Abstract
Financial crises, such as the Latin American debt crisis of the 1980s, add stress to the global economy. The viability of international financial stability depends largely on how well the major economic powers can collaborate in managing those crises. When major powers in concert share strong norms, it is more likely that some solution to the crises will emerge. This chapter focuses on the dynamics between the United States and Japan in managing the Latin American debt crisis in the 1980s to examine the sources, impact, and importance of transnational norms. The dynamics between Japan and the United States during the decade of the Latin American debt crisis is an intriguing tale of how these two major powers collaborated to provide a solution to the crisis, in which the Japanese government supplied most of the additional financing needed by the U.S. government to resolve the crisis smoothly.1 The case provides some nuanced support for propositions as to the impact of norms on the making of Japanese foreign policy.
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Notes
An article by Stallings is one of the few written on this subject in English. Barbara Stallings, “Reluctant Giant: Japan and the Latin American Debt Crisis,” Journal of Latin American Studies 22, 1 (1990): 1–30.
There are also a few books in Japanese, including Yoshiro Tokunaga, Ruiseki Saimu mondai to Nihon Keizai: Nihon Shudo no Saimu Menjo wo Teian Suru [The Accumulated Debt Problem and the Japanese Economy: Proposal for Japanese Leadership in International Debt Relief] (Tokyo: Touyou Keizai Shinpo-sha, 1988);
Toru Yanagihara, ed., Keizai Kaihatsu Shien to Shiteno Shikin Kanryu [Capital Recycling in Support of Economic Development], Kenkyu Sosho [Research Paper], No. 387 (Tokyo: Ajia Keizai Kenkyu-jo, 1989);
Toshihiko Kinoshita, “Developments in the International Debt Strategy and Japan’s Response,” EXIM Review 10, 2 (1991): 62–80; and various publications from the Japan Center for International Finance.
Calder argues that Japan’s political and economic structure helped perpetuate that dependency long after Japan became a “large” state. The Japanese economy requires a steady inflow of resources and cash and a large market, and Japan’s decision-making authority is allegedly too fragmented to undertake an active foreign policy, which has kept Japan’s status of decision-making as reactive to U.S. demands. Kent E. Calder, “Japanese Foreign Economic Policy Formation: Explaining the Reactive State,” World Politics 40 (1988): 526–529.
Takashi Inoguchi, “The Ideas and Structures of Foreign Policy: Looking Ahead with Caution,” in The Political Economy of Japan, Vol. 2: The Changing International Context, edited by Takashi Inoguchi and Daniel I. Okimoto (Stanford, CA: Stanford University Press, 1988), 23–63.
Ronald L. Jepperson, Alexander Wendt, and Peter J. Katzenstein, “Norms, Identity, and Culture in National Security,” in Culture and Security, edited by Peter J. Katzenstein (New York: Columbia University Press, 1996), 54.
For historical accounts of the regime change from “no exit” to “debt reduction,” see Howard P. Lehman, “International Creditors and the Third World: Strategies and Policies from Baker to Brady,” The Journal of Developing Areas 28 (January 1994): 191–218.
About the “indebted industrialization,” see Jeffry Frieden, “Third World Indebted Industrialization: International Finance and State Capitalismin Mexico, Brazil, Algeria, and South Korea,” International Organization 35, 3 (1981): 407–431.
Louis W. Pauly, Opening Financial Markets: Banking Politics on the Pacific Rim (Ithaca, NY: Cornell University Press, 1988), 83.
Young-Kwan Yoon supports this argument empirically by showing continuity in the distribution between manufacturing investments and investments in finance and insurance and concludes that “Japanese financial institutions have been following the rapid expansion of Japanese manufacturing firms abroad, which tended to depend exclusively on foreign branches of Japanese banks for financial services.” Young-Kwan Yoon, “The Political Economy of Transition: Japanese Foreign Direct Investments in the 1980s,” World Politics 43, 1 (1990): 12.
Unlike many other earlier financial crises in which core countries unilaterally affected those on the periphery, this crisis was triggered by the developing countries’ debts, and it involved major creditor countries because of their loan exposure. For a comparison of this debt crisis with the early periphery financial crises, see Angus Maddison, Two Crisis: Latin America and Asia 1929–1938 and 1973–1983 (Paris: Development Centre of the Organization for Economic Cooperation and Development [OECD], 1985).
