Japan may lead financial downtown in 1998

03/01/1998

Japan may lead financial downturns in 1998

At SEMI`s 1998 Industry Strategy Symposium, Pebble Beach, CA, discussions of the uneasy financial conditions in Japan and South Korea dominated conversation.

Managers are facing a new year in which the full weight of global macroeconomics could fall directly on top of the electronics industry. Texas Instruments chief economist Vladi Catto, a generally bullish observer, said 1998 "may turn out to be a decent year. The problem is, there are lots of risks." Among these, he said, is the possibility of a financial system collapse in Japan. In the event of a continued devaluation of the yen, and government mishandling of money policy, the US and Western Europe could be pulled into trade wars and broad downturns. Catto put a 25% probability on the US being pulled into recession by Japan.

One of the factors destabilizing Japan`s finances is the debt crisis in South Korea, where the incoming government and a consortium of international banks are each developing plans to maintain hundreds of billions of dollars in credit facilities and avert a major undermining of the nation`s industry. Catto and other observers agreed that the nation, and Asia in general, are unlikely to be derailed in the long term, but Catto commented, "Companies like Samsung, Hyundai, and LG will find it extremely difficult to borrow at any price during 1998 and possibly 1999." Sales executives said Korean companies have slashed orders, and some reported that the Big Three chipmakers are requesting no-cost shipments of leading-edge tools to maintain their R&D efforts. - P.N.D.