans in Washington Post, 6 07 1986.Google Scholar

36 See reports in New York Times, Wall Street Journal, Washington Post, and Journal of Commerce, 20–21 May 1987.

37 Financial Times, 5 March 1988.

38 The figure of 28 is the number of lenders to Mexico that formed the factoring company, JBA Investment, Inc. Bankers say that there were an additional 10–15 other banks in non-Mexican loans.

39 These categories are based on information gathered from interviews and published material, plus the data in Table 4.

40 Japan's premier international bank (Bank of Tokyo) is substantially different from the leading US international bank (Citicorp), since the latter is also the largest domestic bank in the United States. The difference comes from their respective origins. What Bank of Tokyo shares with Citicorp and the other US money-centre banks is a large international exposure in comparison to its capital/reserve base.

41 Interviews with bankers and Ministry of Finance officials, Tokyo, January 1988.

42 Lincoln, Edward, Japan, Facing Economic Maturity (Washington, D.C., 1987)Google Scholar, especially ch. 5.

43 In early 1989, Japanese representatives on many of the Latin American creditor committees were increased from one to two. For example, Sanwa joined the Argentine committee, Mitsubishi was added to the Brazil committee, and Sumitomo joined the Mexico committee. (See Wall Street Journal, 17 Feb. 1989.) At the same time, other non US banks were also added, with the result that US banks are now outnumbered on some committees for the first time.

44 Bank of Tokyo, Annual Report, 1987.Google Scholar

45 Interview, Bank of Tokyo, Tokyo, 1988.

46 Bronte, Stephen, ‘The Astonishing Influence of Bank of Tokyo’, and ‘Yasuke Kashiwagi, the Supreme Competitor’, Euromoney (01 1979).Google Scholar

47 Bank of Tokyo officials spoke of the bank as playing a ‘sandwich role’ between the other banks and the Ministry of Finance as well as between the US and Japanese banks. Interview, Bank of Tokyo, Tokyo, January 1988.

48 Interviews with bankers, Tokyo, January 1988. See also Bronte, Stephen, ‘Ikeura's International Way with IBJ’, Euromoney (08 1980)Google Scholar and Gurwin, Larry, ‘IBJ Takes on Bank of Tokyo’, Institutional Investor (10 1981).Google Scholar

49 Interviews with bankers, Tokyo, 01 1988.

50 Interviews with bankers and government officials, Tokyo, January 1988. See also the discussion in Financial Times, 15 Sept. 1987, and Wall Street Journal, 1 Oct. 1987.

51 Far Eastern Economic Review, 17 03 1983, p. 91.Google Scholar

52 Interviews with US bankers, New York, 04 1987.

53 ‘Hidden reserves’ are unrealised capital gains on shares held by the banks. For estimates of their size, see Far Eastern Economic Review, 17 March 1988.

54 Interviews with bankers in Tokyo, January 1988. See also Far Eastern Economic Review, 17 March 1983, and Japan Economic Journal, 23 Aug. 1983.

55 The Economist, 30 May 1987. See also World Debt Tables, 1988–89, vol. I, pp. xxx–xxxi.Google Scholar

56 Interviews with bankers and Ministry of Finance officials, Tokyo, January 1988. See reports of Kurosawa statements to reporters in The Times (London), 20 08 1986.Google Scholar

57 For published discussions of JBA Investment, Inc., see The Economist, 14 March 1987; New York Times, 6 and 20 March 1987; Journal of Commerce, 20 March 1987; Financial Times, 12 March 1987; Institutional Investor (July 1987); JEI Report 29A, 31 July 1987. I supplemented these sources with interviews in Washington, D.C., New York, and Tokyo, April/May 1987 and January 1988. More recent interviews in Tokyo in June 1989 suggest that JBA, Inc. has not been expanded significantly. Some Argentine loans were sold to it in connection with the 1987 rescheduling, and some Brazilian ones may be added, but it has not been used extensively.

58 Interviews with US bankers and government officials, New York and Washington, D.C., 04 1987.

59 See, for example, Lissakers, Karin, ‘A Lesson from Japanese Banks’, New York Times, 24 03 1987.Google Scholar

60 Interviews with bankers and government officials, Tokyo, 01 1988.

61 Ibid.

62 See, for example, Washington Post, 23 April 1987.

63 Published sources on the recycling facility include Wall Street Journal, 22 May 1987; Japan Economic Journal, 5 Sept. 1987 and 24 Oct. 1987; and JEI Report 29A, 31 July 1987. A crucial source on the recycling plan in Japanese, which is only available in English in unpublished form, is Kinoshita, Toshihiko, ‘Japan's Current “Recycling Measures”: Its Background, Performance and Prospects’, Export–Import Bank of Japan, Tokyo, 1988.Google Scholar A precursor of the plan, although on a much broader scale, was the ‘Okita Plan’, that called for $25 billion/year to be distributed to the Third World over a five-year period.

64 On the extension of the recycling facility, see New York Times, 12–13 July 1989; Yomiuri Shimbun, 12 July 1989; JEI Report 28B, 21 July 1989; and Japan Economic Journal, 22 July 1989.

65 Calculated from unpublished data from the Export–Import Bank of Japan, including information through May 1989. OECF funds are included in the Kinoshita paper through October 1988. As of the latter date, 12 % of Exim funds had been pledged to Latin America versus 65 % for Asia, while the figures were 2 and 85 % respectively for OECF.

66 Japan Economic Journal, 29 July 1989.

67 For an authoritative account of the origins of the Miyazawa Plan by one of the economists who helped to write it, see Kuroda, Haruhiko, ‘Japanese Proposals on the Problem of Mid-Level Income Debtor Nations’, Kinzai Financial Briefing, vol. 2, Institute for Financial Affairs, Tokyo, 1988.Google Scholar

68 Published sources on the Miyazawa Plan include Financial Times, 27–28 Sept. 1988; Japan Economic Journal, 1 Oct. 1988 and 8 Oct. 1988; JEI Report 38B, 7 Oct. 1988; and The Economist, 6 Aug. 1988.

69 Wall Street journal, 28 Sept. 1988.

70 On the Brady Plan in general, see New York Times, 11 and 13 March 1989; Financial Times, 11–12 and 13 March 1989; The Economist, 18 March 1989. On the Japanese response, see Japan Economic Journal, 18 March 1989; JEI Report 11B, 17 March 1989; 15B, 14 April 1989.

71 Detailed accounts of the Mexican negotiations can be found in New York Times, 25 July 1989 and 31 July 1989.

72 The figure of $30 billion is the estimate for loans (long– and short–term) outstanding as of the end of 1982. Thus, gross lending was substantially higher.

73 Interview with Japanese banker, Tokyo, January 1988.

74 Spindler, , The Politics of International Credit, pp. 1667–75.Google Scholar

75 Interview at Bank of Tokyo, Tokyo, 01 1988.