Joseph Kraft, The Mexican Rescue (Washington, DC: Group of Thirty, 1984), 18–19;
Paul A. Volcker and Toyoo Gyohten, Changing Fortunes: The World’s Money and the Threat to American Leadership (New York: Times Books, 1992), 201.
This $8.25 billion consists of $3.625 billion from the United States, $925 million from the BIS, and an additional $3.7 billion from the IMF. Calculation from Nora Lustig, “Mexico in Crisis, the U.S. to the Rescue: The Financial Assistance Packages of 1982 and 1995,” Brookings Discussion Papers (Washington, DC: Brookings Institution, 1996), Table 1.
From Latin America and the Caribbean, Argentina, Brazil, Chile, Costa Rica, Cuba, Dominican Republic, Ecuador, Jamaica, Mexico, Nicaragua, Panama, Peru, and Uruguay concluded multilateral debt relief agreements during 1983–1984. World Bank, World Debt Tables, 1994–1995, 78–82.
Robert Devlin notes that well-informed American banks relied increasingly on inexperienced Japanese banks for syndicated lending during the few years before the debt crisis, while these American banks stayed away from new lending in Latin America before the disaster struck. Robert Devlin, Debt and Crisis in Latin America; The Supply Side of the Story (Princeton University Press, 1989), 122, 154. Many Japanese banks increased their amount of syndicated loans in 1981 and 1982 and increasingly served as the leading bank of syndication. Nihon Keizai Shimbun, January 16, 1982.
William R. Cline, “The Baker Plan and Brady Plan Reformulation: An Evaluation,” in Dealing with the Debt Crisis, edited by Ishrat Husain and Ishac Diwan (Washington, DC: World Bank, 1989), 176–193.
See also Benjamin J. Cohen, “U.S. Debt Policy in Latin America: The Melody Lingers on,” in In the Shadow of the Debt: Emerging Issues in Latin America, edited by Richard C. Leone (New York: The Twentieth Century Fund Press, 1992), 156.
A Harvard economist, Jeffrey Sachs, calculated that if Japan recycled its surplus capital to Latin America by $2.5 billion each year for three years, there would be an improvement of the overall U.S. trade balance by $1.15 billion per year. This recycling method would have been a much more effective way of improving the trade balance with the United States than the expansion of Japan’s domestic fiscal expenditure by the same amount, or the recycling of the same amount of capital to non-oil producing countries in general. See Tesuma Fujikawa, “Maware Maaware Okane wa Tenka no Mawarimono: 300-okudoru no Shikin Kanryusochi” [Go Round and Round, Money Goes Around: 30 Billion Dollar Capital Recycling Plan], The Finance, 23 (March 1988): 48–58.
Frances McCall Rosenbluth, “Japanese Banks in Mexico: the Role of Government in Private Decisions,” International Journal 46, 4 (1991): 679–680. Jeffrey Sachs also mentions the same idea in his article.
Jeffrey Sachs, “New Approaches to the Latin American Debt Crisis,” Essays in International Finance 174 (1989): 29.
Martha Finnemore, “Constructing Norms of Humanitarian Intervention,” in The Culture of National Security: Norms and Identity in World Politics, edited by Peter J. Katzenstein (New York: Columbia University Press, 1996), 158.
For example, Margaret Keck and Kathryn Sikkink, Activists Beyond Borders: Advocacy Networks in International Politics (Ithaca: Cornell University Press, 1998);
David Halloran Lumsdaine, Moral Vision in International Politics: The Foreign Aid Regime, 1949–1989 (Princeton, NJ: Princeton University Press, 1993);
Audie Klotz, Norms in International Relations: The Struggle against Apartheid (Ithaca: Cornell University Press, 1995).
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© 2008 Yoichiro Sato and Keiko Hirata
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Katada, S.N. (2008). Japan’s Role in Latin America’s Debt Management, 1982–1991. In: Sato, Y., Hirata, K. (eds) Norms, Interests, and Power in Japanese Foreign Policy. Palgrave Macmillan, New York. https://doi.org/10.1057/9780230615809_8
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DOI: https://doi.org/10.1057/9780230615809_8
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