ANALYSIS: Japan’s multiple troubles —S P Seth - Friday, April 08, 2011

Reconstruction will require raising more funds and more debt. In the medium and long terms, all these debts are likely to hollow out the national economy, adversely affecting Japan’s social benefits in terms of social services and pension payments

The world today is experiencing two serious eruptions. The first is the ever-expanding people’s upsurge in North Africa and the Middle East. And the second is Japan’s triple disasters of the earthquake, tsunami and the near meltdown of its nuclear power plants of the Fukushima complex. In both cases, there is deep uncertainty about how they will eventually work out.

In Japan’s case, it is facing nature’s fury. There was not much it could do but wait for nature’s wrath to work out before starting with rescue work. It faced one of the world’s largest earthquakes at point nine on the Richter scale. It is still being rocked by tremors and aftershocks of lesser intensity.

After the big earthquake, it was hit by a huge tsunami with waves as high as 14 metres, according to one account. The tsunami swept away anything and everything that came in its way. In one case, an entire town disappeared with thousands of its people dead or missing. The official estimates of people dead or missing are going up all the time — with a death toll of over 10,000 people. But unofficial tolls range at 60,000 and above. The financial cost is rising too, estimated at over $ 300 billion.

Japan’s terrible predicament is compounded by the crisis at its Fukushima nuclear reactors. The Fukushima nuclear complex has multiple reactors, some of them already leaking radiation. With nuclear fuel rods overheating and spewing steam (with damaged cooling systems), there is clear danger of a meltdown, if it has not already happened. The radiation is affecting water, food and the surrounding environment.

A 30-kilometre exclusion zone has already been declared and 200,000 people have been evacuated to safer places. Some people are even leaving Tokyo, which is far away from Fukushima. Indeed, at one stage, the government advised Tokyo residents not to give tap water to infants because of higher radiation readings, causing a rush for bottled water. There is considerable panic, even in faraway places.

Many people think that the government is not telling them the truth. Some countries have put a ban on imports of Japanese food articles, including fish. In China, there was a rush on salt buying, with iodine in it supposed to provide protection against radiation-causing cancer. The situation seems quite frightening, with even Japan’s prime minister not feeling terribly assured.

Japan is the only country that was subjected to an atomic attack in 1945 to hasten its surrender. Understandably, its people have a nightmarish fear of radiation. Past experiences of nuclear power plants elsewhere in the world have not been terribly salutary. The example of the Three Mile Island nuclear meltdown in the US in 1979 and, much more horrific, the Chernobyl disaster in Ukraine (then part of the Soviet Union) in 1986 are examples of what can go wrong and might go wrong with reliance on nuclear power generation. These two incidents set the nuclear industry behind by quite a few decades.

And just when it was gaining respectability as part of the mix in non-fossil energy sources, the Fukushima nuclear disaster has dealt another blow to the resurrection of nuclear power. The European Union is reportedly going to subject its existing nuclear power plants to stress tests to ensure their safety. Germany has shut down seven of its reactors of 1970s vintage and will have a rethink on the entire nuclear energy issue. Indeed, Angela Merkel’s conservatives have suffered the worst defeat in a state election with the anti-nuclear Greens coming out on top.

Japan will face serious introspection about its dependence on nuclear energy, although resource-poor Japan’s options are rather limited. It depends on nuclear energy for 30 percent of its power generation. It reportedly has 55 power plants. With six of these out of circulation from the Fukushima complex, it is likely to lose 10 percent of its power load. In the short to medium period, this will mean more energy imports, further hiking oil and gas prices worldwide.

The impact of these triple disasters on Japan’s already stagnant economy is going to be huge. Once the government has managed to deal with the immediate crisis (the nuclear business, though, still remains ominous), there will be a spurt in economic activity in terms of reconstruction and renewal. But it will mean further indebtedness for the country.

Japan is already a heavily indebted country at 210 percent of its gross domestic product — the highest of any developed country in the world. It has not become a basket case so far because most of its debt is raised internally from the savings of its citizens deposited in post offices and other government instruments with negligible interest rates. This means that the interest burden on the government is relatively low.

Reconstruction will require raising more funds and more debt. In the medium and long terms, all these debts are likely to hollow out the national economy, adversely affecting Japan’s social benefits in terms of social services, pension payments and so on. In other words, Japan is putting a severe burden of repayment on its future generations. Such a huge debt burden is likely to affect Japan’s credit and investment rating by international agencies. So far, Japan has escaped lightly the scrutiny of its over-burdened economy. That might not continue.

With its population aging and birth rate falling, the number of working age individuals bearing welfare and debt burdens will be fewer than ever before. Since Japan’s economic bubble burst in the 1990s, its economy is already in a holding operation. Considering how its economy recovered in the post-war period from near-devastation to challenging US economic supremacy in the 1980s, this is quite a fall.

Apart from the earthquake, tsunami and the crisis at its Fukushima nuclear reactors, Japan, as discussed, is already experiencing serious problems of debt, deflation/stagnation and the aging of its population. How it will get out of these holes escapes any rational analysis.

But, on the positive side, its population is highly skilled. It is a wiz with modern technology. Japan has a very disciplined population, demonstrated once again by their exemplary patience during these disasters. And they have a record of rising up to national tragedy, exemplified by their rise to become the world’s second largest economy after their country was destroyed in World War II.

But Japan is suffering from political sclerosis. If its political system and leadership can rise to the occasion, it might still surprise the world despite being buffeted by its second biggest disaster after World War II.

The writer is a senior journalist and academic based in Sydney, Australia. He can be reached at

Source :\04\08\story_8-4-2011_pg3_3

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